Sub-Saharan Africa’s electricity system is caught in a vicious cycle: the region needs access to affordable clean electricity, but volatile economic growth and low income increase the risk of bad debts and tariff-under-pricing which in turn increase
financing costs and delay the much-needed investment in power infrastructure. Offtake risk, the risk of not getting paid for the power output (by local untilities) - is exacerbated by these conditions and it is an ultimate risk of an investor. But in a continent with abundant energy resources, access to affordable electricity should not be an exception. The African Trade Insurance Agency (ATI), the European Investment Bank (EIB) and Munich Re developed the African Energy Guarantee Facility (AEGF) to tackle these risks. Backed with a funding of the European Union and with the support of KfW the facility provides a reinsurance capacity of 1 billion for energy access, energy effciency and renewable energy projects that are in line with SDG7 objectives. The Facility is expected to help mobilise significant private financing in the form of debt and equity from banks and developers that are currently risk constrained to participate in the African energy sector.
AEGF serves as a blueprint to combine public and private capacity with highest impact leverage.
Our Role in AEGF
The agency, Sustainable Finance Risk Consulting (“SFRC”), a Munich Re subsidiary, will operate as an independent institution with its own IT systems which enables the company not only to benefit from Munich Re’s affinity and committed capacity but also to reach out to other potential stakeholders and capacity providers (e.g. other primary insurers, reinsurers and guarantors). SFRC will ensure consistent underwriting quality aligned to each AEGF participant’s risk appetite. SFRC will provide complementary risk vetting services and monitoring according to EIB standards (for instance on environmental and social matters) and the specificities of SE4All projects.