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Posts Tagged ‘Financial Risk Management’

Financial Risk Management Instruments for Renewable Energy Projects

Wednesday, January 6th, 2010

The United Nations Environment Programme (UNEP) has identified the typical challenges project developers and investors face in the alternative energy world.  However,  financial instruments are helping these participants handle risk and as project volume and loss information increases, comfort levels are rising.   Insurance and reinsurance policies, alternative risk transfer instruments, contingent capital, and credit enhancement products are growing in availability particularly in the developed world.  We thought it might help if you had an overview of the solutions available by stage of project risk.

Meridian is a highly dynamic specialized insurance consulting group and broker with offices in Boston, MA, Newport, RI and Brookfield, CT.  We are a hard-driving group with an entrepreneurial spirit who will work tirelessly for clients. We specialize in risk management and risk transfer for alternative energy companies. We personally promote sustainable practices and are members of the Sustainable Business Network and the International Energy Credit Association.  Our Mission is simple.  We seek to help our clients make the best risk and risk transfer decisions possible. To do so we bring market-leading service to the most creative solutions in the risk management field to ensure that each Meridian client achieves their risk objectives.

Renewable Energy Project Risks (see in brackets the corresponding Financial Risk Management Instruments)

Risks associated with LARGE SCALE PROJECTS

Project Development/Pre Construction

Concept to implementation                     (Grants, Contingent Grants)

Construction Phase

Construction/Completion Risk               (Insurance =Construction All Risks CAR/EAR)

Counterparty Risk                                         (Surety bonds –Performance guarantees     //Liquidation damages)

Operating Phase

Performance Risk                                            (Insurance)

Counterparty Risk                                           (Surety bonds –Performance guarantees   //Liquidation damages)

Fuel Supply/Weather Resources  Risk    (Weather Insurance/Derivatives)

Credit Risk                                                           (Guarantees, Credit insurance/Credit derivatives)

All Phases

Financial Risk                                                      (Standard derivative products)

Political Risk                                                         (Political Risk Insurance//MFI Guarantees//Export Credit guarantees)

Force Majeure Risk                                             (Insurance/Catastrophe bonds)

Risks associated with SMALL SCALE PROJECTS

Project Developer

Development Risk                                                  (Guarantee Funds)

End User

Risks  of physical damage incl. theft                 (Insurance)

Risks associated with CARBON FINANCED PROJECTS

Market Risk                                                              (Standard derivative products to hedge price)

CER Delivery Risk (Insurance –carbon delivery guarantee, permit                                                         delivery guarantee)