Insurance premiums for RE, hydro projects set to rise amid escalating conflict with Pakistan

Several solar and wind projects that are not covered against war or conflict are looking at getting additional coverage, said an executive with a renewable energy company.

This hike in premium is expected against the backdrop of increased aerial activity, with attempted missile attacks and shelling in parts of Punjab, Rajasthan and Jammu and Kashmir. 

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The hydropower and green energy projects in the border states are already on high alert amid increased security. Rajasthan and Gujarat have large land parcels along the western border that contribute over 35% or 39 GW of India's installed solar capacity of 105.65 GW. 

Similarly, Jammu and Kashmir and Himachal Pradesh in the north have significant hydropower potential, with a combined installed capacity of nearly 15 GW, and several projects under construction.

A.K. Singh, general manager, National Thermal Power Corporation, hydro headquarters said: “The premiums would rise in the current scenario given that there are several solar and wind projects in the border areas and about eight hydro projects are there in Jammu and Kashmir, which are already under high alert. Some solar and wind projects, however, do not have coverage against damages due to conflict or war. If these projects go for an additional or fresh insurance coverage now, the cost would be hefty as many of these projects are in bordering states."

Major hikes in premiums were most recently seen in 2021 post the pandemic and in 2022 during the height of the Russia-Ukraine war.  

According to Vikram V, vice president and company group head, corporate ratings, Investment Information and Credit Rating Agency Ltd, given that a large number of real estate developers do not have coverage of war in their insurance policies for green power projects, going ahead lenders may seek the coverage for financing projects.

Amit Agarwal, managing director and chief executive officer, Howden Insurance Brokers India Pvt. Ltd, noted that although rate hikes have not been implemented so far, there may be changes due to the situation in the border areas.

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“In the case of land-based property risk, clauses clearly exclude war risk cover and war-like situations. Running projects will not be affected, however, annual operational policies, particularly operational ones (hydro plants situated in difficult terrain like that of the Himalayas), have been the worst affected in securing a viable insurance policy structure. There may be some decline or rate hikes due to conditions in bordering areas. As of now, nothing has been imposed by reinsurers," said Agarwal, adding that the terms and conditions would be uniform in war and war-like situations, although there may be more hikes for border states when selecting risks.

Azeem Kanjiani, member, executive board, Reinsurance, Prudent Insurance Brokers, said projects currently have an annual policy in place for riots, strikes and malicious damage and there is a separate policy to cover terrorism and sabotage.

“Hence, the current projects are largely indifferent. Having said that, war cover is sought by most projects and infrastructure risks will attract significant premium, if war cover is indeed available. Projects up to 200 km from the border would be uninsurable for war. Other projects might get war cover depending on occupancy and exposure. Some insured (projects) have availed war cover and they perhaps would be the ones at peace. Having said so, the war portion can be cancelled with notice of three to seven days," Kanjiani added.

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With an installed renewable energy capacity of 231.81 GW, India is among the top destinations for investments in sustainability and new energy space. By 2030, India is projected to require investments of around $200 billion to establish real estate projects by 2030, according to Nomura, as it eyes to achieve a cumulative non-fossil capacity of 500 GW.