Turkish civil engineer Orcun Gomec is Managing Partner of EUROP Insurance Brokers. He received his MBA in the Netherlands and has been offering advice on insurance matters to current and prospective investors in Ukraine for more than a decade. One of the fastest-growing investment focuses in today’s Ukrainian economy is the renewable energy industry, with attractive market terms and favorable geographical conditions combining to make Ukraine a regional renewables hotspot. In this article, Mr. Gomec offers potential investors insights into the insurance products available for anyone preparing to enter the booming Ukrainian renewable energy market.
Policital Risk Insurance
The situation in eastern Ukraine since 2014 has shown how necessary it is for investors to protect their businesses from all sorts of unforeseeable risks related to political violence. This is the first type of insurance cover any renewable energy investor who is looking at Ukraine should consider during the planning phase of their investment. We strongly advice investors to factor full cover political violence programs into their investment feasibility analysis.
Political violence insurance programs cover a full spectrum of risks such as terrorism, vandalism, anarchy, protests, insurrection, uprisings, war, civil war and invasion, currency inconvertibility or non-transferability, expropriation, nationalization and confiscation. Some types of breach of contract and contract frustration risks are also insurable via this product. Political violence insurance pays damages for two forms of losses: harm to insured tangible assets, and loss of income due to damage to resources incurred due to political violence.
Insuring Against Lack of Sun and Wind
Among the key inputs of any investor’s investment feasibility calculation are the assumptions of renewable energy exposure level. In other words, the weather. This means solar radiation levels for solar plants, and wind speed for wind farms. Fortunately, there are insurance solutions to mitigate against the risks associated with the uncertainties related to weather conditions at the plant site. By using reliable weather station and satellite data, insurers can measure the loss of potential income for a particular client and realize insurance payouts. These tailor-made and transparent solutions are currently gaining growing popularity among renewable energy investors around the globe.
Cargo Insurance
Taking into account the high value and delicacy of renewable energy conversion equipment, investors should carefully consider the risks associated with transporting equipment to the future site of their renewable energy plant. We recommend insuring solar panels, wind turbines and other relevant parts against both damage and theft during the transportation stage. Most goods have insurance coverage while warehoused or otherwise in storage, and while in transit until they reach the investor.
Construction Risk Insurance
The construction of a renewable energy project begins long before the equipment arrives at the site. Once equipment delivery is complete, assembly and construction moves to a new stage with even higher risks. During the construction phase, there are a number of variable risks depending on the type of renewable energy source.
For solar plants, the biggest risks are from losses due to flooding, storms, hail and theft. For wind farms, the main risks relate to the poor performance of the construction contracting company. Improper construction of the foundation or columns, together with mistakes during installation and connection of systems to power grids, can cause significant losses. Meanwhile, lightning ranks as the greatest single natural hazard during the construction phase of wind farms.
To address the above risks, we recommend investors purchase Construction/Erection All Risks insurance. This product covers material damage to the project, namely due to natural hazards, theft, vandalism, and fall impact, along with damage caused by improper handling and improper use. Liability to third parties for property and health damage in connection with construction or erection is also insurable via this product.
Property Insurance Coverage
After the construction and commissioning of a new renewable energy project, we advise investors to purchase protection against external physical impact, equipment breakdown, and loss of profit. The best vehicle for this is coverage through a property insurance package. This type of product is purchasable annually and renewable at the end of each term. To cover losses from internal breakdowns, it is necessary to expand the coverage of a property insurance contract with a Machinery Breakdown Insurance policy. Unlike the sole property cover, this extension protects against equipment breakdowns, for example, due to personnel errors and equipment installation defects.
Another extension that comes highly recommended covers loss of income and profits following the realization of property and due to machinery breakdown. With this type of extension, investors can receive compensation not only for damage to their assets, but also for the loss of income resulting from a particular insurance case.