Munich Re is launching a new clean energy initiative in conjunction with the African Trade Insurance Agency (ATI) and the European Investment Bank (EIB), which will offer coverage against a range of political risks in sub-Saharan Africa, and is expected to unlock US $1.4 billion of investment.
The initiative, called the Africa Energy Guarantee Facility (AEGF), will provide the first dedicated reinsurance for sustainable energy projects across Africa, and aims to expand access to clean energy in the region and contribute to achieving UN Sustainable Development Goals by boosting private investment.
The AEGF will boost private investment in these projects by covering political risks such as sovereign or sub-sovereign non-payment under a PPA, expropriation and breach of contract, currency inconvertibility, war, civil unrest and arbitration award default.
The scheme, which will offer products across 25 sub-Saharan African countries, is expected to have a significant impact on catalysing investment in eligible renewable energy, energy efficiency and energy access projects.
Until now, the commercial insurance market has shown limited appetite for long tenor political risk protection in Africa’s energy sector, which has inhibited long-term investments from private companies who remain cautious of the political instability in many counties.
The joint initiative was formally launched at Munich Re headquarters by Dr. Werner Hoyer, President of the EIB, Dr. Doris Höpke, Member of the Board of Management of Munich Re, and George O. Otieno, Chief Executive Officer (CEO) of the ATI.
Munich Re’s CEO, Joachim Wenning, said: “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.”
EIB’s Hoyer added: “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’s Otieno also commented: “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.”
Of the 1.3 billion people who live in sub-Saharan Africa, around 600 million lack access to electricity and most countries experience daily power shortages.
It is anticipated that an annual investment of $100 billion in energy infrastructure will be required to accommodate the region’s expected population growth by 2030.
