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SEFI Financial Risk Management Instruments for Renewable Energy Projects

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United Nations Environment Programme Division of Technology, Industry and Economics Financial Risk Management Instruments for Renewable Energy Projects UNEP Summary document © Copyright 2004 UNEP This publication may be reproduced in whole or in part and in any form for educational or non- profit purposes without special permission from the copyright holder, provided acknowledgement of the source is made. UNEP would appreciate receiving a copy of any publication that uses this publication as
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  United Nations Environment Programme Division of Technology, Industry and Economics Financial RiskManagementInstruments forRenewable Energy Projects UNEP Summary document  © Copyright 2004 UNEPThis publication may be reproduced in whole or in part and in any form for educational or non-profit purposes without special permission from the copyright holder, providedacknowledgement of the source is made. UNEP would appreciate receiving a copy of anypublication that uses this publication as a source.No use of this publication may be made for resale or for any other commercial purposewhatsoever without prior permission in writing from UNEP.First edition 2004The designations employed and the presentation of the material in this publication do not implythe expression of any opinion whatsoever on the part of the United Nations EnvironmentProgramme concerning the legal status of any country, territory, city or area or of its authorities,or concerning delimitation of its frontiers or boundaries. Moreover, the views expressed do notnecessarily represent the decision or the stated policy of the United Nations EnvironmentProgramme, nor does citing of individual companies, trade names or commercial processesconstitute endorsement.UNITED NATIONS PUBLICATIONISBN: 92-807-2445-2 Designed and produced by Words and Publications, Oxford, UK Cover photographs courtesy of: Applied Power Corporation (top left); West Bengal Renewable Energy Development Agency (bottom right); Warren Gretz (top right and bottom left).  Acknowledgements This study was commissioned by UNEP’s Division of Technology, Industry and Economics(DTIE) under its Sustainable Energy Finance Initiative (SEFI) and conducted by a consortiumled by Marsh Ltd, members of which include Gareth Hughes and Warren Diogo, in associationwith Edmund Olivier, Andrew Dlugolecki of Andlug Consulting, Christian Schoenwiesner-Bozkurt of Roedl & Partner, and advisors from Climate Change Capital, Det Norske Veritas andthe Global Sustainable Development Project. The study also benefited from comments and suggestions from external reviewers,including Veronique Bishop of Carbon Finance Business, Kyoichi Shimazaki of Project Financeand Guarantees, Helmut Schreiber of Infrastructure and Energy Services Department at theWorld Bank, Cynthia Page at the United Nations Development Programme, members of theClimate Change Working Group of the UNEP Finance Initiative, and industry stakeholders. The study was coordinated by Aki Maruyama of the UNEP Energy Programme. OtherUNEP staff involved were Eric Usher and Mark Radka.  Financial Risk Management Instruments for Renewable Energy Projects 1 Financial risk management is a key element of any commercial investment inconventional energy and infrastructure projects, yet little attention has been paid to itsuse in the deployment of renewable energy technologies, particularly in developingcountries. Risk management instruments such as contracts, insurance and reinsurance,alternative risk transfer instruments, and credit enhancement products could, if used,transfer certain types of risks away from investors and lenders, reducing the costs offinancing renewable energy projects. These and other financial tools are an essentialpart of well-established markets. But the market for renewable energy technologies isonly getting started in many parts of the world and lack of good information hinders itsdevelopment. Bringing better information to policy makers is one of UNEP’s roles.This report presents an overview of risks specific to the financing of renewable energyprojects. It discusses both risk management products currently available in the market,and emerging instruments that could be applied to the sector. New products based onpartnerships between private and public sector risk managers are also presented.The application of risk management instruments to renewable energy projectsrequires financial innovation and a willingness to test new approaches. This in itself isrisky, and the report suggests a learning-by-doing approach in order to gainexperience and confidence in these new markets.By providing concise technical information to risk management specialists andproject developers, this report aims to contribute to a better understanding of riskmanagement options for renewable energy projects. It is our hope that betterunderstanding leads to greater deployment of clean energy technologies that meetdevelopment needs.Monique BarbutDirectorDivision of Technology, Industry and EconomicsUNEP Foreword   Acronyms and abbreviations4Glossary of terms6Executive summary10 1. Renewable Energy Technology assessment122. The role of financial risk management instruments133. Overview of risks and barriers164. Existing insurance products for renewable energy projects21 The role of insurance21Insurance capital allocation22Existing availability of insurance for RE projects22 Wind energy projects22Geothermal energy25Biomass/biogas26Wave/tidal/ocean current27 Solar PV27 Small hydro28 5.Evolving financial risk management instruments that can support renewable energy projects29 The role of emerging risk management instruments29 Weather derivatives for RE projects29 Adaptable credit products31Risk finance vs. risk transfer32Evolving/adaptable risk management and ‘new capacity’ structures32Public sector instruments34 Financial Risk Management Instruments for Renewable Energy Projects 2 Contents

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Jul 25, 2017
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