Challenges of the Renewable Energy Industry Generate New Demands for Risk Advisory: How to Value an Insurance Package from a Financing Perspective?

Risks associated with the development and implementation of Renewable Energy (RE) technologies are a major concern both in terms of financing for manufacturers and for the financing viability of projects. Insurance is often perceived as a mandatory and costly cover to secure financing for a project and is rarely considered as a way of improving the overall financing conditions and perspectives. For certain RE projects, such as wind farm or biomass, the use of probabilistic models integrating quantifiable risks in the financing context provides a better overview of the risk potential impacts and the insurance merits. The purpose of this approach is to appraise the most efficient insurance package for the project. The probability distribution of the project cash flows, including risk assumptions, allows one to assess the merits of various insurance options and in particular to test their benefits on the rating of debt and financial covenants. This modelling approach provides a good indicator of the potential risk impacts for RE projects and is also a useful tool to determine the optimum allocation of risks, costs and reserves between the various parties involved in such a project