Innovative risk finance solutions: Insights for geothermal power development in Kenya and Ethiopia

This research paper examines the role of innovative risk finance, specifically insurance, in overcoming barriers to geothermal power development in Kenya and Ethiopia. It details a project by Parhelion, funded by the Climate and Development Knowledge Network (CDKN), which provided technical training to local stakeholders to increase the use of risk mitigation instruments and leverage private sector capital.

• High costs of field development and significant risks associated with resource exploration and drilling act as major barriers to private sector financing for geothermal energy.
• Insurance can mitigate investor risks—specifically when forecast megawatts are not achieved—and potentially leverage public funds at a ratio of up to 60:1 to attract private insurance capital.
• Geothermal projects face two primary risks beyond general technological or regulatory hurdles: resource risk regarding capacity and availability, and financing risk due to the long gap between initial investment and revenue generation.
• In Kenya and Ethiopia, geothermal development is heavily reliant on public finance, particularly during exploration, highlighting a significant need to mobilize private sector investment.
• Kenya has seen rapid growth in geothermal capacity, adding 358 MW in 2014 and aiming for up to 5,000 MW by 2030 as part of its Vision 2030 to become a middle-income country.
• Ethiopia's geothermal development has been slow due to high upfront costs, project risks, and limited local technical capacity, despite goals to expand renewable power generation fivefold over five years.
• Stakeholder consultations revealed that while there was initially little understanding of geothermal risk mitigation in domestic markets, there is significant interest among developers, local insurers, and government ministries in using insurance to de-risk projects.
• International institutions are recommended to provide targeted concessional finance and technical assistance that involves local market actors to avoid market distortion and strengthen domestic green markets.

APA

Rolffs, P., Richardson, J., & Amin, A.-L. (2017). Innovative risk finance solutions: Insights for geothermal power development in Kenya and Ethiopia. Climate and Development Knowledge Network. https://cdkn.org/sites/default/files/files/CDKN_Parhelion_Working_Paper_Pr3.pdf

Chicago

Rolffs, Paula, Julian Richardson, and Amal-Lee Amin. Innovative risk finance solutions: Insights for geothermal power development in Kenya and Ethiopia. Climate and Development Knowledge Network, 2017. https://cdkn.org/sites/default/files/files/CDKN_Parhelion_Working_Paper_Pr3.pdf.

Wikipedia

{{cite report |last1=Rolffs |first1=Paula |last2=Richardson |first2=Julian |last3=Amin |first3=Amal-Lee |title=Innovative risk finance solutions: Insights for geothermal power development in Kenya and Ethiopia |publisher=Climate and Development Knowledge Network |date=February 2017 |url=https://cdkn.org/sites/default/files/files/CDKN_Parhelion_Working_Paper_Pr3.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{rolffs2017innovative, author = {Rolffs, Paula and Richardson, Julian and Amin, Amal-Lee}, title = {{Innovative risk finance solutions: Insights for geothermal power development in Kenya and Ethiopia}}, institution = {Climate and Development Knowledge Network}, year = {2017}, month = feb, url = {https://cdkn.org/sites/default/files/files/CDKN_Parhelion_Working_Paper_Pr3.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }