Rising volatility in temperature and precipitation patterns, coupled with rapidly melting glaciers in the Andes, Rocky Mountains or Himalayas, all have extensive effects on river discharge and hydroelectricity generation.
Traditional all risk policies exclude losses due to low water discharge. The resulting financial exposure for hydroelectric energy companies calls for an innovative mitigation solution.
Descartes’ parametric insurance solutions offer a new form of resilience to low river discharge. Customized precisely to the client’s exposure and budget, we cover weather risk impacts to hydroelectric yield and subsequent financial losses with a bespoke, straight-forward, data-based solution.
Our parametric hydropower yield product is structured using a combination of river flow data, satellite rainfall data, and IoT to precisely assess and monitor river discharge at plant locations.
We develop a power generation index calibrated to the clients historical yield data and define a corresponding payout structure based on real-time water level triggers.
Our policies are priced and customized based on the client’s risk appetite and plant locations – offering brokers and clients a unique alternative to address exposed locations in domestic and international markets.
Client Need: A large hydroelectric power company in South America is exposed to several risks that have been substantially impacting their annual revenue, including decreased generation capacity due to low water discharge levels. In past years, prolonged droughts or lack of snowfall have led to drops in production of 30-40%.
Pain Point: Financial losses due to low water discharge are excluded from traditional ‘all risk policies’, as low water discharge neither constitutes physical damage, nor is it classified as a business interruption. Thus, lost revenue due to reduced hydropower yield has typically been considered uninsurable, leaving the company with an uncovered $60M USD revenue gap in some years.
Our Solution: With construction underway for critical plant infrastructure updates, the company’s CFO knew they couldn’t absorb another bad year and sought an alternative solution. Together with their broker, we defined a customized parametric cover that will trigger when annual river flow falls below a historical mean, resulting in reduced power generation capacity of 20% or more.
The Result: Utilizing publicly available gauge and satellite data, calibrated to the energy company’s power generation history and characteristics, we were able to model and monitor the exposure. At the end of the risk period, the client was swiftly paid a corresponding indemnity for each day that the water level fell below the predefined power generation index, thus stabilizing their revenue and filling the gap left by their traditional policy.