Global risk pooling mitigates financial risk from drought in hydropower-dependent countries.

ABSTRACT: More than 50 countries rely on hydropower for over 25% of their electricity generation, making them vulnerable to drought and resulting revenue losses. Governments can offset financial losses for publicly-owned hydropower generators, but this can create fiscal pressures and lead to negative consequences, such as lower bond ratings. Index-based financial instruments, used to manage weather-related risk, offer an alternative, though data collection and index design are challenging. Using remotely sensed hydrometeorological data, we develop index insurance contracts to manage drought-related financial risk for hydropower-dependent countries. Low correlations in drought across these countries allow cost reductions when risks are pooled. Pooling the contracts yields average savings of 54% compa

SUBMITTER: Cuppari RI 

PROVIDER: S-EPMC12820157 | biostudies-literature | 2026 Jan

REPOSITORIES: biostudies-literature