In this edition of New Energy Expert Insights, we sat down with Eliza Grant from Howden to explore the evolving warranty and indemnity (W&I) insurance market for renewable energy projects, examining how insurers are adapting to the sector’s unique risks and what deal parties need to know to secure optimal coverage.
Eliza is the Head of M&A Insurance for the Pacific at Howden, where she advises private equity and corporate clients on transactional risk solutions.
How has the W&I insurance market for renewable energy projects evolved over the past few years, and what trends are Howden currently observing?
Growing volume of deals
The W&I insurance market for renewable energy has matured significantly. Firstly, we have seen a growing volume of deals in the renewable energy sector. This has naturally led to increased insurer familiarity with the risk profiles of these transactions. As insurers gain confidence in certain renewable asset classes their appetite for underwriting these deals has grown, making coverage more accessible.
Competitive Market resulting in better premiums and coverage
We are experiencing increasingly competitive market dynamics. The surge of new entrants over the past few years has intensified competition amongst insurers, leading to downward pressure on pricing and broader policy terms that favour the insured.
Synthetic structures
Synthetic warranty structures are gaining traction, especially in deals involving fractured ownership structures or sales by minority or passive investors, who may not have the detailed operational knowledge. In these cases, synthetic warranty structures offer a practical solution.
Are there particular types of renewable energy assets that are more insurable from an underwriting perspective?
The level of insurability of different renewable energy assets from a W&I perspective really depends on the maturity and risk profile of the specific renewable asset.
Solar and onshore wind: Solar and onshore wind are the most mature technologies with well-understood risks, so insurers are generally very comfortable with those assets.
BESS: In relation to BESS, there is increased deal activity and insurers are becoming familiar with the risks making appetite strong.
Offshore Wind: Offshore wind is insurable but more complex due to high capex and condition of asset risk. Robust technical diligence will be required to get insurers comfortable.
Emerging Technologies: Emerging technologies like hydro and carbon capture are very nascent, with limited transaction history. Appetite is there but underwriting is more cautious because of the lack of historical deal flow.
We are seeing utility scale solar and onshore wind projects the front-runners in terms of demand for W&I insurance, driven by robust M&A activity in this sector. BESS is another fast-growing area. Emerging technologies, such as hydrogen, are less common. However, while we are not currently seeing the W&I demand in these areas in Australia, we are seeing growing interest globally in different energy transition insurance products, such as carbon credit insurance (a policy which covers the sale of carbon credits from projects) and insurance for leakage from carbon capture and storage project (covering environmental damage and loss of revenue resulting from CO2 from these projects).
How much of the purchase price should a client insure and are there any other key insurance products clients should consider?
This is a key commercial decision and largely dependent on the risk appetite of the buyer. Generally, parties tend to take out between 20% and 40% of the enterprise value of the business, though this can change depending on the size and nature of the business. As a rule, as the deal value goes up, the limit (as a percentage of the overall enterprise value) tends to come down but, broadly speaking, 30% is seen as the sweet spot for renewable energy projects.
Where a particular property or title risk in relation to a project has been identified (and therefore cannot be covered by W&I insurance), parties might also consider taking out title insurance in conjunction with a W&I product to ringfence these risks. These policies can cover, for example, identified property risks such as title defects, boundary issues or missing documentation. The premiums on these policies also tend to be significantly lower than W&I premiums.
How do you approach the underwriting of renewable energy projects at different stages in the project lifecycle and is there a difference in premium pricing?
Understanding where a project sits in its lifecycle has an impact on the underwriting approach taken by insurers because the nature of the risks shift between development and operational stage assets.
For development-stage assets, underwriters will focus on risks associated with securing land rights, regulatory matters and material contracts. For operational assets, on the other hand, the project is built, operational and generating cash flow, so the risks shift towards the assets, the financials and general compliance.
The W&I premium is likely to be marginally higher for construction and operational assets, rather than development assets, but the risk appetite for renewable energy projects across the board is still very broad.
What role do technical advisers play in the underwriting process?
Technical advisers play a crucial role in the underwriting process for renewable energy projects. Insurers tend to rely heavily on technical reports in comparison to other sectors because these assets are inherently more complex. The technology, the regulatory environment, and the operational challenges all require a deep level of technical scrutiny. Advisers help bridge the gap between the warranties and the technical issues, such as grid connection risks, so it is important for insurers to have technical engagement to obtain meaningful cover for the insured.
What are the key risks of focus in renewable energy projects?
Risk areas require particular attention during due diligence to ensure comprehensive coverage can be obtained. The key risk areas include:
- Condition of Assets – the physical state of generation equipment and infrastructure particularly key for wind projects due to high capex and supply chain delays;
- Compliance with laws – adherence to regulations;
- Material contracts – the validity and enforceability of key contracts, such as power purchase agreements;
- Leases and planning – security of land rights and planning consents;
- Grid connection – the existence and terms of grid connection agreements; and
- Environmental – environmental permits, compliance, and potential liabilities.
What are the most common warranty claims and how long after completion do claims typically emerge?
The two most common warranty claims we see in renewable energy projects relate to breaches of financial statements warranties and material contracts warranties. The accuracy and presentation of the target’s financial position, particularly where operational assets are involved, is critical. Material contracts also feature prominently where there are undisclosed agreements or contracts that lead to significant financial exposure. This underscores the importance of thorough diligence and accurate disclosure of all material documentation.
On average, we see claims being notified just over 12 months after completion. Looking at Howden’s M&A Claims Insight Report, which analysed data over the past five years, approximately 47% of all claim notices are made within the first 12 months. This shows that notifications in the renewables sector are broadly in line with other sectors.
What emerging risks in the renewable energy sector are you monitoring that may affect the underwriting approach in the future and are there particular exclusions?
For operational projects, a key focus is coverage is the condition of the assets. The W&I market has seen a number of claims in this space, prompting insurers to tighten their approach to underwriting these risks and require more rigorous technical due diligence to secure meaningful cover. While it has not resulted in blanket exclusions, underwriting standards are evolving and buyers must demonstrate robust technical diligence to obtain coverage. Despite this, the competitive insurer market continues to offer broad coverage, meaning risks can generally be addressed through thorough diligence.
All W&I policies will have an exclusion for forecasts, projections and estimates. For an operational asset, power generation or the yield is typically captured by these forecast-related exclusions. For assets under construction, the ongoing development risk will also be excluded from coverage, for example the cost over-runs or delays relating to a project’s construction.
What advice would you give to clients to make renewable energy projects more insurable?
Insurers are agile and typically only need 5 to 10 business days to review the risks and underwrite a renewable energy project. From Howden’s perspective, however, the earlier the engagement, the better. Early engagement allows Howden to deliver real value through our services as we can help mitigate risks, avoid surprises, and secure the most competitive terms from the market.
Robust technical and legal due diligence is critical. Renewable assets are complex, and insurers gain confidence through diligence when providing broad coverage. At Howden, our role is to help deal parties scope their due diligence to maximise coverage, regardless of the stage of the renewable energy project. At the start of our engagement, we will have a detailed discussion about the project, the insurability of the warranties and key risk areas to make sure the diligence stacks up and the policy delivers meaningful protection.
The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Jo Ruitenberg and Hannah Jones.
Transaction insights from Hamilton Locke
Drawing on Hamilton Locke’s experience on the divestment and acquisition of renewable energy projects that have had W&I insurance coverage:
- For sellers: Engage a broker early to commence the W&I process. Early engagement gives you greater control over the process, terms, and messaging to the insurance market, helping shape the risk allocation narrative before it becomes buyer-led.
- For buyers: Ensure your due diligence scope and reporting are aligned from the outset with what insurers will expect to see addressed. It is difficult to retrofit a transaction into a W&I process once due diligence is well advanced or finalised.
