Kenya has announced the launch of a geothermal risk underwriting facility, said to be the first of its kind in Africa, to underwrite up to KES260mn ($2mn) in early project development to attract and fast-track investment into domestic and regional green energy projects.

Kenya’s Insurance Regulatory Authority (IRA) said it is working in partnership with the country’s Ministry of Energy and Petroleum, State Department of Industrialisation and the East African Insurance Sector (ICEA Lion, Kenya Re, Old Mutual, GA and Mayfair) on the new facility.

Its development was supported by Financial Sector Deepening (FSD Africa), which is funded by UK aid from the UK government, with a mandate to transform financial markets across sub-Saharan Africa, in collaboration with partners Parhelion Underwriting and Kenbright.

To drill a geothermal well requires on average $5mn, with significant risk of missing geothermal resource after drilling. FSD Africa said the new de-risking facility, which will cover early-stage development drilling risks for investors in geothermal projects, “represents a critical step in creating a more favourable investment environment by mitigating the financial risks associated with these high-potential but high-risk projects”.

This underwriting facility marks a significant milestone in Africa’s sustainable energy goals and sets a precedent for future initiatives aimed at de-risking and supporting other high-impact sectors across the continent, FSD Africa said.

Alex Wachira, Kenya’s Principal Secretary, State Department of Energy, said that insurance cover for the risky upstream geothermal exploration work is a great enabler for the country to exploit its vast geothermal potential estimated at 10,000 MW.

“Our country is endowed with vast geothermal resources, and great progress has been made in tapping into this clean power. However, for us to fill the energy gaps, we need collaboration and investment between the public and private sectors,” he said.

Kenya is already a leader in geothermal electricity, with a total installed capacity of 988.7 MW contributing 47% of the power on the grid. This places the country at rank sixth globally and first in Africa in terms of geothermal power development. Kenya’s geothermal potential is estimated at 10,000 MW.

FSD Africa said its support of the geothermal underwriting facility is part of a wider geothermal energy programme that includes, among other things, technical capacity development and facilitation, advocacy and technical assistance, fundraising, and inclusive economic growth.