By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
"Leading by example" is how Munich Re America describes its plans to build a 2.5-megawatt solar power generation system at its Princeton, N.J.-headquarters. The project will help the global reinsurance operations of parent company Munich Re become carbon neutral by 2012.
Of course, behind the touchy-feely, tree-huggy spin to the project are serious risk management calculations. From an insurance perspective, reported Munich Re America Risk Manager Carlos Ferreira, three policies could be impacted: builder's risk first and foremost, then property and general liability.
It's a matter of ensuring that project values are correct for property coverage, he said, and that the right endorsements are negotiated into GL policies, many of which typically exclude third-party liabilities from construction.
"It's a pretty straight-forward process from an insurance risk manager's perspective," Ferreira said.
For builder's risk, Ferreira said, it's important to make sure limits are adequate, but much of the risk transfer occurs during contract negotiations between the future owner and the contractor. In this case, Ferreira declined to comment on contract details between Munich Re and SunPower Corp., the contractor for this project. He also declined to name the several specific property and GL insurers.
Beyond the feel-good of renewable energy, there are also economic considerations. Munich Re is getting a 30 percent return on the system itself thanks to federal government incentives, which pushed the return on investment over the top, according to Paul Lupica, head of facilities at the Princeton headquarters.
"It helped dramatically," Lupica said.
He also explained how, under New Jersey regulation, the state's public utilities are incented to partner with private companies on the purchase of valuable solar renewable energy credits (SRECs), for a price somewhat below the alternative compliance payments to those utilities.
All this comes on top of the $500,000 Munich Re aims to save on annual electricity costs. Or the--and here comes the happy, green talk--the annual carbon footprint reduction equivalent of removing 400 cars from the roads.
As for guaranteeing that the solar project will perform, Lupica explained, they do have stated energy generation performance levels in the contract with SunPower, as well as performance degradation levels in warranty over the next 25 years ? though of course they declined to go into specifics.
Munich Re America does not plan to use weather risk transfer instruments to hedge against the vagaries of weather.
They've talked with two local companies that installed similar systems, Lupica added, and they're getting better performance than anticipated.
"So we feel confident," Lupica said.
A couple additional notes about the contractual risk management involved with this project: the contractor owns the project until final acceptance by Munich Re and will be responsible up until that point for atypical damage caused by, for instance, birds dropping turtles onto the panels from high altitudes, or from more typical risks such as damage, theft or fire, Lupica said.
It could take up to six months for Lupica to get all final approvals to begin the project. Then the project will be completed in two stages, with each stage taking five to six months. Why two stages? The solar panels will be placed atop canopies in the office parking lots, and Lupica can't close all the parking lots at the same time.
As it is, they will be parking folks in every "nook and cranny we can find," Lupica said, making Lupica not the most popular employee at the Princeton office during the construction, he joked.
June 28, 2011
Copyright 2011© LRP Publications