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Energy from waste: the risks

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Energy from waste 029Energy from waste: the risks

Thu 20 Jun 2013 – Increasingly waste is being used to generate power, which is creating new risks for the developers and operators of energy from waste plants, and a growing market for insurers. (source: Lloyd’s of London)

In the UK we recycle 43% of household waste and more than half of business waste, according to figures released earlier this month by the Waste & Resources Action Programme (WRAP).

Unfortunately, not all waste can be recycled, but there are now a number of innovative ways to turn waste into power, heat and biofuel, rather than send it to landfill.

Green “energy from waste” technologies include anaerobic digestion (micro-organisms and waste are used to produce a biogas), gasification and pyrolysis (processes that turn biomass into a biogas and other products). These technologies use a variety of waste products as fuel, from agricultural by-products like olive pips, straw and sugar cane, to animal, clinical, industrial or municipal solid waste and sewage. And there is potential to use even more types of commercial and industrial wastes, WRAP says.

Biomass boom

The energy from waste sector is undergoing a boom time, according to Jatin Sharma, head of business development at GCube, a specialist renewable energy coverholder backed by Lloyd’s syndicates and Munich Re.

“In the age of austerity we have to find ways to maximise energy generation by using waste that would otherwise find its way to landfill. There is no silver bullet to the decarbonisation of the power sector – so we need to look at all sources of energy including wind and solar, as well as energy from waste options like biomass, ” says Sharma.

The biomass industry – which uses organic waste as fuel – currently generates just over 60 gigawatts of power globally and is growing by around 12% per year, according to GCube. Growth in the UK is expected to accelerate with a significant pipeline of recently consented projects, it says.

Potential for specialist insurers

Biomass is a sector that GCube is actively looking to expand in. The insurer recently increased its capacity from $175m to $250m for any one project.

“Energy from waste, and biomass in particular, is a growth area for insurers and we expect high demand for construction and operational insurance in the years to come from North America, the UK and Ireland, Europe, Scandinavia, Eastern Europe and Australia, ” says Sharma.

The Lloyd’s market in particular is known for leading the way in esoteric risks like biomass, he explains. “Energy from waste is a relatively new sector and one that Lloyd’s can lead the way and develop profitably. The market’s financial security and reputation for paying claims are key differentiators, as is the ability to take a broad view and draw on the experience of writing these types of risks around the world, ” he says.

Lloyd’s expertise

The Lloyd’s market provides construction and delay in start-up insurance to large commercial energy from waste projects, as well as property damage, business interruption and third party liability insurance once the plant is fully operational.

Lloyd’s underwriters can also provide more unusual cover, such as insurance against a long drawn out planning process, according to James Green, renewable energy practice leader at insurance broker JLT Specialty. Legal indemnity policies can be purchased by developers at the planning stage to protect against the increased costs of dealing with a judicial review.

Understanding the risk profile

Project delays due to physical damage are a big risk for developers of energy from waste projects. However, insurance can mitigate the financial impact of the costs of a project not delivered in time, explains Sharma.

“Insurance is there in the event of a physical loss and can help developers and operators de-risk a project and give comfort to banks and investors that provide the funding, ” he says.

The location of a plant is another key risk factor as facilities can be situated in densely populated urban areas or close to infrastructure like ports and railways. Mechanical breakdown and proto-type technology risks are also key aspects of insurance in this sector, explains Paul Hansen, head of renewable energy, JLT Specialty.

“Some technologies are now well established and like other renewables, are becoming more reliable and efficient. However, there are still many risks. For example, when dust is mixed with oxygen it can act like gunpowder. Insurers can help police these types of risks – a successful build and operation are critical to the risk profile, ” he says.


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