Munich Re and Germany’s KfW Development Bank are rolling out a state-backed programme designed to soften the financial risk tied to geothermal drilling.
Make early-stage projects easier to finance and push more capital into renewable heat and power.
Geothermal energy offers steady, low-carbon electricity and heat, and policymakers see it as a major piece of Germany’s net zero plans. The problem sits upfront.
Drilling costs are high, and a failed well can wipe out projected returns before a plant ever comes online. Investors know this, and many step back.
Berlin is now stepping in alongside private firms. Munich Re says the structure marks Europe’s first insurance product for geothermal risk built on a public-private setup.
It targets the moment that scares lenders most, when drilling either proves a resource exists or confirms it doesn’t.
Under the programme, Munich Re will insure between 30% and 70% of a loan tied to a viable project. If exploration fails and triggers a claim, KfW will partially waive the debt.
The federal government backs the framework with €600 mn in guarantees and €50 mn in budget funding, part of a broader push announced this week to draw private money into priority sectors.
Matthias Tönnis, a geologist and underwriter at Munich Re, said the goal is to tackle the core issue holding the sector back. Drilling outcomes remain uncertain, and that uncertainty makes projects hard to finance, even when long-term demand looks solid.
The scale of the challenge shows in the numbers. Geothermal accounted for only about 0.5% of renewable electricity generation across the EU in 2024.
Germany wants that to change. The government targets at least 65 additional projects by 2030, a move that would lift geothermal’s role in heating by roughly 10x from today’s level.
Industry players welcome the signal. Herbert Pohl, CEO of geothermal developer Deutsche Erdwärme, said the insurance sends a clear message that policymakers now recognise geothermal’s potential in Germany and are willing to share early-stage risk.
Munich Re isn’t new to this space. The reinsurer previously offered geothermal insurance before pulling back.
It has returned, the company says, because heat generation carries fewer technical hurdles than electricity production and because the project pipeline has grown.
More projects, more data, fewer unknowns. At least, that’s the bet behind the new cover.
