Renewable energy continues to be a growth sector for the Pacific, with projects of unprecedented scale receiving development approval and commencing construction. 2024 saw $12.7b in new investments, the highest year on record in Australia, and the largest single year of investment since the initial 2018 renewable energy boom.[1]
Local renewable energy projects see significant capital expenditure with multiple project participants, including unique aggregation risks due to the concentration of dedicated renewable energy zones (“REZs”) in Australia. These variables, alongside the rapid technological advancement in the space, contribute to a need for tailored, complex, and technical insurance solutions to protect an asset.
The renewable energy industry also sees a considerable amount of investment activity, which in turn requires an impartial insurance review to ensure the appropriate level of risk is being transferred via insurance to protect the interests of any investors or financiers. Insurance due diligence (“IDD”) is a critical part of any corporate transaction, providing you with the guidance of trusted and experienced insurance advisors to anticipate, qualify, and opine on insurance and risk.
Material damage or interruption sustained by an asset can cause significant loss to capital investors, necessitating the need for the appropriate transfer of such risks to insurance. Compounded with the ability to generate considerable revenue, the primary risk consideration for an investor or financier is how to immediately mitigate a material loss and return an asset to it’s pre-loss position with the ability to continue generating. From the risk of natural hail phenomena decimating a solar farm, to thermal runaway in a battery energy storage system, or a blade cracking in a wind turbine, material damage to an asset and the consequential loss to revenue generated by an asset can manifest in numerous ways and may vary between projects depending on size and location.
In a rapidly changing landscape, it is paramount to understand the current extent to which these risks can be commercially transferred to insurance and to displace any concerns that may be irrelevant to a particular project or asset.
Additionally, with a marked increase in local and global natural catastrophe losses, and increased geopolitical tensions affecting critical supply chains, the solution for a property or marine policy today is different to that which was acceptable or available even as recent as ten years ago.
Placing an insurance program has become a more technically demanding process, with the underwriting questions of the past now being bolstered by significant technical requests to understand the engineering behind an asset and how risk has been considered and managed throughout the entire lifecycle of the asset, from development through to decommissioning. Professional guidance from an experienced insurance broker can streamline this process, allowing insurers and insureds alike to focus on the key issues impacting the insurance program.
Whether operating under a principal-controlled or contractor-controlled model, the insurance program should consider, and if appropriate extend to, the full range of project participants where possible to minimise overall costs for the asset. The insurance program needs to be designed with this interconnectivity in mind, including provisions such as a multiple insured clause affirming cover will apply to each insured, a non-vitiation and severability clause affirming that the non-disclosure, breach, error, or omission of one insured does not prejudice the rights of the other insureds, and a waiver of subrogation clause affirming that the insurer waives their right to subrogate against each insured.
Given the complexities of contractual structures associated with renewable energy assets, a further consideration must be how each project participant’s interest is insured through the asset’s insurance program and the most sensible way to structure a program. Owners, contractors, suppliers, financiers, and more are involved – each with a unique stake in the asset, and each requiring appropriate protections for their exposure.
Liability programs must be structured in a way that ringfences project risk for each participant, marine policies must consider the intersection between Incoterms and a supplier’s floating insurance policy, and general construction and property programs must be designed to ensure there are no gaps in cover for the property, tools, and equipment utilised and owned by each party. Therefore, the insurance program designed for the asset must carefully balance the interest and risk tolerance of each participant.
Depending upon the nature of the transaction, additional provisions may need to be built into the insurance program. In the context of debt financing for a renewable energy asset, financiers can be afforded additional affirmative provisions relieving them of their duty of disclosure, their liability for premiums, and waiving the insurer’s right to remedies against the financier. These can form critical aspects of a financing or facility agreement and be key to securing project financing.
A one-size-fits-all approach is not always sufficient to meet the needs of the various stakeholders, and the insurance program must be designed having regard to both the complementary and competing interests of project participants, from the principal down to the sub-subcontractors.
Willis conducts quantitative and qualitative assessments of insurance programs, tailoring our scope of services to meet your needs and deliver a concise report to pre-empt and mitigate concerns. Through IDD, we provide value by demonstrating program and pricing efficiencies, highlighting material claims, and recommending an appropriate plan for past and future liabilities.
We can review the methodology behind the insurance procurement of a target company or project and the basis for their declared limits, indemnity periods, and material declarations to identify any deficiencies or material concerns that could leave a capital investment exposed.
Our Due Diligence practice works in tandem with our Renewable Energy broking practice to deliver you tailored, current, and expert advice, reducing the overall risk and costs associated with a transaction. Whether undergoing project financing, an asset purchase or sale, and/or a broader portfolio opportunity, the IDD process can identify key insurance concerns to provide the necessary comfort to owners, investors, financiers, and advisors active in the industry.
