Five insurers have teamed up for a geothermal exploration risk cover that will compensate investors up to $2 million (Sh257.5 million) when they drill and fail to find sufficient output in Kenya, in a move aimed at spurring private investments in the green energy space.
ICEA Lion, Mayfair Insurance, Old Mutual, GA Insurance and Kenya Re as a consortium will underwrite the risks with the hope that the cover will provide incentive to potential investors and banks to back such projects.
The exploration risk insurance covers insufficient output due to lack of geothermal resources and is often a prerequisite for financing of such projects. Premiums become due in instalments as the drilling progresses.
Peter Mukaria, general manager for business development and distribution at ICEA Lion, said insurers have been covering “above the ground risks” such as installations but now have a chance to de-risk the early-stage exploration risks.
“The gap has been at the exploration stage and that capacity has not been there. We are proud that we are leading this team to provide this capacity to give a solution that allows us to provide capacity not only in this country but also in the wider region in East Africa,” said Mr Mukaria.
ICEA and Kenya Re will underwrite 30 percent and 25 percent of the risk respectively while Mayfair, Old Mutual and GA will each take up 15 percent.
They will cede risks above $2 million to international reinsurers, giving room for investors eying bigger investments.
The five partnered with development-focused agency Financial Sector Deepening (FSD) Africa and Parhelion, a UK-based energy and climate risk finance company.
Also involved was Kenbright Holdings Group, a risk and financial advisory and broking firm.
Insurers believe that by stepping in with the early-stage cover, they will encourage explorations and increase Kenya’s geothermal installed capacity from the current 940 megawatts (MW).
“Geothermal has been for the longest time one of the areas in which government has looked into in terms of tapping alternative energy and we believe by offering this underwriting facility, we will be able to attract more investors into this area and put in funds to explore,” said Chrispin Onyancha, CEO at Kenbright Reinsurance Brokers Limited.
Kenya’s Ministry of Energy and Petroleum estimates show geothermal energy has a potential of up 10,000 MW across 20 prospect areas.
“For the private sector to be there, we need to make sure that they de-risk the portfolio of their investments and that is where insurance comes in.
"Insurers will help de-risk specifically the early-stage exploration risks. These insurers have put their balance sheets on the line to support the energy transition vision,” said Zillah Malia, FSD Africa senior manager for climate finance.
