EXPLORATION RISK INSURANCE Munich Re s experience in Turkey. 22 September, 2015

Transcription

1 EXPLORATION RISK INSURANCE Munich Re s experience in Turkey 22 September, 2015

2 Agenda Munich Re & Climate change Insuring and financing geothermal projects Exploration Risk Insurance (ERI)Geothermal energy The Turkish experience lessons learned

3 Munich Re Image: Munich Re / Myrzik Jarisch

4 Munich Re (Group) History of Munich Re Image: Munich Re / Marcus Buck Image: Corbis Image: ERGO Versicherungsgruppe Image: used under license from Shutterstock.com Image: Kyodo / Reuters Munich Re is founded on 19 April 1880 at the instigation of Carl von Thieme, Baron Theodor von Cramer-Klett and Wilhelm Finck. First major loss in the 20th century: the earthquake in San Francisco on 18 April Munich Re's liability: US$ 2.5m. Munich Re acts fast to settle losses on the spot. The insurance groups VICTORIA/D.A.S. and Hamburg- Mannheimer/DKV announce that they will merge under the name of ERGO Versicherungsgruppe AG. ERGO, which belongs to Munich Re, is now represented in more than 30 countries Munich Re pools its international health insurance and reinsurance expertise in a new business segment: Munich Health With the introduction of the new brand, Munich Re redefines its position in the reinsurance markets. With overall losses amounting to some US$ 380bn, 2011 becomes the costliest natural catastrophe year to date. After the terrible earthquake in Japan on 11 March 2011, Munich Re invites internationally recognized experts to assess the event. Exploration Risk Insurance Munich Re 22/09/2015 4

5 Climate change Affected by Natural Desasters - Loss events worldwide Geographical overview Severe storms USA, May Winter damage USA, Canada, 5 8 Jan Floods United Kingdom, Dec 2013 Feb 2014 Floods Bosnia and Herzegovina, Serbia, Croatia, Romania, May Typhoon Rammasun China, Philippines, Vietnam, Jul Drought USA, 2014 Hurricane Odile Mexico, Sep Severe storms France, Belgium, Germany, 7 10 Jun Flash floods USA,11 13 Aug Winter damage Japan, 7 16 Feb Typhoon Kalmaegi China, Philippines, Vietnam, Sep 980 Loss events Severe storms USA, 2 4 Apr Severe storms USA, 27 Apr 1 May Source: Munich Re, NatCatSERVICE, 2015 Severe storms USA, 3 5 Jun Drought Brazil, 2014 Cyclone Hudhud India, Oct Floods India, Pakistan, 3 15 Sep Earthquake China, 3 Aug Loss events Selection of catastrophes Overall losses US$ 1,500m Geophysical events (Earthquake, tsunami, volcanic activity) Meteorological events (Tropical storm, extratropical storm, convective storm, local storm) Hydrological events (Flood, mass movement) Climatological events (Extreme temperature, drought, wildfire) 2015 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2015 Exploration Risk Insurance Munich Re 22/09/2015 5

6 Climate change Increase in Natural Desasters - Loss events worldwide Geophysical events (Earthquake, tsunami, volcanic activity) 2015 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2015 Meteorological events (Tropical storm, extratropical storm, convective storm, local storm) Hydrological events (Flood, mass movement) Climatological events (Extreme temperature, drought, forest fire) Exploration Risk Insurance Munich Re 22/09/2015 6

7 Insuring and financing geothermal projects Exploration Risk Insurance (ERI)

8 Insurability and financing Risk of failure: Not a residual risk Database: IFC 2012 (2.613 wells) Probability of failure for geothermal wells: worldwide; regardless if exploration or development, all resources 8.0 Productivity in MWe MWe 3 MWe 5 MWe 6 MWe % 25% 30% 35% 40% 45% Probability of failure Database: IFC 2012 Exploration Risk Insurance Munich Re 22/09/2015 8

9 Insurability and financing Financing geothermal projects Early stage Pre-survey Exploration Test drilling Seed capital Medium stage Project planning Drilling Field development Drilling equity Late stage Power plant engineering & construction Commissioning Operations Project & tax equity Developers IPPs Public contribution (Venture capitalists) PPP equity Govt. guarantees Private equity (Inst. (Co-)investors) Institutional investors Large IPPs B a n k a b i l i t y I n s u r a b i l i t y Munich Re, IGA Geothermal Exploration Best Practices (2013); ESMAP Geothermal Handbook (2012) Exploration Risk Insurance Munich Re 22/09/2015 9

10 Insurability and financing Governments and development agencies can support the development process Early stage Medium stage Late stage Concessional funds/grants JVs w/grants to developers Public financing/guarantees Public (ECA) debt funding (PPP) Exploration Risk Insurance Power price guarantees Tax credits Data availability/sharing Infrastructure Stable & responsive legal and regulatory framework from exploration to operations Political stability Munich Re, IGA Geothermal Exploration Best Practices (2013); ESMAP Geothermal Handbook (2012) Exploration Risk Insurance Munich Re 22/09/

11 Insurability and financing Financing of geothermal projects - Munich Re is closing the gap Production risk Development risk Exploration risk High risk requires high Equity returns Traditional capital markets are limited Required returns Bank debt Mezzanine debt Theoretical return requirement available to geothermal developers The capability to quantify and manage the risk through insurance and cooperation programs: Increases the bankability and equitability of geothermal projects Risk continuum Exploration Risk Insurance Munich Re 22/09/

12 Exploration Risk Insurance (ERI)

13 Exploration Risk Insurance Exploration Risk Insurance Insuring the output of a reservoir Insured Event: Electrical or thermal output i.e. steam rate, flow rate at minimum well head pressure determined project-specific for production and/or injection well(s) Preconditions for coverage: Successful completion of well according to drilling contract Accomplishment of stimulation measures according to drilling Source: M. Tönnis contract Exploration Risk Insurance Munich Re 22/09/

14 Exploration Risk Insurance Cover: drilling and stimulation costs Insurance coverage Drilling costs for exploration wells: According to drilling plan Costs for stimulation measures: Acidizing, side track, deepening etc. shared w/t developer Gradual payout for development wells: defined amount per missing output Sum insured Exploration Risk Insurance Munich Re 22/09/

15 New ERI Blueprint of the insurance structure for multiple well projects Premium for wells 1-2 Premium for wells 3-4 Premium for wells 5-8 Well Deepening if necessary Sidetrack if necessary Exploration risk Possible step out MR Possible step out MR Possible step out policyholder with Performance Bonus Exploration Risk Insurance Munich Re 22/09/

16 The Turkish experience lessons learned

17 New ERI Insurance structure of the first Turkish project Insuring the thermal output Premium for well 1 Premium for well 2 Premium for wells 3-5 Well Deepening if necessary Sidetrack if necessary Exploration risk Possible step out MR Possible step out MR Possible step out policyholder with Performance Bonus Exploration Risk Insurance Munich Re 22/09/

18 The Turkish Experience Cooperation with IFC IFC has been working with Munich Re on Exploration Risk Insurance (ERI) in Turkey since 2013 IFC identifies highest quality developers and projects IFC structures and finances geothermal projects, ERI provided by Munich Re One project in Turkey is at an advanced stage (indicative premium, policy structure is being drafted, expected to be signed in November), and there are more in the pipeline M. Tönnis 22/09/

19 The Turkish Experience Insurable projects? Delay in first insured project problem of financing Turkey has high geothermal potential and a very good track record Obstacles for insurability due to: medium-enthalpy projects need adaption of the new insurance structure many licenses already pre-explored by MTA: Pro: reduced risk Con: often no further exploration Gap between expected insurance threshold / expected premium High expectation of own project Lack of planning: Energy utilisation, well design, locations, targets Development of an insurance model is heavily dependent on a good database M. Tönnis 22/09/

20 New ERI Pilot project in Akiira, Kenya Blueprint of the new insurance structure MR to cover exploration risk for geothermal projects in the African Rift Valley nearby famous Olkaria geothermal fields MR insures the total output of multiple wells Drilling depth m, 1 st well finished Drilling started in August 2015 Source: Akiira Geothermal Ltd. Source: Marine Power Generation Exploration Risk Insurance Munich Re Source: Marine Power Generation 22/09/

21 Disclaimer Münchener Rückversicherungs-Gesellschaft ( Munich Reinsurance Company ) is a reinsurance company organized under the laws of Germany. In some countries, including in the United States, Munich Reinsurance Company holds the status of an unauthorized reinsurer. Policies are underwritten by Munich Reinsurance Company or its affiliated insurance and reinsurance subsidiaries. Certain coverages are not available in all jurisdictions. This presentation contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments. Exploration Risk Insurance Munich Re 22/09/

22 2013 Münchener Rückversicherungs-Gesellschaft 2013 Munich Reinsurance Company Thank You Very Much For Your Attention! Matthias Tönnis Phone: +49(0)

23 Backup Track Rekord Focal Points

24 Exploration Risk Insurance Track record in insuring low enthalpy projects: No risk diversification Source: Source: Unterhaching: Source: Pixelio / Oliver Brunner Taufkirchen: Source: Traunreut: 2004 insured first well, first ERI worldwide 2010 insured first well 2011 insured first well (depth: 3350m) successful successful Not successful (from insurance perspective) Source: Viborg, DK: 2012 insured first well Project was stopped Source: Source: Geretsried: 2011 insured first well Not successful Source: Daldrup & Söhne AG Greenhouse- Heating in NL: 2012 insured first well In Progress Exploration Risk Insurance Munich Re 22/09/

25 New ERI Focal Points I Scope of insurance Total sum insured Premium instalments Step out options To insure multiple wells At least two step out options US$ X Mio per well Total US$ Y Mio Before 1 st step Before 2 nd step Before 3 rd step Measure to ensure alignment of interest Discretionary provision: step out only in worst case The lower the payment trigger, the clearer the decision for step out Step out and premium adjustment are combinable Premium adjustment Retention for stimulation measures Deductible Premium adjustments after step one and two, if output is near trigger Limit of increase: 50% of premium 30-50% retention for stimulation measure (incl. stimulation well) No retention for insurer stimulation well 10%, minimum US$ 500,000 Applicable on all costs (incl. stimulation measures) Exploration Risk Insurance Munich Re 22/09/

26 New ERI Focal points II MR limit for stimulation measures (deductible applicable) Expert opinion Single limits per stimulation measure Total limit over the project = premium amount paid so far Deepening: US$ xx per well Sidetrack: max. US$ xx per well Stimulation well: US$ xx per well Additional insurer stimulation measures: No limit, without deductible In case of doubt between PH and insurer about stimulation measures both parties can ask for an independent expert opinion which shall be binding for both parties Payout scheme after the last well For every 1 MW missing indemnification of US$ X Mio. Performance Bonus (PB) After last well: For every additional output in MW reimbursement of US$ xx Earliest after last premium installment: PH can step out and receives PB Amount of PB will be extrapolated from achievement of status quo PB limited to USD xx PB will be reduced by MR stimulation costs in any case Exploration Risk Insurance Munich Re 22/09/