The effect of climate change is not only an environmental
problem today as it directly relates to the resource based
industries. In today's world, the scientific assessments lead
the players of energy to reflect on their project viability. In
direct proportion to the growth in financing renewable projects,
insurance companies and underwriters are also expected to formulate
their risk assessments on resource-oriented allocation models.
Since especially the incontestable growth of ancillary instruments
in Europe and the Japan the warranties in financing the
"energy as the capital and the resource itself" yields
new insurance coverage.
Unlike the generic insurance products developed to date, the new
era presupposes the climate change rates to involve in collateral
assets to be financed that are reflected to difficultly adapted
insurance policies based on expended risk evaluation methods.
The National Renewable Energy Laboratory of the U.S. Department
of Energy segments the project life cycle of into three segments:
project risk identification; mitigation and allocation of the risks
and the insurance.
In this article you will have a general perspective about the
third segment that is considered as the insurability of the
resource effectiveness and applicability of such policies under
It is obvious that the generally accepted and easily adapted
coverage for general liability, property, construction and
environmental risks and the coverage due to the warranties that are
especially provided for components do not satisfy the lenders
wishing to secure the pay-backs and the investments. In addition to
such coverage new products have been developed by some insurance
companies around the world that guarantees the performance of
components. However this resulted with uncertainty before lenders
as the suppliers of EPC market vary under many unstandardized
As same in global energy market, Turkish lenders and insurance
companies are also motivated to find out an insurance product to
cover the risk arising out of resource effectiveness. Due to the
fact that regulations do not impose project owners to make
assessment in unlicensed electrical production (less than 1 MW per
plant), lack of standardized test data for prototypes and forecasts
that directly affect the criteria determination and range of costs,
remains as a crucial problem in risk management.
In addition to the lack of standardized historical database
infrastructure, the legislative requirements seem not met yet as
the Turkish insurance law require Undersecretariat of Treasury to
set out the general conditions of each certain policy. In
consideration of the unforeseen risks that might be caused by
component specifications, site and installation the reduced yield
in Turkey can be insured by a uniform product that consists of the
clauses of business interruption and reduced yield policies. In
this regard it is possible to develop a new product under the
general conditions of sole risk with the conceptual approach of all
Such extended coverage insurances for reduced yield mostly cover
90% of the predicted annual energy yield in Europe and Japan and
the compensatory payment mostly does not exceed the 50% of the
annual yield forecast.
The circumstances included to exclusion clauses are determined
in parallel to the phases of the investment starting from site
selection to power purchase agreements. These should include
location of the site, defects in the plant, grid connections and
disconnections, functions and changes of component and modules,
representational authorities of the project owners, improper
handling by the operator or his representative, unauthorized
changes or modifications to the insured objects and the technology
by the operator, failure of the feed, interruptions in the grid,
security management, unauthorized inspections and maintenance
howsoever and shadings by trees. However tackling the problems in
setting the standards and criteria to figure out the exclusions on
investment basis shall be determined and assessed by insurance
companies and lender with contribution of the project developers,
construction companies, operators, EPC contractors of the project.
Since historical database does not exist and domestically accepted
experts are not institutionalized in assessment and evaluation risk
of securitization remains as a challenge for Turkish insurance
market players those who needs to find short and mid-term
transactional solutions rather than proceeding with the calculation
of the predicted annual energy yield as made in Germany.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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