1. REEEP/AEI/TERI Workshop
Assessment of Financial Risk Management
Instruments for Renewable Energy Projects
REEEP/AEI/TERI Workshop
February 6, 2008
New Delhi
Fatma Ben Fadhl UNEP Project Manager Energy Branch Renewable Energy Finance Unit

2. Topics to be covered UNEP Structure and RE Finance Unit
Programme objectives and activities
Assessment of Financial risk management instruments for Large Scale Projects
Case Study: Risk Assessment for large scale projects in China and India
Assessment of Financial risk management instruments for Small Scale Projects
Feasibility Studies
Next Steps
06 February 2008
UNEP Energy Branch

3. United Nations Environment Programme (UNEP) Structure
Division of Technology,
Industry and Economics
(DTIE)
International Environmental
Technology
Centre
Chemicals
Economics
and Trade
Sustainable
Consumption and Production
Energy
OzonAction
Renewable Energy and Finance Unit
Energy and Transport Policy Unit
06 February 2008
UNEP Energy Branch

4. Renewable Energy and Finance Unit
Help overcome market barriers and increase investment flows to sustainable energy projects
Partner with financial services and Insurance
Develop financial support mechanisms to promote sustainable energy in developing countries
Plan and execute credit enhancement, equipment loan and financial risk management programmes for access to RE
06 February 2008
UNEP Energy Branch

5. UNEP/GEF Assessment of Financial Risk Management Instruments
Funded by the Global Environment Facility (GEF)
UNEP as the UN Implementing Agency
06 February 2008
UNEP Energy Branch

6. Objectives
Identify promising financial risk management instruments and approaches for RE projects
Develop risk mitigation solutions that continue to exist without or with limited public monitoring
Awareness raising for stakeholders
06 February 2008
UNEP Energy Branch

7. Programme of action
Define main challenges faced by Investors, Insurers and RE project developers
Identify main financial risks associated with small/medium and large scale RE projects
Select promising risk management mechanisms
Initiate Public-Private Partnerships
Provide financial support to feasibility studies
Develop follow-up activities
06 February 2008
UNEP Energy Branch

8. Challenges for the RE sector
Major concerns for most technologies
New / Prototypical / Scale Up technologies
Technical perils in handling, erecting, testing
Major concerns for some technologies
Lack of sound O&M practices
Lack of experience (project participants/contractors etc)
Developing country issues
Lack of adequate financial, legal and service infrastructure
Lack of credit worthy local insurers
Limited distribution channels
06 February 2008
UNEP Energy Branch

9. Risk Management for Large Scale Projects
Mostly Grid Connected
Numerous project development phases
Diversified risk portfolio
Combination of equity and debt financing
Finance often provided on a non-recourse basis
Need for tailored insurance
06 February 2008
UNEP Energy Branch

10. Main risks to be addressed
Traditional project risks
Political risk
Certified Emissions Reduction risk
Weather risk
Resources risk
Credit risk
Equipment risk
06 February 2008
UNEP Energy Branch

11. Milestones for the insurance industry
Development and marketing of insurance products for RE projects through:
Improved information flows
Training and knowledge management
New pricing methodologies
Design, engineering and operating standards / verification for “unproven technologies”
Bundling of small/medium scale projects and packaging of risks
Portfolios diversification
06 February 2008
UNEP Energy Branch

12. Operating Cash Flows With and without standard Insurance Source: Marsh
Case Study: Insurance solutions for a Wind Farm in Popular Republic of China
Source: Marsh
06 February 2008
UNEP Energy Branch

13. Risk Mitigation Solutions
Insurance facilities
Weather risk management instruments e.g. weather derivatives, futures contracts
Technology specific insurance packages
Public/Private Risk Capital or Guarantee facilities
Awareness raising among project developers, financial services/investors, insurers, and public institutions
06 February 2008
UNEP Energy Branch

14. Financial risk instruments for RE projects in India
06 February 2008
UNEP Energy Branch

15. Case Study: Financial risk assessment for a Wind Farm in India (56,25 MW; 108 GWh/year; US$51.25M)
06 February 2008
UNEP Energy Branch

16. Case Study: Financial risk assessment for a Medium Scale Biomass Project in India (50MW, 200GWh/year; US$75M)
06 February 2008
UNEP Energy Branch

17. Risk Management for Small Scale Projects
End-borrowers profiles:
Small scale renewable energy suppliers (SSRE)
Small scale end-users (non-productive consumers e.g. households, SMEs)
Main risks
Equipment risk
Transaction size
Credit risk
06 February 2008
UNEP Energy Branch

18. Barriers for the development of Small Scale Renewable Energy projects
Lack of economically/financially viable projects
Inadequate engagement of local FIs in small scale project financing, including MFIs
High transaction costs of small scale projects
Performance risks
Lack of consumer awareness/demand for RE
Lack of access to long term financing matched to project life
06 February 2008
UNEP Energy Branch

19. Risk Mitigation Instruments for Small Scale Projects
End-User Credit Enhancement Instruments e.g. insurance covers, buyback agreements, fees for extra FI loss reserves
Developer/Sponsor Partial Credit & Risks Guarantee Instruments
Contingent Grants
Private Public Risk Capitals
Small Scale RE Project Preparation Assistance Programmes
06 February 2008
UNEP Energy Branch

20. General feasibility criteria for introducing FRMIs
Large Scale RE Projects
level of domestic financial market development
sanctity of contracts governing off-taker and other agreements
Maturity of financial markets
access by foreign reinsurers to developing countries’ markets
Small Scale RE Projects
Public interventions to initiate and boost demand
Inventory of technologies and applications
Financial incentive programmes fostering local FIs’ leadership in RE finance
06 February 2008
UNEP Energy Branch

21. Feasibility studies
Wind Power Derivative for Large Scale Wind Farm Projects in Mexico, Marsh Finances and Paris Re
Renewable Energy Insurance Facility for Wind Farm Projects in the People's Republic of China (PRC), Marsh UK and Lloyd's Ascot Renewco
Global Renewable Energy Insurance Facility for Large and Medium Scale Renewable Energy Projects, Carbon Re, Munich Re, Royal & SunAlliance, Climate Capital, GSDP, PRS and UPCAR Tunisia
Insurance Solutions for Small Scale Biomass Power Projects in India, Crestar Capital and IFFCO/Tokyo General Insurance Co. LTD
Risk Capital or Guarantee mechanism for small scale renewable energy (under evaluation)
06 February 2008
UNEP Energy Branch

22. F/S Expected Outcome Thorough market, legal and quantitative analysis
Implementation plans and/or pilot studies
Implementation of the instrument by private partners
Benchmark and best practices studies
06 February 2008
UNEP Energy Branch

23. Next Steps Presentation of F/S results and recommendations
Development and Implementation of follow-up programmes
06 February 2008
UNEP Energy Branch

24. Thank you for you attention
06 February 2008
UNEP Energy Branch

25. Division of Technology, Industry and Economics Energy Branch
15 rue de Milan, Paris
France
tel. :
fax. :
06 February 2008
UNEP Energy Branch