Unlocking Africa´s Potential for Clean Energy by Fostering Private Investment
Africa´s population is growing rapidly: It will have reached roughly two billion people by 2040. The hunger for energy rises accordingly. But as of today, 600 million Africans lack access to modern energy supply and in many countries electricity is available only a few hours a day. Thus, Africa already faces a severe energy gap and the demand will increase even more. This additional demand can and should be covered from largely renewable sources.
However, this requires investments of about 20 billion USD annually; an amount which cannot be covered by public budgets alone. Yet the commitment of private investors in renewable energy projects is often inhibited by restrictions in credit capacity of African governments and public electricity utilities. Entrepreneurial risks are thus perceived to be high. In order to remove this structural obstacle, strong action is needed.
This is where insurance has a role to play. The risks that private investors face can be mitigated by the African Trade Insurance Agency (ATI). ATI is a pan-African institution that provides risk insurance for business in Africa, in this case in the energy sector. It was founded in 2001 and has by now 17 member states, among them Ethiopia, Kenya, Nigeria and Rwanda, and 10 institutional shareholders like the African Development Bank.
ATI, in turn cannot take the entire risk of such projects, which would overburden its balance sheet. Therefore, ATI collaborates with reinsurance companies and public donors to transfer risk. KfW Development Bank together with Munich Re and the European Investment Bank enable ATI to offer exactly the insurance schemes private investors need to make long term investment decisions. KfW will contribute 50 million USD as a second-loss guarantee in order to cover projects worth more than 1 billon USD. This is made possible by a guarantee from the EU, namely the European Fund for Sustainable Development.
At the bottom line, risks are taken away that have inhibited private investments in the much needed expansion of clean energy. In fact, the potential is gigantic. Whether it be sun, water, wind or geothermal – Africa has just begun to use its vast resources in renewables.
Moreover, the project deepens the partnership between European and African institutions and investors – a declared objective of both the EU and the German Government.