There is no doubt that renewable energy is enjoying a burst of activity and drive both globally and across the African continent. The recent COP 26 summit resulted in numerous countries pledging a renewed focus on achieving net-zero targets. Change for the sector has been swift and significant, with wind, solar and biofuels becoming the new focus for the energy sector. This has led to significant developments in the insurance market as its adapts and evolves to the new challenges presented by this growing sector across insurer, broker and regulatory frameworks.
According to Tanya van der Westhuizen, head of Renewable Energy at GIB Insurance Brokers, renewables are set to dominate the construction of new power infrastructure in the years ahead. “The recent announcement in South Africa of the REIPPP Bid Window 5 results, with 25 new projects given the go-ahead by government, as well as the intention by government to announce round 6 soon, means that there will be no let-up in the developments.”
“Yet this opportunity is tempered by a very real challenge - a significant contraction of insurance market capacity due predominantly to the natural catastrophe claims incidences which have occurred worldwide (although not to any large extent in South Africa or the African continent.) These claims have led to reduced capacity from the international markets (Lloyds and other) and now, more than ever, it is critical for brokers and insurance advisors to have a strong working knowledge of all the markets that are available to projects to help them achieve a bankable insurance solution.”
To this end GIB has recently made a significant investment in the renewable energy sector to bolster its already strong position in the construction and engineering sector. “We anticipated the strong expansion of the sector, and we are now well positioned to assist clients in the renewables space with advice that adds true value to their business.”
Companies in the renewable energy sector requiring insurance services should seek a broker with experience across several fundamental aspects:
- Assistance with insurance pricing for entities that are submitting proposal in the REIPPP process. These pricing indications are provided on the basis that they are supportive of the finance models.
- Power purchase agreement guidance and advice.
- Engineering, procurement, and construction (EPC) advice.
- Providing advice on detailed insurance pricing and coverage issues when a client or entity has been awarded a project. This entails a full examination of the project from the outset to the operational phase, coupled with a detailed review of the insurance markets, available cover and the optimal structuring of the cover. This process requires that the broker/advisor is completely up to date with the availability of markets and can provide insight into the best options to consider.
- SASRIA/riot and strike cover as well as excess nett profit covers are also a focus area. With the recent unrest incident in Kwazulu Natal it is important to make a rigorous analysis of the risk profile to ensure that any concern which lenders have is addressed.
- Advice around finance agreements and lender’s insurance advisors.
- Advice around the optimal insurance structure, risk identification for each project and a clear demarcation of responsibilities of all parties involved.
Using an insurance broker or advisor who has a strong track record and capability can add significant value to the project and enhance the whole project process as clients drive towards financial close.
Van der Westhuizen says the renewables sector brings significant potential for future growth. “The renewable sector is evolving and adapting to the significant challenges that it faces. Grid flexibility is a worldwide issue, and it is no different to the challenges faced in South Africa. Technology is evolving rapidly, resulting in the development of innovative solutions for grid flexibility and transmission. As evidenced in other countries, we soon expect to see significant advancement made in this area.”
“Storage of produced electricity is similarly a key issue and although the solutions to this difficult problem remain elusive, there is significant investment by various areas of the economy. Again, we expect that this investment and development of alternative approaches will result in significant advancement in the area.”
She says there is physical risk coupled with third-party liability risks which make the provision of a well-considered and detailed risk management programme a key part of the analysis and solutions to the risk profile which a project can face.
“As the renewable energy market develops it creates a plethora of new risks for risk managers to consider. It is critical to engage with a team of brokers or advisors who can add real value to the process and provide a prudent and well considered risk management plan incorporating the many aspects involved.”