Insurers are expecting business from renewable energy projects to grow, notably in protecting them against a lack of natural resources, according to brokerage firm Marsh.
Operators and financiers of renewable energy generation are demanding “all-encompassing” coverage, said Steven Munday, Marsh’s London-based renewable and clean-tech power team leader. These include commercial risks that may previously have been held by a project’s equity investors, delays to installation because of poor weather and political risks.
“There’s a real need for efficiency coverage,” he added, noting that the insurance market is providing coverage for degradation of solar photovoltaic (PV) modules and covering the insolvency risk of the panel manufacturer.
“There are underwriters who would consider [covering] change in [government] policy,” on a customised basis, Munday said, to absorb the risk of a change in a renewable energy subsidy regime, mid-construction. However, he said he was “pretty sure insurers would not respond to the situation that we had in Spain”, where the government made retroactive changes to feed-in tariffs for solar PV.
John Abraham, a London-based executive specialising in weather and energy products at Marsh, said wind and hydropower projects in particular are seeking coverage against lower-than-expected wind and rainfall, respectively.
For example, hydropower operators in South America and Asia that use diesel or natural gas back-up generators to meet electricity delivery obligations have insured themselves against high prices of fuel, in the event of low rainfall. This is similar to the deal struck by Chilean utility Colbún, which was awarded Environmental Finance’s Weather Risk Deal of the Year in 2010.
Most of the wind risk cover is being written for farms outside Europe, Abraham said, with contracts typically covering three to five years. “They are not looking to make money, but smooth out revenues,” he said.
“We don’t really see requests for lack of sun,” Abraham noted, because solar irradiation is much less variable than wind or rain.
Previously, most weather risk coverage was provided by the capital markets, but “we are seeing a lot more traditional reinsurance and insurance companies” active in this area, Abraham said, such as Chartis (formerly AIG Europe), Munich Re and Swiss Re.
Meanwhile, almost all the insurance claims from offshore wind farms have been due to physical damage to products during installation – and more than half of those claims relate to damage to the electricity cables, said Murray Haynes, a vice-president in the renewable and clean-tech team.
He estimated that more than £70 million ($110 million) in claims for UK offshore wind farms had been submitted over the last three years, relating to as many as eight installations. “That’s the kind of thing that’s hitting the insurance market, and that affects the appetite for insurance,” he said.
