During heatwaves, energy companies may encounter financial challenges:
Infrastructure Stress:
High temperatures increase likelihood of power plant and transmission line failures
Increased Energy Costs:
To meet higher electricity demand, firms need to buy energy at elevated prices
from external power sources
Power Purchase Agreement Losses:
Companies locked into PPAs at fixed rates face financial losses when the cost of
buying additional power exceeds the agreed-upon sale price.
At a glance
Risk Covered
Heatwave
Index
Maximum Temperature
Limit
Up to $75 million per contract
Availability
Global
Insured Period(s)
Pre-agreed Time Frame in Summer
Coverage Type:
Single or multi-location
case study example
Introducing parametric heatwave insurance
Problem
A major electricity provider in a state prone to heatwaves, sought a parametric insurance policy to safeguard against revenue losses.
Solution
Descartes designed a custom parametric policy structured to trigger payment if temperatures exceeded 108°F during the pre-agreed risk period. Payouts escalate based on the severity of the heat, culminating in a 100% payout of the limit when temperatures reach or exceed 115°F.
Result
Following a heatwave with temperatures surpassing 115°F, the firm received an immediate injection of funds to cover the various costs arising from the heat, including infrastructure repairs, spot market energy purchases, and losses from PPAs.
With a limit of $3M and temperatures >115°F, the firm received the full $3M.
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