Munich Re and KfW: New exploration risk cover for geothermal system operators

• Federal Ministry for Economic Affairs and Energy, Munich Re and KfW launch innovative programme to promote deep geothermal energy
• Low-interest loans to finance drilling combined with risk cover for insufficient geothermal energy sources
• As a pioneer in the insurance industry, Munich Re is now addressing the financing dilemma for geothermal drilling

Munich/Frankfurt In cooperation with Munich Re and the German Federal Ministry for Economic Affairs and Energy (BMWE), KfW is launching a new programme to promote the expansion of deep geothermal energy for municipal and industrial heating. With the new Geothermal Acceleration Act, the Federal Ministry for Economic Affairs and Energy has created the necessary conditions to make it possible.

Geothermal energy sources are expected to cover a large percentage of Germany’s heating needs in the future. The exploration and development of hot springs at depths of thousands of metres often costs tens of millions of euros. If the well does not yield hot or sufficiently hot water, in the worst-case scenario the investment is lost. This risk often deters investors and their banks, making it more difficult to realise geothermal energy projects.

Having recognised this problem, the partners offer a tailored product: Munich Re checks whether the project is feasible and insurable on the basis of the available data, defines the insurance parameters and premium and, if the data matches the criteria, insures 30 to 70 percent of the loan amount. In the event of a claim – for example, in the case of unsuccessful exploration – KfW grants a partial debt waiver under the same conditions as in the insurance contract. Accordingly, project sponsors can secure up to 100 percent of the loan amount.

Prerequisite: Prompt involvement of partners

The aim is for Munich Re, KfW and the Ministry for Economic Affairs and Energy to solve the financing dilemma for deep drilling through their cooperation: “When it comes to deep geothermal energy, we have to work with a high default risk and high risk requirements. As such, we take a close look at each project on the basis of the relevant data. Under these conditions, Munich Re can in principle offer exploration insurance for geothermal projects in promising areas throughout Germany. But it’s essential that we be involved in these projects from the outset, that we have access to the relevant measurements and calculations, and that the data be reliable,” explains Thomas Blunck, a member of the Board of Management at Munich Re.

For many communities, geothermal projects are an attractive way of boosting their energy supply and reducing their dependence on fossil fuels. 

Geothermal energy in Germany: Significant growth expected by 2030

“Deep geothermal energy has the potential to make a substantial contribution to climate-neutral heating in Germany – efficiently and independently of fossil fuels,” says Melanie Kehr, the KfW Executive Board member responsible for domestic promotional business. “Our new solution tackles a key obstacle to expansion and addresses the high financial risk of drilling. Together with the Ministry for Economic Affairs and Energy and Munich Re, we are providing new impetus for the energy transition and thus strengthening Germany’s economic sovereignty.”

The insurance developed by Munich Re is part of a Ministry for Economic Affairs and Energy geothermal energy initiative. The aim of this initiative is to implement at least 65 further geothermal energy projects by 2030, which would increase the percentage of energy from geothermal sources used for heating to ten times its current level.

Munich Re was the first to develop this risk cover and already has several years of experience with it. Further information: