Is insuring loss of power in Africa viable?

Nevertheless, it is clear that the focus on new technology will grow and customers will want to look to insurance to protect their income. As a result, insurers will need to understand the particular risks associated with mini-grids in order to successfully underwrite policies.

A mini-grid is a system of electricity generation, possibly with some energy storage, connected to a distribution network that supplies electricity to customers connected to the grid. Typically, a mini-grid involves small-scale electricity generation of between 10kW and 10MW. A mini-grid could be anything from a number of solar panels on houses supplying just those houses, to a small hydro-plant or wind farm supplying a rural village.

In Africa, one of the major issues with the rollout of mini-grid technology is identifying a credit-worthy off-taker. A key requirement is an ‘anchor’ tenant who can guarantee payment and cashflow. While the cost of renewable technologies is decreasing, the installation and maintenance of a mini-grid still requires significant investment, particularly if suppliers start scaling the technology.

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While the credit-worthiness of the off-taker is hardly a new phenomenon in Africa – consider the well-publicised credit concerns around TANESCO in Tanzania – insurers will have to find a way to model the risk of payment default in an economy where access to banking facilities and credit checks are basic.

Mobile technology provides a partial answer to this conundrum as mobile phone-based systems allow payment for services through cheap bank accounts.

Another concern for insurers is how to underwrite business interruption risk in areas where business interruption is endemic and credit-worthy off-takers are in short supply. For example, electricity is usually transported using copper wiring, which is a valuable commodity. In many areas, the risk of theft of the copper is significant and, if the wires are dug up, electricity cannot be distributed, with generators and customers losing revenue and access to electricity.

This is an issue for risk managers and insurers alike. Insurers will need to determine the appropriate premium for a risk that is frequently affected by issues that are either not widely insured or subject to specific exclusions.

Another challenge is addressing new technical issues. A solar photovoltaic panel located in the Northern Hemisphere will require a different maintenance regime from one located close to the Equator where rainy seasons, intense sunlight and, in the case of desert regions, the prevalence of sand in the air pose degradation risk. As a result, insurers, who are well-versed in modelling business interruption risk for a solar project in other parts of the world, will need a new actuarial model to calculate the risks in Africa where different security and climatic challenges need to be addressed.

One of the major structural issues affecting the widespread uptake of mini-grid technologies is inadequate regulation, or its complete absence, for mini-grids.

Perhaps counterintuitively, this concerns investors who are looking for an indication of government support and an understanding of how the host government sees mini-grid technology sitting within the country’s national electricity network. Investors fear the imposition of tariffs, which could reduce cashflow. They are also concerned about incentives provided to generators who sell electricity into the national distribution network, which are not available to mini-grid generators, providing a competitive advantage to the more traditional generation and distribution models.

Despite the challenges, a number of African governments have indicated that mini-grids are part of their electrification strategy. This is the case in Kenya, Sierra Leone and Tanzania. In fact, the Tanzanian government is planning to support mini-grids by subsidising connection fees.

There is undoubtedly a significant increase in interest from institutional and private sector investors in the rollout of mini-grid technologies.

President Obama, through his Power Africa Initiative, recently announced a new round of funding for eight solar firms under the Power Africa Scaling Off Grid Grand Challenge, as well as an investment fund to encourage investors to connect 20 million households in Sub Saharan Africa to modern, clean and affordable electricity.

While there are undoubtedly some structural issues that restrict the widespread rollout of mini-grids, as the technology becomes increasingly commercialised and developed in Africa, insurers will need to develop new policies and new actuarial models to adequately capture the commercial risks that these technologies present.

Legal Eye: The briefs

Oil giant Shell facing more Nigerian claims

Anglo-Dutch oil giant Shell has urged the English High Court to block pollution claims brought by more than 40,000 Nigerians, demanding the case be heard in Nigeria instead. Lawyers for the claimants are demanding action from Shell to clean up oil spills that have devastated their Niger Delta communities for decades. But Royal Dutch Shell lawyer Peter Goldsmith said: “The claims raise issues of Nigerian common law, customary law and legislation. The events are said to have occurred in Nigeria and the alleged physical damage is all said to be found in Nigeria.”

French anti-corruption rules affect all

With effect from 10 November 2016, France has adopted the Law on Transparency, the Fight against Corruption and Modernization of Economic Life (known as “Sapin II” after Michel Sapin, minister of finance). Lawyers from Baker & Hostetler report that Sapin II is France’s response to international criticism of its perceived hands-off attitude toward anti-corruption enforcement, which has caused the US Department of Justice and other law enforcement and regulatory agencies to seek $1bn in fines against French companies Alcatel, Alstom, Technip and Total.

Nigerian Supreme Court judge charged with corruption and money-laundering

Justice Sylvester Ngwuta, who was allegedly found with several passports, has pleaded not guilty to 15 counts of fraud, after being charged with corruption and money laundering, according to reports from the BBC. He appeared along with seven other judges, who all denied the charges. Last month, Nigeria’s security agency said it had seized $800,000 in cash in raids targeting senior judges suspected of corruption. Justice Ngwuta and his co-defendants were arrested in those raids. The judicial regulatory body of Nigeria, the National Judicial Council, suspended the judges pending their trial.