Geothermal developers, particularly in the early stages of developing a field, face high costs for field development coupled with high risks associated with resource exploration and development / appraisal drilling. The cost of early phase development in the Kenya and Ethiopia typically ranges from around 50 to 100 million USD for a medium size development (130 MW). These high costs combined with high risks act as a significant barrier to private sector financing of geothermal project development.

To address this, CDKN partnered with Parhelion and GeothermEx to establish a private sector network to support a geological risk mitigation and development drilling risk insurance facility in Kenya and Ethiopia – two countries where geothermal projects have plaid a significant role in delivering Climate Compatible Development. In order to increase institutional knowledge in these countries and to establish an appropriate risk insurance facility it is necessary to engage with domestic insurers and brokers. They play an important role in the implementation of innovative financing mechanisms by providing distribution, syndication, regulatory compliance and administrative services. There is however limited technical knowledge within the Kenyan and Ethiopian insurance industry regarding geothermal development risk. Furthermore the use of innovative financing techniques to develop geothermal projects are currently not available in these countries. The project therefore worked to:

• Engage with the local private sector insurance market to socialise the concept of underwriting the proposed Development Drilling Well Output Insurance mechanism;
• Provide training to the local private sector insurance industry on technical aspects of geothermal project development;
• Socialise the concept of Development Drilling Well Output Insurance as a source of risk capital to project developers and financiers
• Establish the foundation for a sustainable private sector risk finance solution that includes domestic insurers and brokers
• Create a knowledge base for the private sector insurance market as to how innovative insurance and risk finance solutions can support Climate Compatible Development;
• Create a private sector distribution network for innovative insurance and risk finance solutions to support Climate Compatible Development

The project was a partnership between CDKN; Parhelion, a climate and sustainable finance insurance specialist; Kenbright Insurance Brokers; and GeothermEx, a geothermal consulting firm; and E3G, an independent organisation operating to accelerate the global transition to sustainable development.

Budget: GBP 129,037

Timeframe: June 2014 – August 2015 (14 months)