Key Power & Energy Trends in Africa: Risks and Opportunities

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Africa’s energy mix:

 

Coal 49%
Hydro Power 20%
Natural Gas 16%
Oil & Diesel 8%
Renewable 5%
Nuclear 2%
  • Solar projects are sharply on the rise across the continent.
  • Hydro energy is the largest source of renewable energy in Africa.
  • Use of geo thermal energy is currently limited in Africa due to the expensive production process. Kenya produces the most energy from geo-thermal technology.

Climate Change:

  • Climate change is real and is happening.
  • Global averaged temperatures have risen by 1 degree since pre industrial times that is 1870 to 2017.
  • Averaged sea level has risen by 20cms between 1870 to 2000 and changing at a rate of 3.2mm per year. This increase weather related catastrophes such as hurricanes and cyclones.
  • Weather related catastrophes has huge material and business interruption losses on power and energy risks.
  • Risk volatility presents opportunities for reinsurers as insurers seeks to limit exposure by buying more reinsurance.
  • Reinsurers have the advantage of spreading volatility over a larger geography thus stabilizing their underwriting results
  • As temperature warms up demand for energy increase (more cooling systems, etc) resulting in more demand for energy production sources thus more assets to insure and reinsure.

Retreat from coal energy:

  • 2010 saw a climate movement organization – 350.org form a movement for fossil fuel divestment (‘the divestment movement’).
  • The movement seeks to persuade institutions such as pension funds and other investors to remove their investments from fossil fuel companies.
  • Major global insurance and reinsurance companies including Allianz, Chubb, HDI Gerling, Hannover Re, Swiss Re, Munich Re, SCOR, Lloyd’s, Generali and the Markel Corporation are retreating from insuring and reinsuring thermal power stations.
  • Danger in the short to medium term is failure for smaller producers with single site exposure or without a diversified energy mix to secure insurance cover for their operations.
  • Moving into new and developing energy sources presents unknown risk.
  • Opportunity for African insurers and reinsurers to fill capacity gap that the international players will leave behind by retreating from coal.
  • Premium rates in thermal energy may harden presenting higher premiums for insurers and reinsurers.

Decommissioning:

  • According to Enercon tens of thousands of turbines and solar panels will be decommissioned between 2017 and 2030 for various reasons:
    • Some reaching the end of their useful life
    • Replacement necessitated by newer and better technology
  • We believe that developing world including Africa are likely to be the recipient of decommissioned equipment.
  • One major risk of utilizing decommissioned plant is that one may receive some obsolete and/ or failed technology which come with high maintenance and repair costs which may have an impact on insurers and reinsurers claim costs.
  • With decommissioning being a reality, we see great opportunity of new product development such as Decommissioning and reinstatement insurance to be implemented in Africa.

Risk Engineering:

  • Maksure Risk Solutions believes that it is difficult/ impossible to price for profitability in power and energy.
  • Risk engineering and risk management should thus be prioritized in managing insurers’ and reinsurers’ risk exposure.
  • There is an increasing interest and trend towards Risk Based Inspection (RBI). RBI has the advantage of optimising maintenance and risk management strategy, to lower operating costs and increase plant performance and profitability.
  • RBI maintenance strategies are a combination of statutory, preventative and predictive maintenance practices that are used in an overall programme to maintain performance and avoid costly reactive maintenance and unsafe operating conditions.
  • RBI underpins that more resources should be spent in managing risk as opposed to insurance premiums
  • Risk Engineering is seen as an additional source of revenue to insurers and reinsurers who have inhouse risk engineering teams that can implement RBI to their clients.
  • Increases insurers and reinsurers underwriting margins as it reduces the probability of loss happening.

“We are excited to be leading conversations around the implementation of risk based inspection in Africa. As Maksure Risk Solutions, we have developed a well-orchestrated eight based strata methodology of managing risks in the natural resources sector of power & energy, mining and construction” said Stephen Makwembere, Head: Engineering & Risk Consulting at Maksure Risk Solutions.

For more information regarding this product, contact our Chief Operating Officer, Mr Knighty Mawere at +27 11 805 0086.

About Maksure Risk Solutions

Maksure Risk Solutions is an Afro-Global independent specialist insurance and reinsurance broker with business footprint in Africa, Asia, East & Western Europe, South America and the Caribbean. We provide innovative and tailor-made risk solutions in Insurance and Reinsurance as well as Risk Financing and Actuarial Consulting geared towards capital management and strengthening our client’s balance sheet. Maksure is also one of the major players in Captive Management (Establishment & Management) in South Africa, Mauritius, Bermuda and various other jurisdictions. We are have access into the Lloyds of London with a deep understanding of African markets. Our global nature ensures that our clients access quality capacity as well as some of the world’s latest thinking and solutions.