Insurance options18 January 2013
There are a number of insurance options available for hydropower developers internationally. Here IWP&DC provide details on a number of companies who deal with renewable energy projects and the different types of services they offer.
By 2030, the world's energy demands are expected to increase by 50%. Renewable energy is therefore set to play an increasing role in meeting these needs. Without adequate insurance cover and risk management, the planning, construction and operation of mid to large-scale renewable energy project would not be viable.
Global insurer RSA covers a variety of risk areas for the energy industry. The company is currently promoting its 'Rethinking Risk: Renewable Energy' campaign, launching the 'Rethinking Risk: Insurance & Hydro Energy' video at the All Energy conference in Aberdeen.
The global 'Rethinking Risk' campaign will see research and analysis published throughout the year covering a variety of risk areas, ranging from renewable energy to driving safety to shipping.
Mark Potter, Head of Renewable Energy at RSA, commented: "Businesses and organisations are committed to achieving a more sustainable future by using renewable energy. But this industry is continually evolving and new risks are emerging all the time. As an insurer, RSA plays an important role helping sustainable energy to surmount these challenges. With over 30 years experience in the renewable energy industry, we have a unique insight into the challenges and opportunities organisations operating in this market face."
For hydropower in particular, RSA covers risks for plants generating up to 50MW, in Europe, and both North and South America. The company has been underwriting the small hydro business for many years, and protects against many risks including mechanical breakdown of key components, mudslide and flood.
Looking for some of the brightest minds and ideas to apply to your loss control issues? According to another Global insurance company Zurich, this describes the company's energy underwriters and risk engineers. The company currently provides a broad range of risk solutions, risk engineering and claims support for utility customers worldwide.
It says its Risk Engineers have previous experience in the power generation field and can provide industry gained insight into the problems you face now and in the future. Because every customer's risk profile is different, the company has structured its risk engineering services to several specialized areas designed to address those individual needs.
Some of the key products and features offered includes:
- Every energy customer gets a single point of contact for all underwriting needs and a claims service account executive to coordinate claims service
- Broad policy coverage available including property damage, buildings in course of construction, transit coverage and boiler and machinery
- Contingent business interruption, service interruption and associated extensions of coverage available
Zurich offers casualty, excess casualty and property solutions for companies in a number of segments, including hydroelectric power generation companies.
The company has some interesting experiences in the hydro industry. A few years ago, it provided political risk insurance for a 5MW hydroelectric power plant on the Weli River in Sri Lanka. This project was developed in cooperation with the Overseas Private Investment Corporation (OPIC), which provided financing and reinsurance for the plant. OPIC gave a $4.3M loan to MaTh Hydro Power, the project company, for construction of the plant, as well as $1.4M in reinsurance for Zurich's political risk coverage of the project.
This hydropower plant was developed to help Sri Lanka address a growing need for electricity while encouraging private sector investment in this industry. The project was described as a great fit with Zurich's climate initiative.
This initiative has a three-pillar approach. First, Zurich established an internal Climate Office that is charged with driving an understanding of climate-related risks across its businesses and is fully embedded in Zurich's underwriting infrastructure.
Second, Zurich has established a Climate Change Advisory Council that will directly report to Zurich's Group Management on strategic and operational issues associated with climate change.
Third, Zurich launched an applied research program with organizations and institutions to examine the critical economic, finance and policy issues associated with climate change. The main objective of Zurich's market-focused global climate initiative is to understand the emerging weather, financial and regulatory risks associated with climate change and to develop products and services that help customers cope with these risks.
The company also provided trade credit insurance for the Lircay project in Chile.
The company's Surety, Credit and Political Risk group said it was providing the cover as part of the insurance programme for the scheme as developed by US broker Alliant Emerging Markets on behalf of the project supporter CQuest Capital.
Hidromaule SA owns the Lircay project and CQuest capital provided funds against future delivery of carbon credits from electricity generation at the run-of-river plant.
The 19.4MW (2 x 9.7MW Francis) plant is on the Lircay river, approximately 30km northeast of Talca, and takes advantage of water rights owned by an irrigation organisation, the Canal Maule Association. The plant is designed to generate an average 130GWh (gross) of electricity per year.
The project is registered under the UNFCC's Clean Development Mechanism to sell carbon credits (Certified Emissions Reductions - CERs).
Another company with a wealth of experience in placing hydro insurance is Northern Alliance. This UK-based company has provided insurance solutions for micro, mini and small hydropower projects. The projects have been both community funded and privately funded and have involved both the development of new sites and the renovation of existing water mills or former hydro sites.
The company says its hydro insurance cover offers bespoke cover from pre planning through to the site being fully operational, and can arrange hydro insurance for run-of-river, diversion, pumped storage and impoundment projects.
Insurance options include:
- All Risks Insurance Cover for Plant/Equipment
- Breakdown Cover
- Loss of Revenue Insurance (Business Interruption cover)
- Public Liability Insurance
- Employers Liability Insurance
- Public Liability Insurance
- Professional Indemnity Insurance
- Contractors All Risks insurance inc Contract Works Insurance
- Delay in Start Up/Advanced Profits Insurance
- Goods in Transit Insurance/Marine Insurance
- Environmental Liability Insurance
Across the UK, community groups are looking to embrace the energy-generating power of local rivers to raise revenue.
Nviro Insurance and Risk Management is currently helping groups in Bury, Shrewsbury, the Lake District and the Isle of Skye with their insurance requirements, which will provide protection for various aspects including damage to equipment and loss of use.
Many of the projects have been funded members of the communities themselves, who believe it will give them a better return on their investment than leaving the cash in the bank.
Others have looked to the likes of The Co-operative Group, which has a fund specifically for projects like these, for funding to cover feasibility studies.
Nviro director Paul Davies said: "Urban hydro projects are becoming very popular, particularly in rural areas, where Government backing is available through the Transition Towns Initiative.
"Groups are taking advantage of a reported 5-7% return on their investment, as well as the funding available from companies like Aviva, The Co-operative Group, and the like.
"Applications for funding from Aviva have to be made through an insurance broker."
Feasibility studies help to determine whether the flow of the river could generate enough electricity.
One project, in Bury, will generate enough to power 50 homes in the local community.
Nviro has helped the people behind the project to insure their assets, income and liabilities associated with owning and running the turbine and associated equipment.
Another insurance firm which has been heavily involved the energy business is Willis Group. In fact, the company was named the insurance consultant for the operational assets of the world's largest hydroelectric project, the Three Gorges project in China.
The company has a specific renewables section and says its insurance solutions are life-cycle and complementary, encompassing: pre-works, design and consenting, marine transits, construction, testing and handover operational and all associated liabilities and extendable to include delay in start-up and consequential loss.
Its not just companies that are providing insurance options for the hydro industry. Recently, the Multilateral Investment Guarantee Agency (MIGA) - the political risk insurance arm of the World Bank Group - announced it is supporting a 147MW hydropower plant in Pakistan.
MIGA has issued guarantees of $148.5M to cover an equity investment by Korea Water Resources Corporation (K-Water) and Daewoo Engineering & Construction (Daewoo) in Star Hydro Power Limited incorporated. MIGA's coverage is for a period of 20 years against the risk of breach of contract. The project is also supported by project finance loans from the International Finance Corporation, the Asian Development Bank, the Export-Import Bank of Korea, and the Islamic Development Bank. Korea's Global Infrastructure Fund - established by public funds and private investors to promote Korean companies' foreign investment - is also investing in the project.
This project represents MIGA's first guarantee in support of a Korean investor. For the project, K-Water and Daewoo will develop, construct, and operate a run-of-the-river hydropower plant situated 120km from Islamabad under a 30-year build-own-operate-transfer scheme. Electricity generated by the plant will be sold to the state-owned utility under a power purchase agreement. By providing this guarantee to a much-needed infrastructure project, MIGA played an important role in providing protection against political risks at a time when commercial insurers are not open to long-term guarantees in Pakistan.
MIGA has recently undertaken extensive investor outreach in Korea in collaboration with various institutions including the government of Korea, export credit agencies, and commercial banks; this project further cements these important relationships.
"Right now, more than 30% of Pakistan's population does not have access to electricity," noted Izumi Kobayashi, MIGA's Executive Vice President. "This project will help fill this gap.
"Supporting complex infrastructure projects is a key priority for MIGA and we expect this project will improve the lives of Pakistani people as the availability of power is increased in the country," she added.
In addition to alleviating chronic power shortages, the plant is expected to contribute to lowering the country's average electricity generation costs and greenhouse gas emissions, and reducing reliance on imported fuel oil. The project's demonstration effect is also significant, as it shows other potential investors that experienced and reputable foreign sponsors are implementing a high-profile project in Pakistan.