Tips for Managing Risk at Power Generating Facilities

With rising prices and tightening capacity worldwide, it’s not the easiest time to insure power generation facilities. We reveal top tips on how to make risks look their best to underwriters.

Ensure coverage aligns with delivery points specified in Power Purchase Agreements

Power Purchase Agreements (PPAs) define the delivery point, which may be a sub-station miles away from the generation facility. To accommodate, policies – especially business interruption cover – must insure the transmission and distribution line, or connection up to and including the delivery point.

Demonstrate to insurers that manufacturer’s TILs are adhered to

Manufacturers’ regular Technical Information Letters, or TILs, outline recommendations and best practice for operating and maintaining supplied equipment. They could be as simple as oil-change frequency. Providing evidence of adherence to TILs within your insurance submission shows insurers that you are a prudent operator.

Provide insurers with results of Transformer Dissolved Gas Analysis

Transformers have significant lead times, taking up to a year or longer to replace, since most are custom engineered and built. So when a transformer fails due to gas build-up, business impacts are severe. Regular monitoring using gas analysis technologies allows issues to be flagged before they become critical failures, and gives insurers confidence that risks are well managed.

Share borescope inspection results with underwriters

Insureds should inform underwriters of gas turbine inspection frequency and results. Turbines cost a small fortune to open and shut, but can be inspected for corrosion, rubbing, blade damage, and other faults using regular borescopes. Sharing results with underwriters, especially at the time of submission, shows them that turbine risks are minimised.

Buy less cover for coal-fired plants

Coal plants find it increasingly difficult to obtain cover since more than half of carriers – including the giant European (re)insurers – have withdrawn from the sector. The capacity squeeze is significant, making placements difficult to complete, very expensive, or both. Most coal plants have bought full value cover for years, but could lower their insurance costs in the tight market by purchasing cover only to the level of Maximum Foreseeable Losses, or obtaining agreement from their Lenders to purchase on this basis.

Conduct an inventory of critical spares

Knowing what parts are on hand to get a generation plant up and running quickly after a breakdown gives insurers confidence that any business interruption will be short. Count up the spares, document them, and either fill any gaps that should be included in the stockpile or have a plan in place to secure critical parts, especially those that take time to procure. For example, setting up a preferred supplier agreement positioning you at the head of the queue. Such contingency plans will have a positive effect with insurers.

Place some risk outside the power market

Given the restricted capacity on offer by a smaller number of insurers, power generation companies can benefit from completing their risk placements with capacity from the property market. A hydroelectric placement, for example, could be divided between the generation market, which is the only place to insure the power hall, and the dam itself, which can be insured by the property market as a civil engineering structure.

Work with a broker that knows the power generation market inside-out

Knowledge is key. Seek out a broker that both understands the risks and knows the insurance market inside-out, and can therefore come up with creative solutions in difficult times. Find a broker with in-house engineering capabilities and experience placing cover for power generation plants.

For more information regarding our power and energy insurance and reinsurance solutions, contact our Steve Makwembere on Tel +27 11 805 0086 or Email: info@maksure.co.za

About Maksure Risk Solutions

Maksure Risk Solutions is an Afro-Global independent specialist insurance and reinsurance broker with business footprint in Africa, Asia, East & Western Europe, South America and the Caribbean. We provide innovative and tailor-made risk solutions in Insurance and Reinsurance as well as Risk Financing and Actuarial Consulting geared towards capital management and strengthening our client’s balance sheet. Maksure is also one of the major players in Captive Management (Establishment & Management) in South Africa, Mauritius, Bermuda and various other jurisdictions. We have access into the Lloyds of London with a deep understanding of African markets. Our global nature ensures that our clients access quality capacity as well as some of the world’s latest thinking and solutions.

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