RENEWABLE ENERGY INDUSTRY – INSURANCE OPTIMIZATION AMIDST NEW TAX LAWS | PROTECT YOUR BUSINESS WHILE REDUCING INSURANCE PREMIUMS

In a recently published article, the Wall Street Journal looked at how new tax laws could impact 15 major industries in the United States, including Renewable Energy.

It is believed that the proposal in the House tax bill would reduce or sunset federal tax credits for wind and solar projects. This counters the push by industry trade groups such as The Solar Energy Industries Association (SEIA) and The American Wind Energy Association (AWEA) to protect the existing tax credit.

AWEA further reports that if the new tax code were to retroactively change how businesses can qualify for wind energy credits, one of several results might be the termination of construction contracts already signed.

Renewable Energy Companies have much to lose financially and also open themselves up to multiple layers of risk if this happens. Broken contracts would result in lawsuits and terminating employees could lead to wrongful termination claims. While these may pale in comparison to the overall business risk posed by lost tax credits, energy companies planning on trying to persevere through tough times can better protect themselves while taking action to reduce one major expense, insurance.

Through proactive revenue and payroll audits, a skilled Renewable Energy Insurance Broker can negotiate premium reductions. Adding lines of coverage such as Employers Practice Liability (EPL) can protect employers from wrongful termination claims. Ensuring proper Professional Liability (E&O/D&O) coverage can also help to ensure insurance coverage will respond to suits brought by third parties who’s contracts were terminated. These are just a few areas to address in a company’s overall insurance program and there are many more.

Turning a blind eye to political and economic threats to the Renewable Energy Industry is not an option. Instead, work to identify potential areas of risk and how you will address them to limit or remove the threat all together.

Those of us who have been in the industry know the unique challenges we face and how best to address them. If you are unsure on how your policies will respond or not confident in your overall risk management strategy, seek the help of a Certified Risk Manager.

For more information on how to obtain coverage from a renewable energy specific carrier, please contact the renewable energy risk managers at RenewableGuard.com

This article was published by Michael Cosgrave, CRM, CIC.  Michael is a Certified Risk Manager for the Renewable Energy Industry and manages the insurance services offered through RenewableGuard. Michael is also the nationally endorsed insurance broker for a highly effective and encompassing multi-line renewable energy industry coverage program.

A RENEWABLE ENERGY BALANCE OF POWER: DEVELOPERS AND NOT THEIR CONTRACTOR SHOULD INSURE ENERGY PROJECTS

RENEWABLE ENERGY RISK MANAGER MICHAEL COSGRAVE AND ENERGY CONSULTANT SAM JENSEN TEAM UP TO EXPLAIN WHY RENEWABLE ENERGY DEVELOPERS AND NOT THEIR EPC CONTRACTOR NEED TO OWN THE BUILDERS RISK INSURANCE POLICY ON THEIR PROJECTS

Who should control the insurance when constructing your next renewable energy project? Recently, the insurance risk managers here at RenewableGuard teamed up with the consultancy firm Traxler & Tong and their Managing Director of Renewable Energy Sam Jensen, to help answer this question. Who better to ask? Since 2007, Sam and his team have provided independent due diligence consultation on more than 700 renewable energy transactions from large and small residential to large and small utility scale projects to include a mix of solar, wind power, fuel cell, hydro, biomass and geothermal projects.

Through an analysis of policy forms, prior claims and general observations of hundreds of transactions, we compiled a list of reasons why it is almost ALWAYS best for a Developer to control the insurance for their projects.

The question comes up more often than you’d think, and many developers are unknowingly taking on additional risk by having their Engineering, Procurement, and Construction (EPC) contractor obtain the insurance.  Let’s use an example to help make this point.

Project – 60MWdc Utility Scale Ground Mount Solar Project in the United States

Insurance Considerations –

  •        Builders Risk/Property Policy approximately $60M.
  •        Business Income/Revenue Coverage of $4M
  •        Delay in Start Up
  •        General Liability of $1M per occurrence
  •        Umbrella Liability of $5M per occurrence

List of Issues – If the EPC contractor procures the insurance during the construction phase, listing the EPC as the primary named insured and their developer/project owner as the additional insured on their policy:

  1. Lost Delay in Startup Project Revenues – Contractors and subcontractors have no insurable interest in the Project revenue, which lenders will require the insured to buy through Delay in Start Insurance. Annual revenues on a project of this size might range between $3.5M – $4M. A delay of 3 months could equate to a loss of $900K that would most often not be insured under the EPC’s policy.
  2. Lack of Project Specific Limits – How broad is the policy language from your EPC’s carrier?  By controlling their own insurance, the Developer removes this question all together. They can obtain broadened coverage with sub limits for items like earthquake and flood tailored to a specific project and the risk concerns of the Developer.
  3. Claims from Other Project – More often than not, coverage limits earmarked for your project are shared with ALL the other projects the contractor is completing construction on. Contractors may have policy aggregates which could be eroded by losses on other projects and ultimately limit their insurer from making claims payments on a specific project.
  4. Added EPC Mark Ups – Going direct to purchase your own insurance reduces the likelihood of insurance costs mark ups by the contractor.
  5. Policy Transition for Construction to Operational – Avoid grey areas from a claims perspective that could arise when transferring to an Operational All Risks policy for losses that are related to issues arising from the course of construction and/or maintenance period.
  6. Build your Carrier Relationship: Going direct builds an early relationship for the Owner with their preferred carrier, which can be leveraged on long term operational costs as well as other projects. We have seen carriers make pricing concession of 20% or more for their preferred insureds.
  7. Claim Pay-outs – Greater control by the owner in receiving money from insurers following a claim.
  8. Coverage for your EPC – Contractors/ subcontractors are still named in the policy as additional insureds so they are not put in a disadvantaged position.

As you can see, there are many reasons why it makes sense for the Owner/Developer of a project to also own their insurance. Sam offers some final advice to the developers of these renewable energy projects when working through control of their insurance:

“Placing Builders Risk under a developer controlled program often leads to broader coverage more tailored to the risks of the developer and their financing parties. The trend of having the developer place the course of construction and operational phase property insurance helps to eliminate the risk in lapse of coverage between substantial completion and placed in service dates while cutting down an administrative work and possibility of human error”

Conclusion:

Not all carriers offer the broad coverage afforded by renewable energy specific insurance carriers. As a renewable energy insurance broker, RenewableGuard places all coverage with unique renewable energy industry specific markets. It is always advisable that if insureds are seeking to start or grow their renewable energy business, it’s best to partner with a carrier AND insurance broker who understand the unique exposures associated with renewable energy.

For more information on how to obtain coverage from a renewable energy specific carrier, please contact the renewable energy risk managers at RenewableGuard.com

This article was published by Michael Cosgrave, CRM, CIC and Sam Jensen, Managing Director of Renewable Energy at Traxler & Tong.

Michael is a Certified Risk Manager for the Renewable Energy Industry and manages the insurance services offered through RenewableGuard. Michael is also the nationally endorsed insurance broker for a highly effective and encompassing multi-line renewable energy industry coverage program

Sam is a Renewable Energy consultant with professional expertise in insurance / risk management for Lenders, Developers, Investors. Focusing in renewable energy.

RenewableGuard.com – A Roof Decision | Why Solar Developers Should Buy a SEPARATE Insurance Policy for Roof Mounted Solar

Own a building and adding solar? Or, your building owner wants to simply add your solar array to their building’s insurance? Don’t do it and here is why…

SCENARIO: There is common ownership of the building and the roof mounted solar being installed or already installed. Should I just add the solar array to my building’s existing P&C policy?

RISK MANAGER’S RECOMMENDATION: While it is tempting and perhaps seemingly easier to simply add your roof mounted system to your existing building insurance P&C policy, there are many reason why this is NOT good risk management. I recently had a conversation with Christina Tom, VP at a reputable renewable energy insurance carrier. The following outlines our compiled list of reasons why a solar developer should purchase their own separate insurance policy. I have also included an outline of improved coverage unique to your solar insurance carrier that your building’s insurance carrier typically can’t match:

COVERAGE RATIONAL:

o   LEG II coverage:

  • The solar policy form covers consequential resultant damage resulting from faulty workmanship, design or defective part

o   Escalation Clause:

  • Solar policy property forms can cover 125% of the value stated on the Statement of Values  (SOV) in the event the gross profit or replacement value is more than what’s shown on the SOV.

o   Mechanical Breakdown:

  • Coverage for Mechanical or Electrical Breakdown. Some P&C Carriers exclude this peril from their policy form.

o   Loss of Revenue:

  • The solar carrier can cover loss of income resulting from interruption from construction or while in operation.
  • The solar carrier can also cover Contingent Business Interruption in the event a non-owned substation, electrical distribution line or transmission facility is damaged. Contingent Business Income can also be provided if your off-taker in a Power Purchase Agreement is destroyed by a fire and does not need electricity while being rebuilt.

o   Definition of Property:

  • Unlike most generic property policies, a solar carrier’s definition of “Property” has been tailored to specifically meet their insureds’ solar needs. The property definition is a broad and comprehensive definition to encompass all components of a solar project.

o   Construction, Operational, Liability (Umbrella & GL):

  • The solar carrier can cover the insured’s solar projects while under construction and in operation. This is a seamless approach that covers the panels from beginning to end. In addition to property coverage, the carrier is able to offer GL and Umbrella options to complete the package.

o   Additional Coverages:

  • Leased Equipment Rental costs
  • Offsite Property
  • Pollutant Cleanup & Removal
  • Transit
  • Debris Removal
  • Accounts Costs / Professional Services / Legal Costs
  • Local Authorities Clause
  • Newly Acquired
  • Architects, Surveyors
  • Demolition and Increased Cost of Construction
  • Expediting Expenses
  • Documents and Computer Records

CLAIMS HANDLING RATIONAL: Renewable energy is a solar carrier’s niche. Their claims adjusters are experts in the industry and know how to handle the specific nuances of renewable energy claims. Most P&C claims adjusters do not have the expertise or experience in adjusting solar claims, leaving the insured anxiously waiting for payment.

PRICING RATIONAL: The property rate provided by some of these unique renewable energy carriers is often times 10% – 20% more competitive than rates offered through traditional property and real estate carriers. This becomes increasingly accurate when putting together larger, growing schedules of locations.

SELECTING THE RIGHT BROKER: Working with not just any insurance broker, but specifically a renewable energy broker is extremely important for growing renewable energy business. These brokers understand which markets are renewable energy specific carriers with the capability to provide the unique coverage outlined above. These brokers also likely already have the best relationships with the specialty markets due to the high level of aggregated premium they’ve placed with the carrier already. Lastly, knowing the right markets and understanding the renewable energy business allows the renewable energy broker to better present an account to their carriers. The results are optimized coverage and pricing.

CONCLUSION: Bottom line, insureds seeking to start or grow their renewable energy business need to partner with a carrier AND insurance broker who understand the unique exposures associated with renewable energy.

For more information on how to obtain coverage from a renewable energy specific carrier, please contact the renewable energy risk managers at RenewableGuard.com

This article was published by Michael Cosgrave, CRM, CIC. Michael is a Certified Risk Manager for the Renewable Energy Industry and manages the insurance services offered through RenewableGuard. Michael is also the nationally endorsed insurance broker for a highly effective and encompassing multi-line renewable energy industry coverage program.

Measure Twice – A Free Software Tool to Measure Natural Disaster Exposures on Renewable Energy Facilities

Let the Risk Managers at RenewableGuard help you reduce your risk and insurance premiums by leveraging a free software tool that provides loss potential data of natural hazards occurring anywhere in the world

Renewable energy companies spend billions of dollars each year on the development and operation of high tech energy producing facilities. Beyond the actual hard costs to build, there are insurance soft costs that can vary significantly simply because of the facility’s physical location. Bottom line, projects that are built in areas that have a higher likelihood of being damaged or destroyed due to a natural hazard (earthquakes, hurricanes etc), pay much higher insurance premiums than those built in safer regions. Unknowingly, renewable energy companies may be taking on more risk than they’d like. Now there is a free software tool that can help these companies analyze and asses just how exposed they are, allowing for better business decision making and overall risk management.

Here is the link to a software tool offered by Munich RE, an international insurance company. Per Munich RE, the added value for businesses lies in combining their own risk data with their exposure levels to natural hazards. We at RenewableGuard couldn’t agree more and we often use this data to help renewable energy businesses analyze their own exposure and how exposures also impact their insurance costs.

Here is an example of how insurance premiums would be impacted by natural hazards on a $200M utility scale solar project near an earthquake fault zone:

The property rate on a $200M project in the US with low exposures might be 0.1% of the sum insured, or $200,000. But if that location is also near an earthquake fault line, lenders will push the developer to also purchase a sub limit of earthquake coverage. This is where things get costly. If the insured were required to carry a $40M sub limit for earthquake on the $200M project, their insurance premiums for property coverage would almost double! The insurance rate for earthquake coverage might be 0.4% of the $40M sub limit. Do the math and this translates to an additional $160K of annual insurance premiums for a grand total of $360K in premium!

Soft costs like insurance premiums cut directly into the returns on these projects. Exposures like earthquake, typhoons, hurricanes, tornadoes, and flooding all impact insurance premiums. When developing your next project or assessing your existing portfolio, we invite you to have RenewableGuard review your data from Munich RE’s software tool and provide recommendations on how to reduce your risk and overall insurance costs. Wouldn’t it be nice to know what exposures impact your facility prior to breaking ground on your next project? Try the link out today and see just how risky your next project really is, you might be surprised.

This article was published by Michael Cosgrave, CRM, CIC. Michael is a Certified Risk Manager for the Renewable Energy Industry, manages the insurance services offered through RenewableGuard and is the nationally endorsed insurance broker for a highly effective and encompassing multi-line renewable energy industry coverage program

RenewableGuard: Trump Tower vs. The Eiffle Tower

The Paris Climate Agreement shows us how Political Risk can impact the Renewable Energy Industry, while also shedding light on the need for increased private financing. Bill Gates and his Breakthrough Energy Fund shows us just how to get that done…

http://Bill Gates Launches $1 Billion Breakthrough Energy Investment Fund

RenewableGuard.com, Certified Renewable Energy Risk Managers providing insight and expertise on how best to protect Renewable Energy Business in a world with dynamic and ever changing risks. RenewableGuard.com provides these businesses with the ability to roll incumbent insurance policies into a unique insurance product that insures all lines of coverage. Work with experts who understand your business and the industry’s risks: Property | Bonding | General Liability | Builders Risk | WC

Contact us if you are an Energy Developer, EPC Contractor, or O&M provider…you may be eligible to Activate RenewableGuard’s unique coverage for your business