Risk allocation and risk transfer are critical issues for carbon capture and storage (CCS) value chains. However, they are not mature enough to deal with commercial arrangements and insurance solutions.
Significant emitters of carbon in Europe have been regulated and voluntarily subjected to a need to reduce emissions or capture emissions to prevent climate change. Carbon emissions were not a significant issue when most power and industrial plants were designed and built. Nevertheless, it looks like most fossil fuel power plants, large industrial emissions, kilns, and more across Europe may need to consider new carbon capture technology - either as a bolt-on for existing assets or as part of planning applications and design for new assets.
CCS plants and sector trends
At the start of any new project, it is important for project teams to map the risk exposures and interface risks with the rest of the value chain and explore risk transfer through contractual arrangements and insurance. Current sector trends suggest that EPC contractors are reluctant to provide performance wraps on CCS plants due to the unproven nature of CCS plant technology. Performance Guarantee insurance is a potential game-changer here, as it enables funding and protects balance sheets from punitive underperformance regimes.
THE CHALLENGES OF CONSTRUCTION AND OPERATIONAL INSURANCES
Traditional construction and operational insurances are not a given for this technology, particularly for revenue protection covers and defects ‘LEG’ covers. It is vital to have a broker who is familiar with the challenges, who can provide a wording which covers the risk exposures that may not be transferable through contractors’ and suppliers’ contracts. Issues can arise with contingent business interruption coverage and increased costs of working on delay in start-up (DSU) coverage, and business interruption (BI) coverage. This is due to the knock-on effects of physical damage to transport and storage assets that are undertaken by a third-party T&SCo, leaving the CCS plant operator with a significant problem on what to do with the carbon emissions captured.
How Miller can help
Miller‘s Renewable Energy & Environmental Technology (REET) team has significant experience in this area. We can assist with solving these complex risk issues in the development of CCS plants and the performance and value chain risks. Our expertise also includes design and sizing of insurance programmes to meet balance sheet exposures.
Our team routinely deal with lenders’ concerns and represent our clients in negotiations with lenders, contractors and suppliers. We also work with legal advisers to specify contractual insurance arrangements.
CCS is a complex, emerging risk area, and it is essential to engage the right risk adviser and insurance broker to work with you at project design stage to ensure the risks are identified, quantified, and transferred. At Miller, we have a risk technique known as the Critical Risk Identification and Transfer Review (CRITR) to assist clients with this process.
Miller’s expertise
Head of Renewable Technology & Environmental Technology at Miller, Rhys Newland, advised the UK Government on the UK Full Scale Demonstration Project 1 in the 2000s and was the lead insurance adviser to the White Rose Consortium and Drax Power Station in bidding for the UK Government Full Scale Demonstration Project 2 in the early 2010s. Additionally, since 2022, Miller’s expertise can be seen through their recent advisory roles on several new global CCS projects. Miller has a wealth of experience in complex risks, risk allocations, and, critically, what can and cannot be transferred from a participant’s balance sheets by insurance cover.
Contact Our Renewable Energy Team To Discuss Your CSS Project
