Alternative Energy

New Policies Fill Gaps in Green Energy

Improved analysis underpins coverage to smooth the intermittent nature of wind, hydro, and even solar power
By: | June 6, 2016 • 4 min read

Ambitious underwriters are learning to make hay while the sun does not shine. And when the wind does not blow, and the rain does not fall on watersheds.

Advertisement




For years, the intermittent nature of nature vexed the green energy industry. Until recently it was addressed as a technical problem of storage and backup generation.

But recently, several insurers developed coverage that offer a financial recovery approach. To be sure, the demand is coming primarily from lenders and capital investors that back green power projects. The effect, if the markets grow, will be to help normalize both power and profitability.

While the mechanisms for the new programs are new, financial weather instruments are not, said Michael J. Perron, senior vice president for Northeast property placement at Willis Towers Watson, and a 2016 Risk & Insurance Power Broker® in the alternative utilities category.

“Wind productivity was down over the last couple of years, and banks are requiring some type of protection from insureds. The industry has these wind curves and they are just not performing.”

Michael Perron Senior Vice President Willis Towers Watson

Michael Perron
Senior Vice President
Willis Towers Watson

Generators themselves are not yet asking for coverage, said Perron, “but banks are saying, ‘your charts are nice but we need protection.’

“Risk managers at the generators may feel very comfortable with the long-term performance, but banks are asking for more. In some cases the lenders or investors are named as loss payee.”

In general, Perron said, the new demands from backers and the coverage being offered to meet them is beneficial in direction, if not always in degree.

“We do push back on occasion,” he said.

Using an analogy from earthquake coverage, he noted that “we had one client for which the bank demanded $100 million of protection. We modeled the case and found that the 500-year event would cost $20 million so we suggested buying $35 million in coverage.”

Weather Risk Transfer

Underwriter GCube brought its “weather risk transfer mechanism” to North America to respond to “increasing demand from U.S. project-financed wind operators, notably those refinancing or going through acquisitions,” the company stated.

“Utilities and independent power producers have directly cited below-par wind resources as a contributing factor to net losses in 2015 and the first quarter of this year,” it said.

“This financial underperformance, if left unchecked, threatens to undermine the reputation of wind energy as a low-risk, reliable investment — particularly with the emergence of new investors with less tolerance to lower returns.”

“There can be a straight trigger payment, or more complex arrangements more like a cash flow swap or collar.”– Bill Hildebrand, executive vice president, GCube

The basic concept, said Bill Hildebrand, executive vice president of GCube Insurance Services, is a contract with wind or hydro power generators. If the wind or rain is insufficient for the generators to provide the power that they have contracted to deliver, then parametric triggers would result in a payment under the contract.

“We are seeing increased requirements from insureds on behalf of their capital providers for revenue certainty,” said Hildebrand.

“At the same time, we have had carriers come to us with contracts they would like to distribute. Weather insurance has been around for a long time with the same interest in consistency and smoothing of revenue. What is new is this type of flexible contract that we are bringing on behalf of the capacity behind us.”

GCube is using Lloyd’s syndicate papers for backing. As a result contracts can be made on different terms.

Bill Hildebrand, executive vice president, GCube Insurance Services

Bill Hildebrand, executive vice president, GCube Insurance Services

“There are options,” said Hildebrand.

“There can be a straight trigger payment, or more complex arrangements more like a cash flow swap or collar.”

The contracts are being offered only to wind and hydro generators, not solar at this point. That is for two reasons: Solar has not seen the dips that the other green energy types have, and because the performance data on solar is not as extensive.

Early in May, a consortium of carriers executed a 10-year proxy revenue swap with a large U.S.-based wind farm. The arrangement allows for hedging wind volume risks for wind farms, to try to ensure stable revenues despite uncertainty of intermittent wind.

Advances in risk modeling and maturity of risk appetite were credited with making the deal more long-term in scope.

The 10-year agreement is designed to secure long-term predictable revenues and mitigate power generation volume uncertainty related to wind resources for the 100-plus MW farm.

But solar is not being neglected. Early in May, specialty insurer Sciemus launched a policy to protect the owners of solar farms against a lack of sunlight.

Advertisement




The policy pays if levels of sunshine fall below an agreed amount, and it is available as a hedging instrument for solar farm operators for up to 10 years.

Other lack of sun insurance schemes are available, but they are tied into property damage programs, experts said. The Sciemus insurance can be purchased as a stand-alone.

The insurance is index-linked and pays a fixed price per unit of lost sunlight at the end of each 12-month period. It is calculated on the sunlight either at the solar farm or at the nearest weather station.

The coverage is available in Europe and North America, and Sciemus plans to roll it out into the Middle East and North Africa later this year.

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

Advertisement




That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

Advertisement




Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]