Balancing the costs of insurance against the risks involved in building a renewable-energy plant in South Africa has proven critical to securing funding for these projects, says Marsh Africa director Nicola Harris.
The experiences gleaned from renewable-energy projects in countries worldwide have resulted in the engineering risks being well understood and more easily assessed, which subsequently reduces the risks that banks face when funding such projects.
Banks seek surety of returns on the funds that they provide for renewable-energy projects, while renewable-energy developers want to control their costs, ensure that they make a profit and sustain the project throughout its life cycle.
A properly constituted insurance portfolio is a significant part of a viable financial model of a renewable-energy project, as it reduces the risks banks are exposed to and, thus, boosts the funding banks make available for these projects.
“A key part of the function of insurance advisers is critically reviewing the contracts to identify risks. “Insurance portfolios must maintain the balance between risk mitigation and costs. “Insurance cannot mitigate all the risks associated with renew-able-energy projects, but it can help make such projects bankable.”
Determining the realistic appetite for proposed projects and the risk profile the lenders are comfortable with enables the projects to become financially viable.
“While the renewable-energy industry is relatively new in South Africa, it is well established in many other countries, enabling South African lenders and financial institutions to use the data from these countries to assess the severity of risks inherent in such projects,” she says.
Marsh Africa draws on its global network of expertise in the renewable-energy sector, its local knowledge of insurance regulations and engineering risk experts to provide clients with the correct and balanced insurance portfolio, says Harris.
“Marsh Africa aims to provide insurance and risk advice for projects, from conception to operation, including designing and modifying the projects’ insurance programmes according to changes in risks or the financial and regulatory environment,” she says.