Solar-generated energy is environmentally friendly and, potentially, unlimited. But it can not be produced continuously. Fluctuating levels of sunshine mean that photovoltaic power producers may be unable to meet their production plans. As a result, their cash flow may be volatile, which jeopardises the power producers’ ability to meet their financial commitments and secure credit.

The ECM team of Swiss Re Corporate Solutions developed an innovative solution that may help overcome this problem and successfully offered the product to clients in China. The country’s first solar radiation index transaction helps clients hedge against the risk that solar radiation falls below an agreed level. If it does, the client gets a payment in compensation for lost revenue. The scheme was recognised as the Weather Deal of the Year by Environmental Finance in 2015.

In a growing industry that requires multi-billion dollar investments, the benefits of cash flow stability can not be underestimated.

The solar radiation index solution is just one of the risk-transfer products developed by the ECM team. Similar products help clients in sectors as diverse as food, tourism and power to hedge their exposure to fluctuating supply and demand, and protect their cash flows. Such solutions are of strategic importance as we increasingly record unseasonal weather patterns that can affect many industry sectors.