Risks
Financing Solar Projects: Risk Management and Insurance Considerations EBC Solar Energy Seminar April 2011
Risk Management • Progress always involves risks. You can't steal second base and keep your foot on first - Frederick B. Wilcox • The best we can do is size up the chances, calculate the risks involved, estimate our ability to deal with them, and then make our plans with confidence - Henry Ford • There are worse things in life than death – have you ever spent the evening with an insurance salesman - Woody Allen
2
Risk Management Life Cycle Risk Analysis
Risk Risk Identification RiskIdentification Identification Risk Risk Monitoring RiskMonitoring Monitoring
Uncertainty and Opportunity
Controlled Risk Environment
Risk Risk Estimation RiskEstimation Estimation Risk Risk Response RiskResponse Response Risk Risk Evaluation RiskEvaluation Evaluation
Systematic process of managing an organization's risk exposures to achieve its objectives 3
Types of Risks in Energy Projects Physical Financial & Economic
Loss in Revenue
Political and Environ
Risks
Concept and Design
Const. Related Operation
4
Contractual
Key Project Phases Conception and Design
Construction and Testing
Operation
Materials
Equipment Project
Revenues
Contracts
Site & Enviro
Faulty design or materials Force Majeure
5
Revenue Reduction
Cost Overrun
Project Delay
Contractor Performance
Physical Damage
Key Elements of a Project Insurance Program Property/First Party coverages:
Casualty/Third Party coverages:
• Builder Risk (course of construction) – physical damage and time element/loss of use
• General Liability
• Property – physical damage and time element/loss of use
• Excess / Umbrella • Professional & Pollution Liability
• Equipment Breakdown
• Contractors’ Equipment
• Contractors’ Equipment
• Other Coverages
• Cargo / transportation • Performance guarantee
6
• Workers’ Compensation
Important Program Considerations • Objectives? Develop/Build/Sell or Develop and Operate • Risk appetite and risk bearing capacity ? • Financing arrangements, lender requirements? • Project Delivery system – contractual relationships ? • Site occupancy details – buy or lease ? • RFP or Contract requirements ? • What perils are to be, or can be insured • Whose interests are to be protected ? • What deductibles apply? Who is responsible for them?
7
Insurers Conventional Markets: Established construction and energy insurers providing conventional programs which are tailored to the specific needs of each individual project. Typically offer separate programs that are combined to address the risks associated with the various project phases and the potential loss in revenue that is associated with these different interests.
Specialty Markets: Dedicated divisions within established insurance companies and specialist Underwriting agencies focusing on the renewable energy market. Typically offer composite package programs that cover transit, construction, and operating risks including the lost revenue that is associated with these different interests (can include tax credits or incentives that would have been earned)
Each would include physical loss or damage and time element components such as mechanical and electrical breakdown.
8
Performance Guarantees Awarding authorities and investors often require a guaranteed energy output or a hedge against performance Factors affecting system efficacy include: – Design defects in panels or ancillary equipment (serial defects) – Degradation of panels over time (e.g. delamination) – Improper installation – Damage during transit, installation, maintenance or operation – Environmental factors Risk Mitigation options: – Manufacturer warranties – Contractual arrangements – Property and equipment breakdown insurance – Performance Warranty / Extended Defects 9
Willis Solar Power Portfolio
Region
Number of MWs
Premium Volume (EUR)
Asia Pacific
150
100,000
Europe, Middle 1,000 East and Africa (EMEA)
3,000,000
Latin America
N/A
N/A
North America
500
6,000,000
Total
2,050
9,100,000
Highlights: Construction broker for the largest Solar Thermal Project in the World – Ivanpah 1 (392 MW). Broker for the first and largest European Parabolic Trough Solar Project in Spain (50 MW Phase 1).
10
Suddenly, a heated exchange took place between the King and the moat contractor……..
11
Risk Management • Progress always involves risks. You can't steal second base and keep your foot on first - Frederick B. Wilcox • The best we can do is size up the chances, calculate the risks involved, estimate our ability to deal with them, and then make our plans with confidence - Henry Ford • There are worse things in life than death – have you ever spent the evening with an insurance salesman - Woody Allen
2
Risk Management Life Cycle Risk Analysis
Risk Risk Identification RiskIdentification Identification Risk Risk Monitoring RiskMonitoring Monitoring
Uncertainty and Opportunity
Controlled Risk Environment
Risk Risk Estimation RiskEstimation Estimation Risk Risk Response RiskResponse Response Risk Risk Evaluation RiskEvaluation Evaluation
Systematic process of managing an organization's risk exposures to achieve its objectives 3
Types of Risks in Energy Projects Physical Financial & Economic
Loss in Revenue
Political and Environ
Risks
Concept and Design
Const. Related Operation
4
Contractual
Key Project Phases Conception and Design
Construction and Testing
Operation
Materials
Equipment Project
Revenues
Contracts
Site & Enviro
Faulty design or materials Force Majeure
5
Revenue Reduction
Cost Overrun
Project Delay
Contractor Performance
Physical Damage
Key Elements of a Project Insurance Program Property/First Party coverages:
Casualty/Third Party coverages:
• Builder Risk (course of construction) – physical damage and time element/loss of use
• General Liability
• Property – physical damage and time element/loss of use
• Excess / Umbrella • Professional & Pollution Liability
• Equipment Breakdown
• Contractors’ Equipment
• Contractors’ Equipment
• Other Coverages
• Cargo / transportation • Performance guarantee
6
• Workers’ Compensation
Important Program Considerations • Objectives? Develop/Build/Sell or Develop and Operate • Risk appetite and risk bearing capacity ? • Financing arrangements, lender requirements? • Project Delivery system – contractual relationships ? • Site occupancy details – buy or lease ? • RFP or Contract requirements ? • What perils are to be, or can be insured • Whose interests are to be protected ? • What deductibles apply? Who is responsible for them?
7
Insurers Conventional Markets: Established construction and energy insurers providing conventional programs which are tailored to the specific needs of each individual project. Typically offer separate programs that are combined to address the risks associated with the various project phases and the potential loss in revenue that is associated with these different interests.
Specialty Markets: Dedicated divisions within established insurance companies and specialist Underwriting agencies focusing on the renewable energy market. Typically offer composite package programs that cover transit, construction, and operating risks including the lost revenue that is associated with these different interests (can include tax credits or incentives that would have been earned)
Each would include physical loss or damage and time element components such as mechanical and electrical breakdown.
8
Performance Guarantees Awarding authorities and investors often require a guaranteed energy output or a hedge against performance Factors affecting system efficacy include: – Design defects in panels or ancillary equipment (serial defects) – Degradation of panels over time (e.g. delamination) – Improper installation – Damage during transit, installation, maintenance or operation – Environmental factors Risk Mitigation options: – Manufacturer warranties – Contractual arrangements – Property and equipment breakdown insurance – Performance Warranty / Extended Defects 9
Willis Solar Power Portfolio
Region
Number of MWs
Premium Volume (EUR)
Asia Pacific
150
100,000
Europe, Middle 1,000 East and Africa (EMEA)
3,000,000
Latin America
N/A
N/A
North America
500
6,000,000
Total
2,050
9,100,000
Highlights: Construction broker for the largest Solar Thermal Project in the World – Ivanpah 1 (392 MW). Broker for the first and largest European Parabolic Trough Solar Project in Spain (50 MW Phase 1).
10
Suddenly, a heated exchange took place between the King and the moat contractor……..
11
