By Yvonne Miller FCII, Renewable Energy Client Director at Bruce Stevenson Insurance Brokers

 

DEVELOPING a renewable energy project can take many years and involve a huge number of different services and consultants to get the project through planning, financing and construction.  

Normally insurance isn’t at the forefront of people’s mind when they are working to develop a project, but it does play a vital role in many aspects of the process.  

Experienced insurance brokers are best placed to advise project developers and owners on the array of covers that may be required as well as interpreting the requirements from the various legal contracts.  

Many renewable energy projects will have financial assistance in the form of a loan much like a mortgage, and as such there will be a written loan agreement between the lender and the borrower.  

It is through this agreement that a lender will wish to limit their risk and protect their investments.  

The agreement will outline precisely the type of insurance and the level of cover which should be in place before the funds are made available.  

It is typical that such requirements will need to be in place for the life of the loan.  

The loan will then be repaid from a proportion of the revenue generated by the project, so it is essential to both the borrower/project owner and the lender that the project and revenue is adequately protected to ensure the capability to make repayments is maintained. 

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Yvonne Miller of Bruce Stevenson Insurance brokers

It is not only the loan agreement which will lay down insurance requirements; these can also be found in the turbine supply agreement (TSA) and the Balance of Plant contract (BOP) so even projects which are being built using funds off balance sheet will still have an obligation to have some insurances in place.  

So how will having an insurance broker help the country move towards net zero? 

Through experience, an insurance broker will have knowledge of the design specifications, risk controls and level of security which each Insurer will wish to be incorporated to allow them to offer insurance cover.  

By having discussions with brokers at the design stage of a project, will ultimately lead to the project being more insurable and have a positive impact on the insurance terms offered.  

The insurance market is a careful balancing act ensuring there is sufficient premium from many projects, to cover the losses of the few.  

It is important insurers don’t suffer so many claims that they decide to withdraw from providing cover for either a specific project or to the industry as a whole.  

Brokers can also protect clients from insurers who may wish to become more active in the renewable energy industry but may be overly keen on the pricing and cover they provide without the full knowledge and experience of others.  

This can be profoundly damaging to the market and will ultimately see insurers incur claims and withdraw completely from offering cover.     

At the same time, it is equally as important that brokers give new insurers the opportunity to develop into the industry to help dilute the market.  

If only a few insurers continue to dominate then the effect of claims and the insurance consequences will be more damaging.  

A broker will have a full understanding of the insurance market and the insurers who can underwrite such risks and their longevity and commitment to the industry whilst offering insurance policies for a fair price.  

This will allow insurers to continue to provide cover whilst dealing with claims.  

Pricing of the risk is vital, and it is essential that this remains stable to ensure that the cover is commercially available and allow more projects to be financed.

Brokers will have full knowledge and understanding of the policy wordings and will be able to explain the covers to clients to ensure they are aware of the cover in place and more importantly any subjectivities or conditions that need to be complied with for cover to be placed.  

When an incident does occur, and a claim is made it can be a stressful and difficult time to deal with what can be a very complex process.  

Brokers who employ their own claims handlers is an essential service to offer.  These handlers will have managed a substantial number of claims and will have a full understanding of the process and are able to offer full assistance to project owners throughout.  

There are lessons to be learnt from every claim and is it a source of knowledge for the broker to take forward.  

Knowledge and experience with selecting the most insurable manufacturer is advice that can be shared with clients. Research is constantly being carried out by brokers to ensure they and the insurance market are ready for evolving technology. 

From the start of a project, it is normal that the technology will be under warranty for a specific number of years. 

Once the warranty has expired, the funders will become more reliant on the insurance as the insurer is likely to be liable for any breakdown which the warranty would have previously covered.  

This is likely to have an impact on the premium.  
Ultimately, to encourage the required growth and development within the industry, there must be considerable investment within the industry. This is where insurance can play its part.  

Insurance can ensure that renewable energy projects are more financially attractive to investors and provide an element of security on their potential return. Any investor will only be willing to provide funding if the project is deemed to be financially sound.  

If certain risks are not removed or at least considerably reduced, private or commercial investors will be reluctant to invest the required money.  

As there are few renewable energy project developers with the immediate necessary funds available, external investment is fundamental to the growth of project numbers.  
Without such growth, the UK will simply not achieve the net zero target. 

Brokers alike can play a vital role in the growth of the industry by ensuring that the cover remains available, claims are managed, and the knowledge is used moving forward.  

Through their behaviour, brokers can control poor practices both from within the insurance industry and the renewable energy industry as a whole. 

www.brucestevenson.co.uk