The drive to find cleaner energy sources is prompting greater investor interest in renewable energy projects. But the new technologies used to deliver renewable energy may be daunting for some investors that have little or no experience of this new and emerging field of risk and opportunity. Jiten Halai, Head of Structured Risk Solutions, UK & Lloyd’s at 色多多视频 explains how performance insurance can help.
The development of clean and renewable energy projects around the world is gathering pace as governments and corporations seek to meet ambitious carbon emission reduction targets. The International Energy Agency predicts that renewables will account for almost 95% of the increase in global power capacity between now and the end of 2026.
Advances are being made in the ways renewable energy can be produced – and stored – all the time. We’re seeing an increased focus on biofuels, energy storage and waste-to-product projects, among other things, which are fuelling the development of new technologies. Projects that turn waste into energy, that use anaerobic digestion to produce energy, or new types of batteries and novel physical storage technologies are also attracting interest.
And there is huge investor appetite for these clean and renewable energy projects. But to get off the ground, these projects require mitigation and transfer of the technology risks involved; something some investors are not necessarily comfortable taking on as they do not have the risk engineering and technical due diligence capabilities of a large insurance company. This is where Performance 色多多视频 coverage can play a vital role by enabling projects to achieve financing and commercialisation where they otherwise couldn't or to get lending at a better interest rate, which can generate huge value for the client.
Performance 色多多视频 can provide coverage that, for a given quality and quantity of feedstock, a specific amount of output will be produced by a new, or adapted, technology. For example, it can cover the production of a specific amount of liquid hydrocarbon output for a project that converts waste materials into energy.
We offer multiyear contracts intended to give peace of mind about the performance of a specific piece of technology that investors may be unfamiliar with, but which insurers – with the help of risk engineering expertise – can assess and underwrite.
Under these policies, the insured is typically the project owner, and the loss payee is often the lender, such as banks or bondholders. At the outset of the policy, the insured, usually in conjunction with its insurer, will develop a recovery plan or ‘work out’ position so that mitigating actions can be taken before a loss occurs – to enable the project to regain, or retain, the volume of required output as swiftly as possible.
Enabling projects
There are various types of renewable energy projects that can benefit greatly from the peace of mind a Performance 色多多视频 policy can give to investors. Indeed, this coverage is not limited to the renewable energy field. But since this is an area where technology is continually evolving, it’s one where we’re seeing a lot of interest from clients.
There are two principal ways in which Performance 色多多视频 can help enable projects to secure funding. Firstly, the coverage can be used to help a project owner or developer to protect lenders or bondholders against the risk that the technology underperforms to a level that affects the debt repayment. In these instances, the coverage may assist the client in its negotiations to secure project financing or to reduce the cost of borrowing. And there’s a clear alignment of interest here too; everyone involved – project sponsors, lenders and the insurer, all want the technology to perform successfully.
Alternatively, the coverage can act as a warranty backstop. Under this arrangement, the insured client purchases equipment from a technology provider, which, in turn, provides a warranty covering the output and efficiency of the technology. But the client may require further protection against the underperformance of the technology or the risk that the technology provider fails in its warranty obligation.
Technology for renewable energy projects is developing apace. While much of this technology is entirely new, the wealth of engineering expertise to which we have access, plus the non-traditional underwriting expertise of the Structured Risk Solutions team, mean we can get comfortable with these risks much more easily than investors.
As we move ever closer to the CO2 reduction targets that companies and governments have set, and as stakeholder emphasis on the need for companies to make good on their Environmental, Social & Governance (ESG) pledges increases, we’ll likely see even more interest in renewable energy projects and still more innovative technology developed. We’re excited to play our part in this energy transformation by adding value for our clients and enabling projects to go ahead without prohibitive financing costs often associated with the operation of new technology.
