Renewables insurance firm offers political risk policy

By John Parnell

Renewables insurer GCube is to offer political risk insurance policies in a move that could help solar's expansion in emerging markets.

The industry is currently enjoying an upturn with the European Photovoltaics Association (EPIA) reporting 37GW of solar power demand in 2013 and prediction for close to 50GW this year looking more realistic.

Despite this positive news, much of the growth is coming from a handful of core markets. Many of the emerging centres of PV demand bring much political risk with them, according to Jatin Sharma, business development leader at GCube Underwriting.

"In recent years volatile economic and political conditions in these markets have really highlighted the inherent risks to companies and lenders – think of the enormous impact of high-profile events in the Middle East and North Africa and expropriations in the Latin American mining sector," said Sharma.

"As renewable energy takes off, particularly in the solar sector, in these complex political environments, traditional cover is no longer sufficient to fully safeguard assets and investments," he added. "Project delay, damage and cancellation caused by unforeseen political incident or regulatory complications needs to be taken into account and addressed accordingly."

Lorenzo L. Colacicchi, chairman and CEO of PV consultancy Ergon Solair, which is working on a 500MW development in Uganda, said the benefits of PRI could reach beyond investors.

"Political risk is a major concern in emerging markets and a cause for elevated internal rate of return requirements on the part of investors who wish to get their money back more quickly in countries with political risk than those without so they can exit the market quickly if things get edgy," said Colacicchi.

"The result of this is higher energy costs for the end users in the emerging markets since the political risk is a component of the power plant investment and thus of the energy cost. Low income poor nations get hit heavily by this, they are forced to pay the political risk offset price resulting in reduced energy access for the lower income categories," he added.

The result of higher energy costs can in some instances feedback into the country and increase political risk further.

"Higher energy costs due to political risk means limiting the social categories that can access better living standards; consequently this favours stress between the classes, which reflects itself, in the end, on the national political stability," said Colacicchi.

At present, PRI is often supplied by a development bank if they are also investing in the project but GCube’s Sharma points out that this is not always done at a competitive prices. Private insurance can also cover equity investment as well as debt.

GCube will offer coverage up to US$50 million per project across wind, solar, biomass, hydro, wave and tidal projects. It will target markets in Latin America, Africa, Asia Pacific and Central Asia.

Source Blue Energy.