Parametric Insurance to Reduce the Risks of Renewable Energy Investments
Hydro, wind, and solar power are variable renewable energy (VRE) resources with normal daily and/or seasonal fluctuations that are taken into account in financial planning for those investing in these resources. These energy resources complement each other because they have different intermittency patterns, and the impacts of those patterns on the power grid are offset by other electricity sources and energy storage. However, VRE generation can also be substantially reduced by major droughts, floods, or prolonged periods of insufficient wind or solar resources. Parametric insurance reduces the financial risks to large, utility-scale VRE investments from extreme weather or climate events that have a major impact on resource availability for power generation. It does not cover the cost of physical damage to infrastructure or equipment.
The USAID-funded Climate Economic Analysis for Development, Investment, and Resilience (CEADIR) Activity assessed opportunities for domestic insurance companies and international reinsurance companies to offer parametric insurance for utility-scale VRE in Central America. CEADIR discussed this report during this webinar, jointly organized with Climatelinks and Marketlinks. Panelists from two leading international reinsurance companies, MunichRe and SwissRe, discussed their experiences with parametric insurance for utility-scale VRE throughout the world.
This event was the third in a series highlighting research products from CEADIR’s final year.
- Santiago Enriquez (Abt Associates) presented findings from CEADIR’s research into barriers and opportunities for parametric insurance in Central America.
- Álvaro Núñez Andrada (Munich Re Trading LLC – Capital Partners) presented MunichRe’s perspective on the use of parametric insurance to hedge weather-related risks for renewable energy projects in Latin America.
- Sebabrata Sarkar (Swiss Re) discussed uptake and lessons learned from the use of parametric insurance for private and public sector players in other regions of the world.