Request for Proposal

Request for Proposal

USAID Urja Nepal

Study of Achieving Climate Adaptation Goals in Nepal’s Hydropower Sector through Various Insurance Mechanisms

Project Overview:

The USAID Urja Nepal Program (Urja Nepal) is supported by the American people through the United States Agency for International Development and implemented by Deloitte Consulting LLP. Urja Nepal aims to create a financially viable electricity sector that provides affordable, reliable, and secure power and enables the entry of private sector investment into the Nepal market through following four objectives:

    Objective 1: Utility Performance and Relevant Sector Policies are Improved.

    Objective 2: Advanced Energy Systems Deployed

    Objective 3: Increased Private Sector Engagement

    Objective 4: Cross Border Electricity Trade between Nepal and its Neighbors Advanced

The Government of Nepal (GoN) has set an ambitious target of generating 28,500 MW of electricity by 2035 to meet growing energy demands and support sustainable economic growth. Achieving this goal requires addressing the inherent risks associated with the energy sector, including climate change-induced extreme weather events. For example, a preliminary analysis conducted by Nepal’s National Disaster Risk Reduction and Management Authority of the September 2024 floods estimated a total loss of NPR 46 billion, which included damage to 26 hydropower facilities and nine transmission lines.

Promoting climate adaptive practices to transfer, manage, or mitigate against climate risk is becoming increasingly important to achieve Nepal’s long-term energy development goals. Previous practices underscore the importance of construction risk insurance, business interruption coverage, and safeguards against environmental vulnerabilities. However, Nepal's high exposure to natural disasters and limited domestic reinsurance capacity present challenges, such as elevated premiums and restrictive policy terms.

To identify opportunities to reduce loss and damage in Nepal’s energy sector, USAID Urja Nepal aims to identify a partner to conduct a thorough study focusing on how the insurance sector can devise schemes to promote adaptation. For example, the partner may identify how climate risk assessments (CRAs) can be applied to the insurance sector, what insurance products could be designed or adapted to address the growing need for climate risk mitigation, current challenges within the insurance sector’s offerings to the hydropower industry, the role of reinsurance, issues affecting premiums, the need for cross-subsidization of hydropower risks, and how climate adaptation can be achieved through innovative policies to change Nepal’s insurance framework. 

Objectives:

The primary objective of this assignment is to identify potential mechanisms within Nepal’s insurance industry to promote climate adaptation within Nepal’s energy sector. For example, the consultant could examine how insurance products (parametric insurance, property insurance with climate adaptation riders, engineering insurance requirements, climate risk insurance pools, etc.) could be used, or how insurance contracts can be better designed to incentivize technical and non-technical adaptations. Technical adaptations may include modifying existing spillways to increase discharge capacity, improved sediment management procedures, among others. Non-technical adaptations could include the use of early warning systems, slope stability monitoring, sediment monitoring, or comprehensive climate risk assessments.

Within the scope, the consultant will:

• Examine the various risks and challenges faced by the energy sector, particularly in the context of climate change and Nepal’s vulnerability to natural disasters.
• Quantify the climate risk and its effect on projects’ continued ability to access insurance at acceptable premiums.
• Analyze existing insurance frameworks for energy projects in Nepal, identifying gaps and challenges related to natural disasters, financial risks, and regulatory constraints.
• Develop tailored insurance mechanisms, such as parametric insurance and reinsurance strategies, to address the unique risks of Nepal’s energy sector.
• Recommend strategies to improve stakeholder collaboration and facilitate capacity-building initiatives for insurers and developers to adopt best practices in risk management.

Scope of Work:

Detailed scope includes the following:

1. Climate Impact Assessment of Climate Change on Hydropower within the Insurance Industry

• Evaluate the impact of climate-related risks such as glacial lake outburst floods (GLOFs), increased precipitation, flooding, and other extreme weather events on the energy sector.
• Study recent trends in climate hazards and their implications for hydropower infrastructure.
• Quantify the financial impact of various climate-related risks using relevant insurance industry key performance indicators (i.e., payout ratio, premium growth rate, loss ratio, claim settlement ratio, etc.) and examine the insurance sector’s ability to adequately absorb these risks through 2050. 
• Develop case studies to illustrate how the insurance industry in regions with similar geographic or climatic conditions have promoted adaptation to address hydropower-specific climate risks.

2. Analysis of Existing Tools to Promote Climate Adaptation in the Insurance Sector

• Review academic journals, industry reports, and government policies including the primary interviews with hydropower projects to understand the tools or options available to promote climate adaptation in the insurance sector, tailored to Nepal’s energy sector.
• Examine existing technical and non-technical risk management practices used by the hydropower projects and review existing risk assessment procedures within the industry.

3. Gap Analysis and Opportunities of insurance policy 

• Evaluate the effectiveness of existing insurance policies and coverage for hydropower projects.
• Identify weaknesses in climate risk coverage, insurance premium, underwriting practices, and claims processes.
• Highlight opportunities for innovation, including parametric insurance, public-private partnerships, and other advanced mechanisms.

4. Policy and Regulatory Recommendations

• Develop standardized tools for risk assessment and pricing specific to hydropower insurance, theoretically quantifying how climate adaptive practices can be priced to lower premiums, reduce risks, or decrease the projected payout ratio.
• Recommend mandatory climate risk assessments for hydropower projects seeking insurance coverage.
• Propose capacity-building programs for insurers and underwriters on assessing and mitigating climate risks.
• Suggest incentives for insurers to design innovative products tailored to renewable energy and hydropower projects.

5. Development of an Insurance Risk Framework for Climate Adaptation

• Design a comprehensive framework to address hydropower risks in Nepal in terms of:
• Risk Identification: Identify key risks during the construction and implementation phases.
• Risk Quantification: Use probabilistic modeling to assess potential losses.
• Risk Transfer Mechanisms: Explore tools like reinsurance, catastrophe bonds, and weather-indexed insurance measures to mitigate risks.
• Stakeholder Collaboration: Build a framework involving insurers, reinsurers, hydropower developers, policymakers, and climate experts.

6. Stakeholder Engagement and Capacity Building

• Organize workshops to present study findings and discuss challenges and opportunities.
• Facilitate discussions on innovative insurance solutions tailored for hydropower climate adaptation.
• Draft actionable recommendations for government and private-sector involvement.

Deliverables:

The partner needs to deliver the following: 

• Develop a detailed report combining insights on climate risks and their implications for hydropower, an analysis of gaps in the current insurance framework, and innovative insurance solutions. The report will also include actionable policy and regulatory recommendations to guide policymakers, regulators, insurers, reinsurers, developers in strengthening risk management strategies for hydropower projects in Nepal.
• Prepare an executive summary outlining key measures and recommendations for policymakers, regulators, insurers, reinsurers, and developers to strengthen risk management strategies.
• Create a presentation highlighting the major challenges, proposed measures, and key strategies for enhancing risk management in the hydropower sector. (to be presented in a capacity building workshop organized by Urja Nepal)

Timeline:

The project is expected to be completed within four months of the commencement date.

The partner is expected to complete the scope of work within 5 months following the timeline below: 

Submission Requirements:

Detailed Proposal:

• Outline of the approach to the scope of services.
• Methodology and work plan to achieve the deliverables within the specified timeline.
• Detailed timeline in a GANTT chart format.
• Detailed budget.

Team Profiles:

• Profiles of key team members, including their roles and relevant experience.
• Organizational structure and resource allocation for the project.

Experience:

• Examples of similar projects completed, including client references.
• Case studies demonstrating successful outcomes in climate finance and GCF processes.

Risk Management Plan:

• Strategies for mitigating potential risks and ensuring project success.
• Contingency plans to assure effective implementation.

Evaluation Criteria:

Proposals will be evaluated based on the following criteria, in addition to being assessed for cost-effectiveness and value-for-money:

Experience and Expertise (20%):

• Relevant experience in climate change and assessment of hydropower sector risk
• Insurance sector expertise in drafting innovate climate insurance products

Approach and Methodology (20%):

• Quality and comprehensiveness of the proposed approach and methodology.
• Clear understanding of the scope of work and deliverables.
• Feasibility and practicality of the proposed work plan and timeline.

Team Qualifications (20%):

• Profiles of key team members, including their roles and relevant experience.
• Organizational structure and resource allocation for the project.

Price of the proposed bid (20%)

• Competitiveness and transparency of the proposed pricing structure.
• Cost-effectiveness in relation to the proposed deliverables and outcomes.

Past Performance (10%):

• Examples of similar projects completed, including client references.
• Case studies demonstrating successful issuance in complex in capital issuances

Risk Management (10%):

• Strategies for mitigating potential risks and ensuring project success.
• Contingency plans for handling unforeseen challenges.

Other requirements:

• The bidder is expected to submit proposal in English language only.
• The bidder is expected to strictly adhere to the timelines proposed for the project completion. Any delay in any of the deliverable shall be reported and aligned with Urja Nepal in advance. 
• The deliverable has to be acceptable to Urja Nepal.
• The bidder should at all times of the assignment possess the copyrights (licenses in the case of software packages) of the documents, pictures, technical papers, standards used in the study. All documents need to be treated with confidentiality. The bidder may be required to sign a non-disclosure agreement (NDA) that uses an Urja-provided template.

Instruction for Proposal Submission

• Please submit a technical and financial proposal with specific details on the goods and services on the company letterhead via e-mail. The e-mail should be sent to kbasyal@urja-nepal.com & klawati@urja-nepal.com
• Kindly submit samples of the previous work
• Please include a copy of your company’s VAT/PAN registration document and tax clearance document 
• Please include banking details
• If any specifications differ from those mentioned in our requirements, the vendor should specify those differences in the quotation.
• Cost should not be exceeding NPR 1,280,000 inclusive of all taxes.
• Please send your proposal by December 17, 2024.

Additional Requirements/Requests (Please detail your response to each requirement to indicate which you can meet or not meet for any reason.)

1. Vendor to accept direct wire transfer. If not, please mention the other payment mode.
2. Vendor should be willing to accept deduction of TDS or other applicable taxes per law.
3. Pricing should be submitted in local currency with explicit information on VAT or other taxes.
4. Vendors willing to accept payment 5-10 business days after the delivery of the goods/service and successful completion of the job.
5. Please detail any other restrictions, requirements, or relevant considerations.

Note: This document does not constitute a commitment on the part of Urja Nepal to fund any proposed project.