According to the EIB, energy projects in Sub-Saharan Africa often face high real or perceived public counterparty risks that deter private sector investments. Insurance offers a way to hedge against such risks, making investments more attractive. The Africa Energy Guarantee Facility (AEGF) is an attempt to respond to this gap, as a form of guarantee initiative, and is expected to play a catalytic role in unlocking private sector investment. The EIB says it has been critical in attracting other partners and is on track to catalyse up to $1bn in reinsurance capacity to support the financing of green energy projects.
The African Trade Insurance Agency (ATI), a pan-African institution that provides risk mitigation solutions to companies, investors and lenders interested in doing business in Africa, is also doing its bit to help energy schemes attract investment.
“In the power sector we have built up capacity over the last few years largely in partnership with European DFIs such as EIB and KfW, offering our traditional political risk insurance for the benefit of equity and debt in projects as well as liquidity cover,” says Obbie.
Obbie says liquidity cover is a key requirement for investors looking at power projects in Africa, while PRI is also an essential component.
“Most on-grid power projects are structured in a way that they will exclusively deliver power to a state-owned utility. But most power utilities don’t have great credit profiles, so providing liquidity cover allows us to bridge that gap and cover some of the risks of nonpayment.”