Energy developers, farmers and landowners are jeopardising the profitability of renewable projects by failing to adequately cover the financial risks faced, one of our insurance experts has warned.
Latest figures from the Department for Business, Energy and Industrial Strategy1 reveal that 319 planning applications were submitted for renewable energy projects nationally in the last 12 months.
Kris Johnson, a Lycetts’ renewable energy insurance expert, says that although renewable projects can offer lucrative opportunities to help the UK meet its climate targets, the potential risks faced are numerous and complex, making insurance cover and expert advice essential.
“The UK’s green energy revolution is a much-needed trend as we look to tackle climate change,” said Johnson.
“Many projects are being developed and operated by renewable energy specialists, but entrepreneurial landowners and farmers can also take on the responsibility and financial commitment for owning and operating schemes.
“Irrespective of the developers’ experience however, all too often we see a lack of knowledge around the risks and potential liabilities, the available insurance options and the suitability of cover.
“Over the lifecycle of a renewable project, the insurable risks will range from those faced during construction, commissioning and testing – including damage during the build, start-up delays and advanced loss of profits – through to its day-to-day operation.
“Operational risks can include liability for workers and third parties, the repair or replacement of equipment such as solar panels (caused by electrical or mechanical breakdowns), environmental pollution and contamination, theft and damage caused by fire, hail or storms.
“Developers should ensure they keep an open dialogue with their insurer or broker throughout, particularly during periods of project transition – between installation and a plant’s operation, for example – when gaps in cover can inadvertently occur.
“The pitfalls and risks are many, making specialist advice and independent risk management assessments essential to help avoid significant financial loss.”
Johnson points out that farmers and landowners who simply receive rents for hosting developments should also be aware of possible contingent risks – liabilities they may suddenly face, for environmental pollution incidents for example, should operators go bust and schemes are mothballed.
“If contracts stipulate that there will be a cessation of rent following breakdown or damage to equipment, landowners should also investigate their options for insuring against loss of rent,” he said.
The government has committed to net zero emissions by 2050, with renewable energy generation hitting record highs in 2020, according to data from National Grid ESO, Britain’s electricity system operator.
“Energy is becoming more decentralised and the appetite for renewable energy is growing,” Johnson added.
“The market may have suffered a blow when the government withdrew solar scheme subsidies, but this has been offset, to some degree, by falling technology costs and increasing financial support from lenders.
“As we look ahead, we can expect to see increasing investments in renewable projects, with electricity from zero carbon sources continuing to take an ever-greater share of our energy mix through 2021 and beyond.”
1Renewable Energy Planning Database, The Department for Business, Energy and Industrial Strategy (BEIS).