Extended Warranty, Availability, Power Guarantee, Design defect: How to Develop and Price the Alternative Energy Opportunities

Transcription

1 Extended Warranty, Availability, Power Guarantee, Design defect: How to Develop and Price the Alternative Energy Opportunities

2 Antitrust Notice n n n The Casualty Actuarial Society is committed to adhering strictly to the letter and spirit of the antitrust laws. Seminars conducted under the auspices of the CAS are designed solely to provide a forum for the expression of various points of view on topics described in the programs or agendas for such meetings. Under no circumstances shall CAS seminars be used as a means for competing companies or firms to reach any understanding expressed or implied that restricts competition or in any way impairs the ability of members to exercise independent business judgment regarding matters affecting competition. It is the responsibility of all seminar participants to be aware of antitrust regulations, to prevent any written or verbal discussions that appear to violate these laws, and to adhere in every respect to the CAS antitrust compliance policy.

3 n Introduction n Types of alternative energy What do you think falls under this classification? n What types of insurance products and services are needed?

4 Who are the Interested Parties in energy project development? What are the interests of each of these groups? 1. Technology owners and developers 2. Investors and commercial lenders 3. Power Purchasers 4. Insurers

5 Developers/Technology owners 1. A new technology that works so far on small scale and seek to commercialize 2. Need investors and lenders 3. Need to guarantee that it will work on large scale 4. Take advantage of governmental incentives, grants, loan guarantees 5. Need economic sustainability for stream of income

6 Investors/Commercial Lenders 1. Need reasonable return 2. Look for tax credits 3. Want to reduce risk as much as possible 1. Credit risk 2. Project completion risk 3. Operational risk 4. Performance risk

7 Power Purchasers 1. Government entity/private sector 2. Power purchase agreement (PPA) put in place 3. Usually need some guarantees of performance 4. Need reliable source of power to satisfy demand for power

8 Insurers New product: n Mechanical breakdown/extended warranty n Design/Serial defect n Power curve guarantee n Equipment availability guarantee

9 Insurance Product 1. Generally a manuscript policy with project or technology owners. 2. Often written though non-admitted company 3. May have broker, or may be direct.

10 Mechanical Breakdown/Extended Warranty (EW) Covers any mechanical breakdown after the expiration of the manufacturer warranty (MW) on the individual components of the energyproducing device.

11 Extended Warranty Conditions 1. Typically MW +EW = 5 years 2. Maintenance program required for energy site 3. Claims administration process 4. Self-insured retention or per occurrence deductible 5. On-going performance improvement plan 6. Availability of detailed data on energy production and device performance

12 Design/Serial Defect Coverage The technology owners have brought the project to a point where it needs to be scaled up. This brings the risk that the design of the powergenerating device may not hold up in the large scale or over time. The facilities are expected to generate power for years.

13 Design/Serial Defect Coverage 1. Definition Where there is a repeated failure of the same component or repeated failure from the same cause in a predetermined percentage of the commissioned equipment

14 Design/Serial Defect Coverage Conditions 1. Concise definition of occurrence 2. Continuous monitoring 3. Continuous Improvement Plan in place 4. Deductible/SIR in place

15 Power Curve Guarantee The Power Purchasers will build in a guaranteed level of power production in the PPA. The Power Curve is derived from multiple factors that affect the production of power based on the capacity of the equipment installed. Coverage can be provided to the technology or project owners to transfer a portion of that risk to the insurer.

16 Power Curve Guarantee Conditions 1. Required level of energy output, usually stated as percentage of power curve 2. Availability of power source taken into account 3. Multiyear guarantee required 4. Required maintenance performed 5. Performance parameters and thresholds agreed and measurable

17 Equipment Availability Guarantee The source of power generation must be naturally sustainable. However, the equipment must be available when the power source is available. A lapse in availability could lead to a breach of the PPA.

18 Equipment Availability Guarantee Conditions 1. Accepted availability parameters in contract 2. Measurement of availability in place 3. Maintenance program in place and monitored

19 Extended Warranty Pricing 1. Need a list of components for power-generating machinery 2. Need annual frequency of failure for each component ideally a prototype of the machine has been/is being tested 3. Need cost of repairing/replacing components 4. Need manufacturer s warranty on components 5. Factor in any deductibles 6. Now develop pure premium for term required

20 Design/Serial Defect Pricing 1. Determine chance of one components not being fit for their intended purpose 2. May need to model as there may not be any long-term historical data 3. Determine the definition of occurrence 4. Determine cost of serial defect of same component - factor in any deductible/sir 5. Repeat calculation for each component determine which components are not covered 6. Determine pure premium for all covered components

21 Power Curve Guarantee Pricing 1. Need to have power curve for technology describes the expected power output at various conditions 2. Need to know the experimental power output of prototype 3. Need to know coverage parameters what level of power output is required for each period 4. Determine frequency of various levels of output 5. Cost of power per percent of output is a given 6. Determine pure premium

22 Equipment Availability Guarantee Pricing 1. Review frequencies of failure of components 2. Need actual downtime of prototype during available periods of active power generation 3. Determine probability of various levels of downtime for various future periods may need to model 4. Cost of power per percentage of downtime is given 5. Determine pure premium