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Renewable energy projects a key part of tackling climate change at Rendezvous de Carthage

MNK Re Insights 23rd February 2022

Renewable energy projects a key part of tackling climate change at Rendezvous de Carthage

A version of this article by Victor Akisanya, Director for Energy at MNK Re, was first published in a February edition of Insurance Day.

Climate change was high on the agenda at this year’s Rendezvous de Carthage held in Tunisia this week.

Our team attended to discuss the massive potential of the renewable energy sector across North Africa and indeed the whole continent.  Renewable energy will play a significant role in building Africa’s climate change resilience and presents a major investment opportunity,

Over the last ten years, renewable electricity in North Africa alone has grown more than 40%, driven by the rapid expansion of wind, solar photovoltaic and solar thermal.  Despite the pandemic hitting many African economies hard, this has not affected the overall energy demand in the region.

This ever-growing demand aligned with a lack of available natural gas supplies, requires the expansion of renewable capacity.  Projected growth in energy demand, the under‑exploited abundance of low‑carbon energy resources, as well as the possibilities regarding energy efficiency, hold important potential for the region’s future energy systems.

This was underscored at the conference as one of the top policy priorities for the region’s governments. The emphasis on the role of renewables will only intensify as the negotiation process begins for the UN’s COP27 conference which is due to be held in Egypt in November this year.

What covid has caused though, is a fall in investment.  More capital and capacity are needed to mobilise low-carbon generation in the region and there was a particular focus on generation capacity, transmission and distribution.  This infrastructure is particularly vital to enable the transfer of power across borders and ensure a more consistent supply to meet demand.

What we’ve seen increasingly at MNK Re, and what was clear from the conference this week, is that domestic insurers and reinsurers are keen to expand their role in clean energy. Indeed, one of the sponsors of the rendezvous was Tunis Re.  At the moment, this is primarily focused on the renewable energy projects that are less sensitive to financial market conditions and that have high potential to generate stable profits over the long term. However, given the potential for this technology and the difference it could make, there will undoubtedly be a growing appetite from international markets to add additional capacity.

With a regulatory environment that encourages private-sector involvement, SwissRe estimates that total investments in renewables in Africa could reach as high as US$180-400 billion within this decade.  They also estimate that the renewables sector represents a US$6-8 billion premium opportunity for insurers over the same time span.  Added to this a study jointly conducted by the International Energy Agency and the Centre for Climate Finance and Investment found that renewables performed better than fossil fuels and had less volatility.  Thus, we’re potentially seeing the start of a virtuous circle developing within these African markets.

Morocco and Tunisia are already engaged in the green transition and are actively seeking investment in renewable energy.  This includes plans to install a 100 GW solar power network for transmission of power from North Africa to Europe by 2050. To put this into context, the WWF state that this one network alone is greater than the UK’s total generation capacity of 85 GW.

We’re also seeing this more broadly in our work helping clients to build programmes to support renewable energy projects, across the continent.  Many companies are seeking to fulfil commitments within the Caring for Climate Working Group of the United Nations Global Compact (UNGC) in a bid to refocus the company’s business towards sustainability. 

In Kenya for example, more than 70% of installed capacity comes from renewables.  A strong government commitment to this agenda has been one of the main drivers of the shift to renewable energy.

As countries and firms become more adept at these larger-scale projects and government and regulatory commitments offer greater clarity, insurance and reinsurance markets have increasing certainty about the future direction of travel. 

But renewable energy is not entirely risk free. As technology continues to develop and as these larger scale projects come to the market, there’s a real opportunity for brokers, insurers and manufacturers to work together to understand, manage and reduce the risks. 

Renewable energy and particularly unproven technologies without accreditation or decades of performance data behind them, can prove difficult to insure. As brokers we have pivotal role, ensuring that clients have the necessary expertise to help them make the right decisions and get the right kind of support. 

We can provide effective risk identification, we understand loss mitigation, and undertake robust risk management to facilitate viable projects.  We’ve built our own team around providing all the necessary expertise required.  Not just in bringing together the right cover, but we also have underwriting experience as well as colleagues who have professional engineering qualifications and skills in the construction and operation of renewable energy projects.  Being able to bring all of this experience and know-how together to support our clients has been highly beneficial.

Our own experience in Africa has shown that a critical element is having the expertise come in early to identify the right engineering, procurement and construction requirements as well as the operation and maintenance contractors who can give the necessary confidence about the long-term prospects of the project.

All of these factors suggest that Africa is on a path of accelerated growth in renewables over the next decade.  This is an exciting time to be involved in this market providing the necessary expertise to help mitigate risks and secure the investment that is crucial to continued success.

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