Insurer Concerns with Biomass and Waste to Energy

The insurance view

Over the years the Insurance community has gained a much greater understanding of the risk challenges that Biomass and Waste to Energy facilities pose during construction and operation. With this ever-increasing knowledge, and the scars to prove it, insurers generally viewed these facilities as a much riskier proposition than other power generation assets.

Recent hard market conditions have left Developers and Owners in this sector facing challenges ranging from, at best, significant increases in premium levels, to, at worst, the unavailability of insurance cover for these assets.

Insurers who have remained in the market are being more selective with the risks they are prepared to take on and are taking a more robust technical approach, analysing factors like:

• The fuel (commonly refuse-derived fuel or waste wood) specification and management at the facility and the associated fire and explosion risk
• The extent of fixed Fire Protection and Detection within all areas of the facility
• The extent of Explosion Protection and Management at the facility
• Boiler technology
• Boiler thermodynamic management
• Control of corrosives and accelerants
• Plant erosion and corrosion risk
• Standard transformer risks
• Standard steam turbine risks
• The proving of continuous plant running to meet the contractual requirements

The current market position for assets in this class is hugely frustrating for insureds and their financiers, as they face areas of non-cover and premium levels that are well beyond their budgeted position. Many are having to work closely with the Insurers, deploying significant amounts of CapEx to bring plants up to the standards expected by the Insurers that remain in this asset class. The following issues are of particular concern to Insurers:

Accelerating boiler/gasifier tube wear: Many plants in the Biomass and Waste to Energy sector have suffered accelerated boiler or gasifier tube wear caused by the presence of corrosive compounds or imbalances in air flow. Insurers are tuned into this issue and, unless they are satisfied that the plant operators have a high level of understanding and control over the performance of the boiler/gasifier, significant exclusions are applied to policies.

Fuel Specifications, and the controls to enforce them, play an increasingly important role in Biomass and Waste to Energy facilities. This is particularly apparent in the refuse-derived fuel and wood waste arena, where concerns about the potential for high-risk items found in black-bag type waste or out-of-specification wood stock (i.e. moisture, ash and other chemical content) have created a number of issues within the fuel cycle of the plants. Insurers have been quick to impose restrictive fuel quality clauses concerning damage arising from out-of-specification fuels.

Plant technology: Another area that remains a focus of the market is the selection of plant technology for new assets in development. Fortunately, Insurers are seeing a shift back to proven technologies (fluidised bed and moving grate boilers), rather that the utilisation of pyrolysis and gasification. However, Owners in this sector do operate plants with gasification technologies and these do present Owners and Insurers alike with a greater number of challenges during the early years of operation. Combined with accelerated wear within the gasification path, this has resulted in Insurers restricting cover by exclusions of corrosion or defects and applying higher levels of deductible.

The importance of an expert Broker

The key to a successful outcome for Developers and Owners in this sector is to engage with a Broker that has a deep understanding of all the aspects that can influence the Insurers’ view of a risk. An understanding of the needs and wants of Insurers – and how they can be met and influenced – can be as important as understanding the asset risks themselves. Our successful approach in managing Insurers’ perception of risk is to engage at a technical level with Insurers and their engineering representatives.

For example, when faced with restrictions related to tube wear, Gallagher understands the subtle differences between corrosion exclusions and defect exclusions, as regards damage exposure downstream in the gas/steam path. These subtle differences in approach can create large differences in policy response in the event of a claim.

Gallagher can also work with your team to ensure suitable controls are in place in respect of fuel specification and screening processes to avoid Insurers imposing restrictive clauses. Articulating the scope of the fuel supply, the specification and the mechanisms in place to manage the sampling and checking of incoming fuel stock will be key to ensuring Insurers’ stock clauses are not imposed without due consideration.