Project procurement

Dominating many conversations was the topic of project procurement. Engineering, procurement and construction management (EPCM) contracts are now a serious alternative to engineering, procurement and construction (EPC) contracts, with investors now backing this method. The absence of a single contractual liability ‘wrap’ from a substantial delivery partner appears to be acceptable to lenders, however, there remains an interface risk between the various technology components. These interface risks can create inconsistencies in protection for the project where manufacturers, consultants and the EPMC contractor may all have different levels of professional indemnity (PI) insurance and more fundamentally, different levels of liability to the project owner under contract.

The insurance market can provide a solution to this patchwork of protection through owner protective professional indemnity (OPPI) cover. This is an owner purchased product that supplements the PI insurance held by the project parties. To learn more about OPPI, read our recent article here.

In addition, a traditional insurance project wrap in the form of an owner-controlled insurance programme (OCIP) is also critical when such project risks are ‘unbundled’ to protect all project parties from risk.

Carbon capture & storage (CCS)

The conference was alive with talk of CCS and the innovative technologies in development. Driven by environmental, social and governance (ESG) imperatives, there is a significant increase in interest in CCS within the project finance market - both as part of new projects and retrofitted to existing plants. However, with new technology comes risk, which will also concern project owners, investors, and lenders.

One solution for managing residual performance risk is performance guarantee insurances. These specialist products are designed to indemnify project parties in the event that a facility does not perform as intended.  We see an application for this product in relation to specific components such as retrofitted CCS technology.

For retrofitted projects we also recommend careful consideration of site risks for both construction and existing operations, and alignment of insurances for the different activities and parties on site.

Feedstock security

Another conference hot topic and typical risk on project financiers’ radars is the availability of feedstock for EfW plants. This risk may materialise from several eventualities ranging from a physical loss or closure at a supplier’s premises, through to more fundamental risks affecting waste composition such as future legislative changes or even another pandemic. Miller has been developing a solution to manage this risk by designing an insurance product to protect against unforeseen fluctuations in regional waste production. This product will protect project financiers by guaranteeing debt service payments in the event that feedstock supply falls below a minimum sustainable level.

How Miller can help

As the world transitions to a low carbon future, significant investment in new and often ‘first of its kind’ technology, as well as associated new or existing infrastructure integration, is needed. With such rapid innovation comes new and emerging risks, at both individual project and organisation level within companies who are either transitioning themselves or a NewCo established to deliver cutting edge technology and infrastructure.

In all cases, insureds need a risk and insurance advisor who understands the exposures involved and has a diverse knowledge of different transfer solutions and insurance market requirements. Miller’s REET team can assist clients via our Critical Risk Identification and Transfer Review (CRITR) process to capture risk information for new projects, wider infrastructure investment or transition programmes, and quantify and review the transfer options available to make the proposition more financeable. This can provide a key early-stage input into project delivery planning and shape the transfer and management of new and emerging risks.