Brokers, Carriers Step up to Green Power

A novel insurance solution gets a huge solar project in California to the starting gate.

By GREGORY DL MORRIS, who has covered the chemical and financial industry issues for the past 20 years

Insurance contracts are expected to be bound this week that will enable the largest solar-energy project in the country to proceed to construction in the Mojave Desert of California.

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BrightSource Energy, based in Oakland, broke ground on Oct. 27 on the $1.9-billion, 370-megawatt Ivanpah solar-thermal project. Construction will proceed in three phases, scheduled to be completed in late 2012. Wholesale generator NRG Energy of Princeton, N.J., has taken a $300 million stake in the project, which is to be built by Bechtel. When up and running, the project will double the amount of solar energy generated in the United States.

The biggest hurdle for the backers was not the technology or the shifting political atmosphere for green power. It was getting warrantee and defect insurance coverage for the equipment.

"The developers' first question on this project was whether there was an insurance solution in the market," said Erin Lynch, a vice president with insurance brokerage Beecher Carlson in Eugene, Ore. "The short answer was that there was not. We had been working with all the major underwriters at every level, and we were just not getting to where we needed to be. We even explored a captive approach. Then we approached GCube with a proposal to manuscript the coverage."

GCube is a leading underwriter in green energy and has a long relationship with Beecher, said Tim Kinsella, senior vice president at GCube.

"We have underwriting authority through a group of Lloyd's syndicates. We have extensive experience with many forms of renewable energy, but this project had new risks that had not worked themselves through the system," he said.

Thermal solar is different from the more common solar panels. In the Ivanpah project, mirrors will concentrate sunlight to heat liquid that will turn a conventional turbine and generator.

"The coverage required writing a policy from scratch," added Sara Eisenstat, a vice president at GCube. "It required site visits and reviewing reams of information. We spent four solid weeks to put together the underwriting due diligence."

The manuscripted policy covers defects in design, materials and workmanship, including serial defect, according to Lynch. The policy also provides extensive defects coverage through construction and into operation for an extended period, giving financial institutions and owners the necessary risk mitigation tool to meet financing and federal regulatory requirements.

California Gov. Arnold Schwarzenegger and U.S. Secretary of the Interior Ken Salazar attended the groundbreaking in southeastern San Bernardino County, approximately 50 miles northwest of Needles.

In February, BrightSource received a conditional commitment from the U.S. Department of Energy for $1.37 billion in loan guarantees to support the financing of the project, which is projected to cost $1.9 billion. Pacific Gas and Electric has contracted to buy two-thirds of the plant's output, with Southern California Edison taking the rest.

November 30, 2010

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