The renewables surge

23 May 2016

Is traditional business interruption coverage still fit for purpose?

On Sunday, 15th of May 2016 a milestone was reached in the global power industry: the world’s third biggest economy, Germany almost met its entire electricity needs from renewable electricity. 

At 2.00pm renewable energy provided a total peak capacity of 45.5 GW against the country’s total demand of 45.8 GW, according to Agora Energiewende, a research institute in Berlin.

It was only a question of time before this happened. Over the past five years Germany has driven a robust and focussed agenda of becoming the world’s first entirely clean major economy.

Accordingly, as renewable energy does not have the same fuel costs, electricity companies drastically reduce the amount they “bid” their power into the market. For several 15 minute periods the market in Germany went “negative” with power being as less than 50 euros.

Germany is not the only country to have achieved such an impressive milestone. In May, Portugal managed to keep its lights on only using renewable energy for four days.

So what does this evolving trend suggest? 

With major countries pushing hard to lower their carbon footprints, and hit stringent emissions targets, more and more of their generation will be derived from renewable resources. The challenge they have is the sustainability and consistency of either wind, solar or wave power. Many predict that what happened in Germany on Sunday will happen more and more frequently, and in other countries.

The revenue streams of the power generator will look different in the future, with more volatility as they leave the fossil fuel base load models, and emerge into the newer renewable energy base models.

This raises the question of if there is a need to buy business interruption insurance (BI) in the same way. Is traditional BI fit for purpose? Is it a waste of money?

A good insurance broker should be able to negotiate a revenue protection policy that matches the changing generation exposure where the insured pays for their exposure and no more. In other words, they pay the market a deposit premium for the cover, as they will be generating and accordingly need the cover, but they have a rate, or series of rates agreed on their policy on a megawatt hour adjustable basis. At the end of a policy year, the total number of hours are declared and the client is charged for exposure whilst on risk.

In other words, BI becomes a “pay for use “ cover, as few clients will be able to say how much they will be either generating or charging for their electricity.

For further information, please contact contact Hamish Roberts, Senior Partner on +44 (0)20 7528 4141 or email hamish_roberts@jltgroup.com

contact Hamish Roberts
Senior Partner