By Rebecca Merry and Carl Gurney, from Marsh Commercial
Renewable energy projects can only secure financial investment when as many risk factors as possible have been removed, and insurance is an essential piece of the jigsaw.
Insuring anaerobic digestion plants
The anaerobic digestion (AD) sector is an especially challenging market for insurance businesses to navigate. Historically, during the first wave of AD developments, there were a lot of insurance providers and brokers involved. However, as time went on many insurers pulled out of the sector following a number of claims, which typically were a result of poor design, operations or management.
Additionally, the AD sector is not very large. With just 600 AD plants in the UK, and only four or five insurers in the market, the options are limited. And the issue from the insurers perspective is that only one sizeable claim can wipe out their profits from their activity in the sector. This puts the onus on the AD developer to ensure all ‘de-risking’ requirements at met from the outset.
At Marsh Commercial, the specialist renewables team look at corporate structures, lease agreement, operations and maintenance contracts, construction contract and lender requirements to assess what is required from an insurance policy, both legally and under contract. Collaboration with clients is then important to build a programme which manages risk and successfully meets the insurance criteria.
How to reduce risk
The most cost-effective way to reduce risk and secure insurance is to engage with a broker with knowledge of the sector as early as possible. Brokers with specialist renewables teams can advise on the specific ‘loss controls’ that they look for.
Loss controls may include adding in measures to mitigate fire or lightning strike. For example, at Marsh Commercial we check where the water access is. If the closest water hydrant is more than 100m away, then the water pressure will be inadequate. In this scenario, we would suggest building a fire tank with the correct connection for a fire engine.
Why insure renewables developments
From an insurer’s perspective, it may be perceived that renewables projects like AD are high-risk and there is not a big enough market to offer substantial profits.
However, climate change is changing the way all types of businesses operate. Marsh Commercial, alongside 80 other businesses in the insurance industry, are investing in creating change that allows projects which offer solutions to climate change to be insured.
One of the ways to achieve net zero is to invest in renewable energy, so the insurance industry has a responsibility to support this transition. This involves working with the different sectors to understand new developments and identify the priorities and challenges.
Currently, in the AD sector, the focus is on increasing value from digestate and capturing carbon. As insurance brokers, keeping abreast of industry change is vital to support our clients by advising on how they can ensure they are insurable and 100% compliant.
Partnerships are essential. At Marsh Commercial, we support clients who prioritise ESG and put sustainability and achieving net zero at the centre of their business. Working with Privilege Finance is an example of a successful collaboration – specialists working with specialist to offer clients the best possible solution. The entire Privilege team are engaged and have a focus on ensuring their projects achieve their full potential in providing climate change solutions. This is true for the people on the ground supporting the construction and running the AD plants, through to the finance team in the office.