South Africa’s plan to procure about 105 GW of new electricity generation capacity by 2039 will require operational risk and insurance planning to be built into projects alongside finance, engineering and construction, according to Sebenzana Asset Performance Partners (APP).
The Department of Electricity and Energy’s Strategic Plan 2025–2030 confirms that the department will oversee the procurement of approximately 105 GW through to 2039 in line with the Integrated Resource Plan 2025.
Sebenzana APP says the scale of the programme, subject to the demand being there, creates a significant investment opportunity, but projects will need to remain reliable, insurable, and financially viable throughout their operating lives. A not obvious impact on projects are changes in insurance-market conditions after financial close that alter the risk transfer assumptions in the original financial model, potentially leaving owners with higher deductibles and/or premiums, more restrictive cover, sometimes resulting in additional cash-reserve burdens.
“Project bankability is assessed and crafted at financial close, but the assumptions supporting it do not remain fixed,” says Andrew Carr, CEO at APP. “Insurance capacity, deductibles, cover and pricing changes with time. If the owner cannot continue to convey the asset’s operating risk position effectively, it’s possible that exposure may increase impacting project company balance sheets. Expensive cash can get trapped in reserve accounts.”
The bankability gap can emerge after financial close
APP hosted The Bankability Gap Roundtable adjacent to the Africa Energy Forum in Cape Town earlier this year to examine how technical and operational data can support more commercially effective risk transfer and insurance structures for African energy projects.
A case discussed during the roundtable involved an energy project that had been financed on the assumption that its business interruption insurance would respond after a waiting period of 30 days.
As insurance-market conditions changed, the deductible increased significantly. The additional uninsured period created a material gap between the protection assumed in the original financial model and the cover available from the commercial market.
To protect debt-service obligations during an extended outage, the project was required to maintain a cash reserve equivalent to approximately two months of revenue. The reserve gave lenders greater protection, but restricted cash available for shareholder distributions and reduced shareholder returns.
“This is the bankability gap that developers and investors need to consider. A project may remain technically sound, but its financial position can change when the insurance market no longer provides the protection assumed at the start. The owner needs enough current evidence to show how the asset is being operated, maintained and protected against major failure. Curtailment of the assets outputs can exacerbate the situation further,,” adds Carr.
Annual risk snapshots leave important gaps
Conventional underwriting draws on ad hoc engineering surveys, historical losses, technology type, operating history, maintenance practices, and wider insurance-market conditions. APP says these inputs remain relevant, although they can provide only a snapshot or high-level view of an individual project.
An engineering survey may reflect the condition of an asset at a particular point in time, while the insurance policy remains in force for the next 12 months. During that period, equipment condition can deteriorate, maintenance backlogs can grow, and new risks can emerge.
APP says a more complete live evidence base can be created through their Risk Platform by combining inspection findings, maintenance activity, condition-monitoring information, operating data, risk algo outputs, outstanding recommendations and the actions taken to address identified risks. This live risk information gives the operator, lender, broker, and insurer a shared view of the project’s technical condition and risk controls.
In the case study, the data supported the development of a tailored deductible buy-down policy that reduced a significant portion of the increased waiting-period exposure. The remaining uninsured period was brought to a level the lenders considered more manageable, allowing part of the cash reserve to be released while maintaining protection for debt-service obligations.
Risk visibility must follow the asset into and through operation
South Africa’s planned generation programme will include renewable energy, storage, gas, nuclear, and other technologies. Each project will carry a different combination of equipment risk, maintenance requirements, supply-chain exposure, and potential business interruption.
APP believes these risks should be considered early in project development and tracked through construction, commissioning, and operation.
“A well-managed plant should be able to demonstrate its risk position throughout the policy period. Current, traceable asset data gives lenders, brokers, and underwriters clearer evidence of what can fail, how the exposure is being mitigated, and whether the risk position is improving. That can support more informed decisions on deductibles, reserves, and available risk-transfer structures.
“For South Africa’s power expansion to deliver lasting economic value, new assets need to perform and remain financeable well beyond financial close. Operational performance, risk management, and project finance need to be supported by the same credible evidence base from the outset,” concludes Carr.
