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United States: Alternative Energy Projects Challenging Risk Managers

Published at: Nov 29, 2011
source: Networking Insurance News

published by
New report from Swiss Re sees need for more insurance products tailored to smaller energy projects as industry scales up.

by Bill Kenealy

Sponsored by Swiss Re, a new report from the Economist Intelligence Unit (EIU) finds risk management practices surrounding renewable energy projects wanting.

The report, which surveyed 284 senior-level renewable energy executives, found a bevy of financial, construction and operational risks surrounding renewable energy projects. In light of today’s uncertain economic climate, it’s not surprising that financial risk in particular was top of mind with respondents, with 76 percent indicating that it is the most significant risk associated with renewable energy projects.

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“The perception that financial risk is high—and that the financing stage of the plant’s development is the riskiest—is particularly significant because renewable energy projects are often capital-intensive, and are typically highly leveraged, with up to 70-80 percent of the project total being financed through debt, according to interviewees,” the report states. “As projects gain in scale and complexity, risks rise too, and financing may become more difficult. Financial risk has several aspects, including raising the capital needed to fund the development of the project, and covering interest payments on debt in the project’s initial years of development and operation.”

Beyond financial risk, a significant concern for respondents is political and regulatory risk, with 62 percent indicating it as a top risk.

The report also identified gaps in the insurance marketplace, with some of the respondents saying they would transfer more risk if suitable risk transfer products become more widely available in the future, particularly more standardized and cost-effective insurance products.

Juerg Trueb, who heads the Environmental & Commodity Markets at Swiss Re Corporate Solutions, said the company was working with underwriters and risk engineers with specialized insight into the renewable energy industry to develop products that to manage construction risks, third party liability risks as well as other operational risks related to renewable energy.

"We already offer tailored solutions covering production and price risk for hydro power producers," Treub said. "We are committed to further expand our product offering so that also investors into wind and solar power projects are able to effectively de-risk their investments.”



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