REET Performance guarantee and warranty insurance

Renewable Energy & Environmental Technology

Performance guarantee and warranty insurance: what it is and how it works for renewable energy projects

06 May 2025

Performance guarantee and warranty insurances are specialised insurance products designed to protect both manufacturers of technology and owners/investors in technology projects.

Whilst this type of insurance is not new, we have seen a significant number of new enquiries linked to the new and unproven technologies in the green energy transition space. Several green energy transition insurers have grown into this space over the last decade, broadening products and technologies covered from the more limited options seen 10 years ago.

This type of insurance provides a guarantee that the technology will perform according to specified standards over a defined period, typically up to 30 years. The primary purpose of this insurance is to mitigate risks associated with underperformance or failure of the technology to perform to the agreed standard, i.e. ‘to do what it says on the tin’. The primary value of the insurance is to enhance the financial stability and bankability of investments.

How it works

Warranty insurance – predominantly designed to protect the manufacturer of the technology from claims against the technology warranties issued to customers. The insurance protects the manufacturers’ balance sheet from manufacturing defects claimable under the long-term warranties issued. The market has also developed to be able to offer owners and developers contingent warranties (for example, should the OEM become insolvent, unable, or unwilling to honour the warranties, this can also cater for geopolitical risks).

Performance guarantee insurance – designed to protect the project developers, owners, investors and financiers from technology related performance risks. Typically, the insurance works on the technology inputs/outputs projected and the project’s assumed revenues based on the insurer’s due diligence of the technology, enabling them to have confidence that the technology will perform, and hence the ability to calculate a premium for the risk.

Benefits for investors and owners

Risk mitigation: investors benefit from protection against potential insolvency of suppliers and insufficient performance of the technology which could jeopardise their investment returns.
Long-term profitability: with a performance guarantee in place, investors can have greater assurance regarding the long-term profitability of their investments.
Strategic planning security: the insurance provides strategic planning security by ensuring that chosen technology will operate reliably over decades, or the financial risk exposure is covered, thus supporting long-term investment strategies.
Attractive financing terms: the bankability provided by performance warranty insurance allows investors to secure more favourable financing conditions for their projects. Lenders can also be insured to protect themselves from debt repayment risks from technology performance and revenue shortfalls.
Quality assurance through due diligence: insured technology will have undergone thorough assessments by independent insurance professionals, adding an additional layer of quality assurance that enhances investor confidence.

Performance guarantee and warranty insurance serves as a crucial tool in the green energy transition by providing essential protections for both manufacturers and owners, and investors and lenders alike. It fosters trust in product performance while simultaneously enhancing financial viability and competitiveness, allowing long term projects, based on the technology performance and revenues, to proceed with a degree of de-risking.

Case studies

Waste supply parametric – European energy from waste project developer

At the financing stage, lenders and investors were naturally concerned with the feedstock supply risk. Our client’s proposal was to contract a number of local waste management companies to provide a more resilient supply chain however, the balance sheet strength of these individual entries remained of concern to investors.

Miller engaged with the client to successfully deliver a parametric insurance solution. Parametric products are those that deliver a pre-agreed indemnity in the event of a defined loss situation. In this case, we determined that the environmental regulator in the region in which the facility was to be based produced waste data. This was used as an index on which a parametric insurance product could be based, with payments being made to the client in the event that regional waste production fell below pre-agreed levels.

Performance guarantee insurance – energy from waste project developer

The use of innovative gasification technology with a limited track record is challenging to investors and lenders, as well as insurers. A performance guarantee insurance product can allay financing concerns over the prototypical nature of the technology and whether this is proven to the extent that it was genuinely ‘bankable’.

Miller has assisted a number of clients by working with specialist insurers to design bespoke performance guarantee insurance programmes. Performance guarantee insurance is available on a range of technologies however, insurers are only prepared to offer coverage following a technical due diligence exercise. This due diligence adds value in itself because if insurers are satisfied with the technology, it gives all project parties confidence. The performance guarantee operates by indemnifying the lenders and/or investors for capital repayment and debt service costs in the event that the plant does not operate to the expected level.

Our expertise

Miller's Renewable energy & environmental technology solutions

The Renewable Energy & Environmental Technology (REET) team has a wealth of experience reviewing warranty and performance guarantee insurance.

Sectors we have previously worked in include solar manufacturing warranty cover, energy from waste, fuel cells, and BESS, as well as other new technologies such as carbon capture plants.

Miller's Renewable energy & environmental technology solutions