Renewables projects to face insurance premium spike

Renewable energy projects are facing an insurance hike

Renewable energy projects around the world will see insurance premiums rise over the next two years, according to one of the leading specialist providers of insurance to clean energy firms.

Speaking to BusinessGreen.com, Fraser McLachlan, chief executive of GCube, a provider of insurance to wind, solar, biofuel, marine and hydroelectric power projects, predicted that the combination of the recent financial turmoil on the global financial markets, the near collapse of the world's largest insurer AIG, and losses arising from Hurricane Ike in the US meant that premiums were likely to rise.

"It has been a soft market for several years and premiums for renewables projects have come down to a level that is unsustainable," he said. "We'll see the fall in premiums flatten out over the next year, and over the next 24 months we'll see increases of five to 10 per cent."

The pressure to increase premiums will be particularly intense for insurers providing cover for renewables projects because they are being asked to take on greater levels of risk, according to McLachlan.

"Renewables is not a loss free business – there are quite a large number of claims out there," he explained. "There are still a few technical issues that arise and because it is a sellers' market, more manufacturers are offering limited warranties. Wind turbines, for example, that used to be offered with five year manufacturer warranties are now only having two year, or in some cases, one year warranties. That is putting more liability on the insurer."

Any rise in premiums will further increase financial pressure on renewable energy directors already struggling with rising raw material, component and labour costs.

However, McLachlan argued that while premiums were likely to rise, the renewables sector was being better served by the insurance industry as the range of policies on offer matures alongside the expanding cleantech industry.

"GCube got involved in wind energy about 12 years ago when it was regarded as a "distressed market", where it was very difficult for these projects to even get insurance cover," he said. "Now green issues have risen up the agenda we're seeing mainstream insurers waking up to the opportunity… there is now capacity for projects to relatively easily get in excess of $1bn of cover."

He added that globally, the market for renewable energy insurance was tracking the growth enjoyed by the renewables sector as a whole and expanding at about 28 per cent a year.

The quality of policies on offer is also improving, McLachlan claims, as specialist renewables insurance providers such as GCube seek to differentiate themselves from the mainstream insurance companies entering the market.

"We're not the cheapest game in town," he admitted. "But our approach is to be really pro-active with our customers. On the claims side, for example, a common claim is for turbine blades that have been hit by lightening strikes. Some insurers can take up to a year to get those blades working again, but because we specialise in this market we have partnered with a fibre glass company so that we can undertake repairs on site quickly – saving both us and the customer money."

He added that while such partnerships were common place in more mature insurance sectors, such as the auto industry, they remained relatively rare for renewables firms.

GCube generates 90 per cent of its revenue from the wind industry, but the firm is now seeking to diversify and is targeting the solar sector as the next big growth area. "We're very excited about solar and we're expecting some big technology leaps in both PV and solar thermal," he said. "In the next three to five years, we'd like to build a good book of solar business."