Suppliers, project-development companies, operators of and investors in solar thermal power plants are players in a fast-growing market. Munich Re offers innovative insurance solutions that allow them to exploit the market’s economic potential.
Ambitious projects, up-and-coming firms, high hopes for the future – the solar thermal sector is dynamic. Concentrating solar power (CSP) technology uses the sun’s heat to produce energy. In contrast to photovoltaic systems, solar thermal power plants concentrate the sun’s rays first before converting the solar energy into electricity. In standard parabolic trough solar plants, parabolic mirrors direct the sun’s rays onto receiver pipes along the focal line of the collector, heating the thermal oil in the pipes to several hundred degrees Celsius. This energy is used to power conventional steam turbines to generate electricity.
The key advantage of solar thermal power plants over photovoltaic systems (which cannot store the electricity generated) is that they are able to store thermal energy. This energy is collected during sunny periods, allowing for electricity generation during the night or periods with little sun. In this way, solar thermal power plants serve to cover basic electric power demand. During periods of maximum solar radiation, the sun’s energy not only generates steam but is also used to liquefy special salts stored in a salt tank. Controlled cooling of these salts during periods of little sunlight releases energy which can then be used to generate steam and consequently electricity.
High investment costs, numerous risks and a great deal of pressure from all sides
For technological reasons, solar thermal power plants are only economically viable above a certain size. New projects often attain previously unrealised dimensions, even though the proportion of familiar and tried-and-tested components used to generate the energy is very high, thus pushing planning and construction costs to several hundred million euros.
On the one hand, business models for solar thermal power plants are based on the local meteorological conditions and the remuneration for electricity supplied to the public grid, which is usually subsidised by the state. On the other hand, they also depend decisively on the performance and availability of the technology. To safeguard the return on their investment, investors also demand additional bank guarantees to cover the contractual obligations imposed on them by the customer, which ties up additional equity.
As a result, the mostly small or medium-sized project-development companies with limited financial resources are often compelled to borrow heavily from a hesitant capital market. The same applies to everyone involved: failure of a single link in the chain to fulfil its contractual obligations can jeopardise the financial success of the entire project. Delays in starting up can result in loss of income for both the operator and consequently also the investors.
Munich Re supports the solar thermal industry right up to commissioning – and beyond
Before a plant is ready for commissioning, the various parties in the project face a variety of challenges and risks – risks that can erode re – serves, reduce earnings or even scupper the entire project. Munich Re’s experts are able to appraise the various risks and offer individual solutions tailored to all the companies in the value chain:
- Suppliers and component manufacturers: The insurance needs of suppliers and component manufacturers vary widely, from CAR and EAR policies for new manufacturing plants to property covers and product liability. Finished components which are being delivered to the site require marine cover. Loss of profit due to delayed start-up of the project following transit losses can also be insured.
- Contractors, owners and operators: EAR insurance is needed to cover losses incurred on site during the construction of the power plant, as well as loss of profits – under a supplementary ALoP cover (advanced loss of profits) – due to delays caused by damage or losses during construction. Third-party liability insurance is required during construction and operation.
- Project-development companies: Munich Re also offers products minimising the entrepreneurial risk of project-development companies and consequently also the risk of a substantial loss of profits for the investors.
Innovative performance covers to protect investors
For investors, delay in start-up, reduced technical performance or unexpectedly low annual solar radiation can result in a loss of profits not covered by “classic” insurance.
Operation soon becomes uneconomical if a solar thermal power plant is unable to generate the planned electrical output: investors and banks see flow of payments and debt servicing at risk. Munich Re has developed an innovative insurance product for precisely this risk: its performance insurance is designed to secure the power plant’s completion or performance parameters, thus guaranteeing the flow of payments and debt service. The product transfers some of the plant’s engineering risk from the banks or investors to the insurer. The main advantage for the customer of such a risk transfer is that the cost of borrowed capital can also be reduced.
In order to be able to offer these special insurance solutions, Munich Re works closely with all the parties involved in a project, carefully balancing the various interests and the need for insurance.
Not oil but electricity from the desert?
In tomorrow’s sustainable energy mix, solar thermal power plants could make a key contribution as a reliable source of energy. Scientific institutes specialising in this technology presume that electricity from solar thermal power plants will be able to compete with electricity from fossil fuel power plants in just a few years from now. Considerable potential for solar thermal power plants exists in the sun-rich southwestern USA, southern Europe and northern Sahara. From there, solar thermal plants could even export electricity to Europe via submarine cables or by ship in the form of liquefied hydrogen.
The construction projects involved are immense and require huge investments, not only for the power plants themselves, but also for the related infrastructure. At the same time, such ambitious projects also need a strong insurance partner – one with a global presence, such as Munich Re, whose expertise and solutions will help promote sunny and profitable times for the industry.
