Clean-Energy Insurance: Contributing to the Profitability of the Renewable Energy Project

green-leafThere are numerous opportunities for renewable energy developers and project owners to reduce insurance costs and improve the bankability of their projects. By engaging a specialized energy insurance broker, who manages a four-step risk planning process, at the onset of a project, developers can significantly achieve substantial cost savings. Whether it is introducing insurance flexibility into outdated contractual language, implementing modeling risk clinics developed from an enterprise risk management discussion or assessing different insurance program security, a clean-energy insurance broker can provide ample opportunities to ensure optimal total cost of risk and an introduction to certain underwriters presenting your unique risk in the most favorable terms thus decreasing your premium dollars expenditures. When was the last time you met your insurance underwriter?

With questions of funding, new clean-energy technology soundness, and an ever-evolving renewable energy landscape, the potential benefits of project insurance take low priority and are often overshadowed by the many and consuming complexities of a renewable energy project. Most renewable energy project developers and owners assume project insurance requirements are fixed or too insignificant to impact insurance premiums, coverage or, most importantly, the overall cost of the project. In fact, insurance costs can account for 20%-30% of a renewable energy project’s operating budget. This can be the sole factor of tipping the profitability scale to deem a project commercially viable.

If initiated during the funding planning phase, a sound Risk Plan (based on a Risk Clinic) can provide renewable energy project developers and owners with the opportunity to significantly reducing their total cost of risk by addressing strategic and business risk inherent in the project. Every project is unique in scope: however, some renewable energy projects have reduced project insurance costs up to 70% by implementing certain risk initiatives which are centered around: prevention/mitigation/risk transfer/risk financing/risk assumption.

A Risk Reduction Plan creates a clear time-line of risk accountability with your niche-energy broker and underwriter. Basically, due to the excess of contracts and agreements, most renewable energy developers are unable to study the insurance and indemnification language of each contract in detail. As a result, contract obligations oftentimes go unsatisfied or insurance costs grow prohibitively and result in a delay in financial project close. More often than not, developers are out there scrambling to get certain agreements and they are not necessarily focusing on the insurance and indemnification sections.

Many contract counterparties use dated “standardized” insurance language across contracts and have antiquated insurance language which hinders compliance. That said: over the past 5 years we have aggressively educated investment banks and project banks to be keenly aware of the clean-energy insurance marketplace and realize that the lending partner may be requiring an insurance cover or limit that is nearly impossible to secure or expensive to achieve. As a clean-energy insurance broker, we are very skilled at bridging the gap.

Learn more about our clean-energy insurance practice.