A challenging market
Towards the end of 2018, the renewable energy insurance market began transitioning out of a soft market. Some insurers withdrew from underwriting specific sectors, whilst others closed their books entirely. This trend has continued through 2019 and into 2020.
Against this background, the AD and BESS sectors have seen large claims due to a number of reasons.
- Engineering, procurement and construction (EPC) contractors being unfamiliar with the technology deployed
- Inadequate fire and over foaming protections being incorporated into the design
- Poor maintenance
- Insufficient training and risk management
These factors combined reduce insurer appetite for BESS and AD projects significantly. Insurer selection in the construction phase of these projects and factoring in the loss mitigation controls required are key to securing long-term insurer relationships.
Insurers’ top questions
Each project presented to insurers is subject to increased underwriter scrutiny and it is important that key projects risks are identified and addressed. The top questions insurers will ask are:
- Has the EPC contractor delivered this type of plant successfully before?
- Is the process/ technology proven, and is the key equipment from reputable suppliers?
- Is there a robust proposed fire strategy and fire suppression and detection system?
- Is there a full maintenance programme in place?
- Is there over foaming protections?
- Is a robust risk management and training programme in place?
|Technology and design|| Proven technology is the key however, if parts of the treatment technology or process are unproven or prototypical within the UK, the insurance market will restrict the cover available, or even decline to participate in the risk during construction and/or operation. Full details of the technological solution will be required. |
It is also imperative to factor in the loss mitigation controls insurers require in order that they will offer terms not only during construction but also operation.
|Proven contractors||Many projects have suffered delays during construction, principally due to the technology deployed or the lack of experience of the contractors used. It is critical to demonstrate that all key subcontractors have successful experience in delivering similar projects.|
|Fire strategy|| High profile fires have made it a must for a complete fire strategy to be implemented. For example reviewing everything from non-combustible materials, spacing and water hydrants. This risk will be a consideration for the insurance market. |
|Fire suppression and detection systems|| Fire claims have been prevalent on BESS and AD projects so protections have to be best in class. A bespoke fire detection and potentially suppression system is a fundamental part of any risk management strategy with this being linked to the SCADA system. |
Any variation from insurer requirements is likely to lead to difficulties obtaining insurer acceptance.
|Testing and commissioning||AD technologies, and occasionally BESS, undergo longer and more extensive periods for testing and commissioning prior to handover. Such periods often include start-up or hot commissioning and it is important to ensure the insurances cover this exposure. Careful consideration must be given to the interface of insurances in between take over and full acceptance.|
|Loss of revenue||In the event of the facility being unavailable, specific consideration must be given to the basis of insurance cover, and include reference to contingency planning arrangements that might be put in place. In a tightening market, insurers are looking to prefer a fixed-costs/profit basis as opposed to gross revenue on AD plants. Gross Revenue cover is acceptable for BESS projects.|
|Environmental impairment or pollution||Depending on the site conditions, lease agreements, a bespoke environmental insurance and risk solution might be required, covering the activities of the site and the exacerbation of any historic site pollution. Also requiring consideration and management is the risk of nuisance claims arising from fumes or odours (noxious, toxic, or otherwise), injunctions during remediation, and costs of remediation.|
|Warranties||Both construction and operational insurers expect to maintain subrogation rights against original equipment manufacturers (OEMs), in respect of the warranties and guarantees provided for critical plant and equipment used in the facility.|
|Offtake agreements||Sponsors need to carefully consider the commitments made under the offtake agreement, and the indemnities provided in the event of failure to supply.|
|Grid connection||Grid sub-stations represent a critical export dependency for this type of project. Insurance should be tailored to protect the project against any delay exposure arising from loss/damage to this location.|
|Over foaming||Ensure adequate over foaming protection system are in place such as high level / low level alarms. Automatic anti-foaming systems. The over foaming off take pipe is situated below the gas pipe. Bursting discs are on the tanks. Operator training in how to identify foaming, it’s triggers and how to deal with an event.|
|Risk management||Ensure a full risk management system is in place including training, H&S, HAZOPs, DESEARs, where applicable.|
|Disaster recovery plans|| |
What plans does the project have in place to recover from a disaster to minimise the downtime.
How to get the optimum insurance terms
It is crucial to differentiate your project. You could consider taking the following actions:
- Provide detailed credentials outlining where the EPC contractor has successfully delivered this type of plant before.
- Provide technical information demonstrating that the process/technology is proven, and that key equipment has been sourced from reputable suppliers.
- Demonstrate a robust fire strategy, with high quality fire suppression and detection systems.
- Outline your approach to quality assurance – through a competent Owner’s Engineer – flagging the client’s other plants in operation.
- Engage insurers at the earliest possible time to ensure they have input into your project
In addition, you should ensure your broker can demonstrate experience in the BESS/ AD projects in challenging markets, and understands how to generate optimum appetite from insures.
To increase the chances of the best outcome for your project, an experienced specialist broker will tailor and agree with you the correct strategy for your project. They will articulate your approach on the key risk issues and prepare high-quality market submissions addressing the key insurers’ concerns.