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riven by rapid expansion in developing countries, renewables are becoming a significant source of the world'€™s power.  According to the UNEP'€™s (United Nations Environmental Programme) ninth Global Trends in Renewable Energy Investment 2015, investment in developing countries was up 36 percent in 2014, totaling US$131.3 billion: China (US$83.3 billion), Brazil ($7.6 billion), India ($7.4 billion) and South Africa ($5.5 billion) were all in the top 10 of investing countries while more than $1 billion was invested in Indonesia, Chile, Mexico, Kenya and Turkey.  

As renewables continue to expand into developing nations, it is incumbent upon developers to understand the risk features of some of these environments.

Geopolitical risk: Renewable developers need to be mindful of regional and host-country politics before they locate their projects.  Unstable governments may expropriate projects, change laws, or even change regimes due to war or internal uprisings during the life of a long-term (typically 25 years) Power Purchase Agreement (PPA).  

Political risk insurance may be available, but coverage plans may be costly or incomplete.  Partnering with an international organization like the World Bank or the International Finance Corporation (IFC) may ease some of these worries since even unstable regimes look to these international organizations for financial stability and support in the global markets in the event of government default.

Legal risk:  Developing countries may lack the general rule of law that provides for predictability and transparency of business transactions.  In some countries, bribing government officials to obtain required permits may be the norm.  Additionally, local courts may not offer developers relief for their claims as judicial officers may also request bribes or be closely aligned with government decision-makers.  

US and UK companies in particular, need to be mindful to steer clear of engaging with such officials to avoid allegations of violating laws such as the FCPA (Foreign Corrupt Practices Act).  Corruption risk may extend beyond just bribery '€” there are reported instances of local counsel threatening projects and extorting foreign developers to pay increased legal fees.

Currency risk:  A developing country'€™s local currency may fluctuate greatly and if their currency inflates the project'€™s revenue stream, it loses its value in international markets.  

To protect against currency risk, developers should either negotiate their PPAs to receive payment in a predictable currency or hedge this risk.  

Although financial institutions offer exchange rate hedging instruments, such as currency swaps or currency futures options, the upkeep on these agreements may be expensive if the developer negotiates a good position on a volatile currency.

Physical risk:  In negotiating the terms of PPAs and debt financing agreements, project sponsors should consider the potential impact on their projects of adverse weather/climate conditions or other natural disasters.

Thus, developers should be mindful that if, for example, completion or ongoing operation of their projects could be delayed or interrupted by tsunami or other impacts from a major quake, they may need to invoke a force majeure clause due to an unavoidable event or occurrence.

Counterparty risk:  The off taker in many of these countries may be the government-sponsored utility.  If the utility refuses to accept the project'€™s renewable power or fails to make payments, developers could find themselves seeking relief in a government-sponsored court.  

Developers should ensure that their PPA agreements provide standard '€˜take or pay'€™ clauses and for arbitration in a neutral venue to help alleviate this concern.  Additionally, involvement by the World Bank or IFC could help developers navigate such situations.

Clearly, there are many risks and challenges associated with the execution of renewable energy projects in developing countries for international companies and local partners.  

There are also huge front-end costs to determine project feasibility. It is often unrealized by many, other than the most senior stakeholders of the host nations, that these international companies have to be prior-approved by their governments to transfer their renewable technologies '€” technologies which clearly have been developed and proven over many years and at substantial cost.  

It is therefore incumbent on host nation stakeholders to support and encourage foreign companies which are prepared to make long-term renewable energy investments in the host country (usually without any financial investment from the host country other than the offer of short-term tax breaks, etc) for the benefit of that nation'€™s economy; higher employment and CSR projects for its peoples; mitigation of fossil fuel pollution and, as a lasting contribution toward the maintenance of a protected and liveable global climate for us all.
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The writer is group chairman & CEO for SBS INTL (Indonesia) Ltd. This is a personal view.