Can Green Be Its Own Reward?

Part of the complexity, Walch said, was the involvement of several different insured parties and loss payees. “The named insured is a Special Purpose Vehicle (SPV) established to own and maintain the equipment, build the facility and contract with the off-taker.”

Walch added, “One of the biggest challenges—and the reason why the majority of insurers shy away from this type of complex project—is that the historical loss information that we as insurers usually rely on to price a risk was not available, and neither were pricing tools. So it was critical to foresee what could be the probable maximum loss (PML) and run appropriate risk calculation models to be able to price the risk. We relied on heuristic pricing models, a structured insurance approach and on our strong insurance wording expertise to develop the solution.”

Michael Schrempp, head of section for Munich Re Green Tech Solutions, said his team did an “intensive industry-technology study, utilized the expertise of our own scientists (chemists) and closely collaborated with NER and XL Group.”

New Energy Risk’s CEO Tom Hutton said that by using information “from the lab to pilot facilities to field installations, and through extensive interviews with engineers and technicians who work for our client, Bloom Energy, together with XL Group and Munich Re, [we] were able to develop a model to evaluate uncertainty around projected performance. We then had to translate this into a performance insurance policy that satisfied the lenders and investors, and in this case the rating agencies.”

So is this just the beginning for such complex products? Schrempp said, “There is huge market potential in the field of fuel cells, but also other renewable energy and energy-efficiency technologies.” Schrempp said biomass and energy storage in particular present an “untapped market.” He said, “As demonstrated in this fuel cell transaction, the value proposition of the insurance facilitated the bond financing. We are seeking similar opportunities to create value for our customers, and in some cases, for previously uninsurable risks.”