Renewable tariff rise likely as insurance premium climbs after border conflict
New Delhi: Upcoming solar and wind energy projects along the border with Pakistan may demand more for their power as they pay higher insurance premiums to protect against risks from war, three industry executives said.
This follows the recent military conflict between India and Pakistan where areas along the border suffered aerial attacks. Some of India's largest solar and wind power projects are located in Gujarat's Kutch district and Rajasthan's Bikaner, Barmer and Jaisalmer districts.
Rajasthan and Gujarat receive the highest solar radiation in India, ideal for solar projects. The two states have a combined solar and wind capacity of about 43 GW, with more in the pipeline.
The war component in insurance premium has jumped as much as threefold since the conflict, said Narayan Kumar, CEO of Kshema Power & Infrastructure Co. Pvt. Ltd, a green EPC (engineering, procurement, and construction) services provider. This, he said, will add 10-12% to the insurance cost.
'Apart from the concerns of damage, there may be instances of blackouts and power grid shutdown in times of conflict, which would impact the operations. So, insurance companies are now also looking at coming up with business interruption coverage, which would add to the insurance cost. Further, the possibility of enhanced security apparatus at the generation locations and other associated infrastructure would also come with an added cost."
Developers taking up projects along these areas may see an increase of 3-5 paise in the tariffs, he added.
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Queries emailed to the Union ministry of new and renewable energy remained unanswered till press time.
Rajasthan and Gujarat have large land parcels along the western border that contribute more than 35%, or 39 GW, of India's installed solar capacity of 105.65 GW. The region has several solar parks, including the Khavda RE Park in Gujarat's Kutch district, which is expected to be the largest renewable energy park in the world with a cumulative capacity of 50 GW. It is just a kilometre away from the Pakistan border, and therefore vulnerable to attacks during a military conflagration.
Neerav Nanavaty, chief executive officer (CEO) of Gurugram-based renewable power platform BluPine Energy, said that India should consider setting up more renewable capacity in other regions of the country, and diversify the regional concentration of projects to lower geopolitical risks.
"To ensure long-term resilience, India must diversify renewable capacity across other high-potential regions like central India, the northeast, and hilly states—despite higher costs and logistical hurdles. Western India has long been the engine of India's solar growth, blessed with high irradiation levels and progressive governance. But this concentration, while efficient, also creates a risk for our national energy security. A geographically balanced renewable network will help mitigate both geopolitical and climate risks," Nanavaty said.
With an installed renewable energy capacity of 231.81 GW, India is a hot destination for investments in sustainability and new energy space. India is projected to require investments of around $200 billion to establish renewable projects by 2030, according to Nomura, as it eyes to achieve a cumulative non-fossil capacity of 500 GW by then.
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However, Narayan Kumar of Kshema Power & Infrastructure said that tighter security measures to protect these assets in the border areas would be key to sustaining investor interest, which would in turn raise the cost of operations and maintenance.
A second industry executive said on the condition of anonymity that although insurance cost does not constitute a major part of the expenditure of a power developer, in case premiums surge then the per unit generation cost may go up by about 3 paise per unit, which may reflect in the tariffs.
Currently, solar power tariffs average around ₹2.6, and the lowest tariff so far for solar is ₹2.15 per unit, discovered in December 2024. For wind power projects, tariffs average around ₹3 per unit and in the case of round-the-clock (RTC) and firm and dispatchable renewable energy (FDRE) projects, which include storage capacity, tariffs are in a range of ₹3-4 per unit.
Vikram V, vice-president & co-group head - corporate ratings, Icra Ltd, said: "In case of an additional insurance coverage requirement like war, the insurance premium for solar projects is likely to go up. Given that the prevailing annual insurance cost for a 100 MW solar project is less than ₹1 crore, it is unlikely to have a significant impact on the operating costs for the developers. Hence, the consequent impact on bid tariffs for solar power projects is expected to be limited."
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On 9 May, Mint reported that insurance premiums for renewable energy are likely to increase amid escalating tensions between India and Pakistan, raising the overall cost of these projects. Several renewable energy companies do not have a war coverage in their insurance policies, and are now looking for an added coverage in view of the current scenario, and that comes at a higher cost.
Dnyanraj Desai, partner, Shardul Amarchand Mangaldas & Co, said: "These are high-value projects and the premiums are already going up for the projects near the border. It may lead to a 1-2% increase in the overall project cost. Lenders may also seek coverage of such eventualities in the insurance policies for renewable projects in the borders states and such covenants would be included in the agreements. The projects in these regions for which power purchase agreements are yet to be signed and tenders are to be floated, tariffs would factor in the higher cost."
Azeem Kanjiani, member, executive board, reinsurance, Prudent Insurance Brokers, had earlier told Mint that projects typically have an annual policy in place for riots, strikes and malicious damage, and that 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.
And read | Sunny side down: The many gaps in India's solar story
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