First long-tenor political risk insurance to unlock USD 1.4 billion clean energy investment across Africa
USD 1.4 billion of new clean energy investment across Africa will be supported by a new investment insurance initiative launched by Munich Re, the African Trade Insurance Agency (ATI) and the European Investment Bank (EIB). The Africa Energy Guarantee Facility (AEGF) will provide the first dedicated reinsurance for sustainable energy projects across Africa.
The joint initiative to tackle key investment challenges holding back crucial energy investment across Africa was formally launched at Munich Re headquarters in Munich by Dr. Werner Hoyer, President of the European Investment Bank, Dr. Doris Höpke, Member of the Board of Management of Munich Re and George O. Otieno, Chief Executive Officer of the African Trade Insurance Agency.
The AEGF will significantly boost private investment in sustainable energy projects, both expanding access to clean energy and contribute to achieving UN Sustainable Development Goals. The scheme will support new private sector investment in eligible renewable energy, energy efficiency and energy access projects in 25 sub-Saharan African countries.
Munich Re CEO Joachim Wenning: “The Africa Energy Guarantee Facility is another example of our strategy to create new markets by pushing back the boundaries of insurability. Munich Re has become the go-to reinsurer when it comes to creating innovative solutions and forging new partnerships. The AEGF will remove a major obstacle for renewable energy investments in Africa. For Munich Re, the AEGF is a blueprint for risk-sharing between insurers, reinsurers and international financial institutions and we strive to address other impediments to the development of emerging countries with comparable solutions.”
Werner Hoyer, President of European Investment Bank: “Sustainable energy investment in Africa is crucial to improve access to energy, cut energy bills and enhance deployment of renewable energy. This exciting new partnership between the EIB, Munich Re and ATI combines technical, financial and sector experience and local knowledge essential to tackle investment barriers. As the EU Bank the EIB is committed to supporting Sustainable Energy for All and the African Energy Guarantee Facility established a clear model for partners to join and others to follow.”
ATI CEO George O. Otieno: “Reliable access to clean and efficient energy supply is key to building a sustainable economic base. With the increased availability of clean energy, Africa will be able to attract more investments, to create environments where companies can thrive and to build healthier communities where pollution and climate change wreak less havoc on daily life. In this sense, AEGF represents hope – and equally important, it also sends a strong signal to investors and financiers that renewable energy projects in Africa are now bankable.”
Products offered under the AEGF will include insurance against sovereign or sub-sovereign non-payment under a PPA, expropriation and breach of contract, currency inconvertibility, war, civil unrest and arbitration award default. As of yet, the commercial insurance market is cautious and shows limited appetite to issue such political risk protection for long tenors in Africa’s energy sector. As a consequence, private companies are discouraged from investing in Africa’s energy sector because of the discrepancy between the long-term investment needed for energy projects and the short timeframe in which the political landscape may change. Therefore we expect the AEGF to have a significant impact in catalysing new sustainable energy projects in Africa.
AEGF to be highlighted at global insurance industry meeting in Kenya
The new support for sustainable energy investment in Africa will be outlined to representatives of the global export credit and investment insurance industry at the 2018 Berne Union Spring Meeting taking place in Kilifi Kenya this week. More than 85 organisations including government-backed export credit agencies, private credit and political risk insurers and multilateral institutions are expected to attend the first ever meeting of the Berne Union in Africa.
Technical preparations to ensure energy investment gap is addressed
The Africa Energy Guarantee Facility was launched following detailed market assessment, backed by EUR 1 million of technical assistance provided through the EU-Africa Infrastructure Trust Fund. This identified market gaps holding back investment and identified partners who could help to address market weaknesses.
Additional technical assistance has also been provided by the European Investment Bank, the EU Bank, to enhance the provision of dedicated energy sector investment insurance services.
Scale of energy investment needed in Africa
Around 600 million people out of a total population of 1.3 billion in Sub-Saharan Africa currently lack access to electricity and most countries experience power shortages on a daily basis. To accommodate the expected population growth by 2030, it is estimated that annual investment of around USD 100 billion in energy infrastructure is needed.
Last year the European Investment Bank provided EUR 2.6 billion for new investment across Africa. Projects supported include improving agriculture, energy, telecom, transport and water infrastructure, as well as strengthening microfinance lending and private sector investment across the continent.