Underwriting facility eyes geothermal development in Kenya, Ethiopia

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The UK Government’s financial sector program FSD Africa and Parhelion, a UK-based specialist energy and climate risk finance advisory firm, are to launch an underwriting facility aimed at helping de-risk the early-stage development of geothermal energy projects in Kenya and Ethiopia.

Kenya’s power demand is growing 20% faster than GDP, while recent annual growth rates of around 10% in Ethiopia imply a similar increase in energy demand.

Geothermal power plants, while having shown potential as an alternative and more sustainable energy source, are held back by high upfront investment requirements and the risk of drilling wells that are found to be commercially unviable.

Parhelion will work with East African insurers to create an underwriting facility that hopes to mitigate the low probability, high-cost risk of unviable wells.

Parhelion is also planning to launch the GeoFutures Fund, which would invest in nascent geothermal projects.

With support from the program, Parhelion and FSD Africa forecast a 20% increase in geothermal output for Kenya and a 500% rise in Ethiopia.

This is expected to create 2,600 jobs in renewable energy and insurance sectors, while bringing electricity to 5.25 million people who currently live without power.

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