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OSLO, Norway -- Norwegian captive insurer Norsk Energiverk Forsikring plans to launch a special policy to protect hydroelectric power companies from losses due to drought.
"The dry-year policy will be tied to the energy company's profits in relation to rainfall recorded during the year covered by the policy," said NEF Chief Executive Officer Knut Odegaard. "If profits differ greatly from the profits during a year with normal rainfall, we will cover the additional cost."
The coverage, NEF's first venture into third-party business, will be triggered if profits decline by 20%, and all claims are subject to an independent audit.
Power companies usually sell electricity on futures contracts. However, in an unusually dry year, hydro plants may be unable to deliver enough power to meet the power company's promise. In such an event, the power company may have to buy replacement electricity, either from other power producers or the spot energy market. NEF's policy will cover the cost of buying additional power.
Mr. Odegaard said the insurer expects to write the first policies by year end. "We hope to have the details ready by the end of August. We will then begin marketing the new policies during the autumn.'
NEF was created in 1995 as an Oslo-based captive of power producer Norsk Energiverk.