Traditionally, climate change was considered the primary reason for the deployment of Renewable Energy assets to mitigate its effects and achieve net-zero emissions.
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However, the urgency to implement clean technology has been amplified by Russia's invasion of Ukraine and the subsequent instability in energy prices, which has brought energy security to the forefront of global concerns. The energy transition has also been expedited by significant legislation and the post-COVID drive to reduce reliance on foreign supply chains, thereby increasing domestic energy demands as regions aim to depend more on their own manufacturing capabilities. The growing urban population and the crucial role cities play in climate change mitigation further demand the need for more renewable energy assets and infrastructure.

Renewable energy projects often require project owners to contemplate various risk transfer and mitigation strategies to address potential exposures, including construction, environmental, regulatory, technological, and operational risks. Effective risk and insurance management during a renewable energy project's development can contribute to the organisation's success and profitability. Despite the sector's inherent risks, regardless of the technologies deployed, the risks fundamentally remain the same. These phases are explored in more detail below.

Concept/Design

At this stage, financial risk is the most significant, so reviewing insurance risks, including project design, is crucial for achieving optimal outcomes from both an insurance and funding perspective. Early insurance review should be considered as new entities are established, as there may be legal and/or contractual requirements to consider. Early insurer feedback is vital as loss control requirements from insurers, regardless of technology, must be factored in to secure a commercially viable insurance program. Failure to do so can render the project uninsurable. Additionally, due diligence reviews on your supply chain are necessary.

Construction

As your project transitions into the construction phase, your insurance and risk program will need to adapt to cover this stage. Site safety and contractor control are essential for the project's safe deployment, and reviewing construction contracts is a necessity to ensure the project is constructed to insurer specifications. Understanding the handover phase is also crucial as it determines ownership responsibilities and insurance placement. Project owners must decide whether to insure the project themselves or rely on their supply chain, and a thorough discussion with your insurance advisor is crucial in making this decision.

Operation

Once the project has been tested, commissioned, and handed over, the insurance responsibility typically falls to the owner, and the project transitions from a construction policy to an operational policy. It's important to have the right operational and maintenance contracts in place for key equipment, including high voltage, statutory inspections, and business continuity systems. The company is to carry these works, which will also be reviewed during the design and concept stage by insurers. Site controls, especially those of subcontractors, are also crucial to ensure they perform the correct scope of works with the right permits.

Decommissioning

Decommissioning may be required by the landlord or as part of the planning permissions. Certain policies can be implemented to cater for this requirement, or a more commercial/contractual approach could be considered.

Conclusion

The Renewable Energy sector is not only rapidly growing, but its technology also evolves at a pace that insurers sometimes struggle to keep up with. This creates market challenges, and there isn't a large pool of insurers willing to underwrite these risks. Therefore, early engagement with a renewable energy insurance professional is crucial to the project's success and will also drive the best results in terms of risk mitigation and transfer, and ultimately the project's bankability.


Disclaimer

The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.