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News on Munich Re’s EPC Cover
for Offshore Wind Projects
A unique insurance solution for contractual warranties
October 2020
Chiharu Watanabe
Image: mauritius images / Cultura / Monty Rakusen
Pooling expert resources and know-how
in the field of:
Renewable energies and energy efficiency
Risk transfer solutions are developed and delivered
▪ Technical endorsement
▪ Bankability and
▪ Business enabling results to all
project stakeholders
Munich Re (Group)
Munich Re and Green Tech Solutions
The world’s largest reinsurer’s financial strength at your side
Feb 2020 2News on Munich Re’s EPC Cover for Offshore Wind Projects
Green Tech Solutions (GTS)
▪ World’s largest reinsurer by premium volume
▪ Founded in 1880
▪ Group Result 2018: €2.7bn
▪ 39,662 employees
Image: Marcus Buck / Munich Re
Manufacturers, component suppliers
and offshore contractors
▪ Covers the risk of large technical
losses in the wind industry
Project owners and service providers
▪ Protection against cost overrun for
unscheduled maintenance of wind
farms
Project owners and investors
▪ Covers shortage of revenue due to
underperformance of the wind farm
Green Tech Solutions
… pioneering risk solutions for the wind industry
Feb 2020 3News on Munich Re’s EPC Cover for Offshore Wind Projects
Image: mauritius images/Masterfile Image: mauritius images/Masterfile Image: mauritius images/Masterfile
O&M Cover Lack Of Wind Cover
Wind Energy Yield Cover
Serial Loss Cover
EPC Cover
Evolving situations surrounding the wind industry
Images: mauritius images/Masterfile
Global competition about large scale wind projects
Technology race to become more powerful
at lower cost
Contractual liability demands on EPC contractors
become ever-larger
Cost pressure due to auctions instead of
predictable subsidies
Warranties for offshore wind farms (illustration)
Feb 2020 5News on Munich Re’s EPC Cover for Offshore Wind Projects
Wind farm project setup
Investors
Suppliers’ & Subcontractors’ warranties
Project developer
EPC contractor’s warranties
A key driver
for bankability
Up to 100% of sub-contract value 100% of contract value
BanksOperator (SPV)
EPC WTG
EPC Foundation
EPC Cable
EPC Substation
Suppliers
Subcontractors
How does the EPC Cover work?
Feb 2020 6News on Munich Re’s EPC Cover for Offshore Wind Projects
Cover structure for settling a large warranty claim
Terms and conditions:
▪ Defect warranty cover commencing at begin of warranty (Take-Over)
▪ Excluding known defects before Take-Over (CAR Period)
▪ Multi-year cover written for each offshore project up to a 5 (10) year warranty period
Years
EPC contractor’s warranty (100% of contract value including offshore cost)
Large warranty claim event
Component supplier’s warranty
Take-Over of
Works
4 5 6 7 8 9
EPC Cover
Offshore wind project insurance cover take out some
EPC contractor’s warranty risk
Feb 2020 7News on Munich Re’s EPC Cover for Offshore Wind Projects
▪ CAR Maintenance Period: 2 to 5 years coverage for physical damages (PD), partially including EPC
contractor’s warranty claims
▪ OAR: Generally no coverage of EPC contractor's risk – Employers policy subsequent to warranty titles
Years
EPC contractor’s warranty
Take-Over
of Works
1 2 3 4 5 6 7 8 9 10 11
OAR – Operational All Risks
CAR – Construction All Risks CAR – Maintenance Period
Production Installation Operation
EPC Cover: The new tailor-made insurance solution for
offshore wind EPC contractors
Feb 2020 8News on Munich Re’s EPC Cover for Offshore Wind Projects
Following costs of Large Single Losses and Serial Losses could be covered:
Repair or replacement for defective (excl. or incl. PD) components
Component suppliers’ warranty default (restrictions, insolvency)
Offshore logistics costs (crew, vessel, mobilisation)
Adverse weather conditions during warranty works (Waiting-on-Weather (WoW) Sublimit)
Most cost items resulting from a large warranty claim can be covered
Green Tech Solutions’ wind cover experts
Feb 2020 9News on Munich Re’s EPC Cover for Offshore Wind Projects
Let’s talk
Green Tech Solutions
Munich
Dr. Mathias Hörmann
Tel.: +49 89 38 91-33 58
Green Tech Solutions
Tokyo
Chiharu Watanabe
Tel. +81-3-5251 6898
Feb 2020 10News on Munich Re’s EPC Cover for Offshore Wind Projects
Backup
▪ Takes maximum available CAR policy terms into account
▪ Covers defects only (PD excluded)
▪ Covers Serial Losses only
▪ Policy Period up to 5 years
Munich Re’s EPC Cover relieves risky warranty peaks
Feb 2020 11News on Munich Re’s EPC Cover for Offshore Wind Projects
Tailor-made
solution
to fit best
for EPC
contractors
▪ Covers entire Serial Losses
▪ Covers Large Single Losses
▪ Covers defects and PD
▪ Policy Period 5 to 10 years (e.g. for decennial liability)
Image: mauritius images / Masterfile Image: mauritius images / Masterfile
EPC Cover EPC Cover LIGHT
EPC Contractor’s obligations
Contractual Warranties for Defects
Increasing threats for EPC Contractors
Feb 2020 12News on Munich Re’s EPC Cover for Offshore Wind Projects
▪ Design, execute and complete the Works
▪ Comply with technical standards, regulations and laws
▪ Make it fit for purposes: appropriate, and of a necessary standard, for its intended use.
▪ Assure free from Defects: to be customized defined because FIDIC does not contain a
definition of Defects
▪ Provide long-term and high-limit warranties: duties of the EPC contractor to
remedy any Defects within the Defects Notification Period (FIDIC clause)
EPC Contracts are mostly based on FIDIC standard contracts
Defects in FIDIC contracts
can be everything
14 September 2018 13EPC Cover for Offshore Wind Projects – A backup of contractors’ defect warranties
Defects in the Industry
Limited Insurance
Underperformance in use
Deviation from specification
Design error
Latent risk of instability
Serial Defects
Physical Damages (PD) Yes Insurance ? No
Insurance
Policy
CAR
OAR
EPC Cover
Remedy
Prevention
Repair
Replacement
Rejection of Owner
Large warranty claims are rare – but they can have serious
implications for EPC contractors
Feb 2020 14News on Munich Re’s EPC Cover for Offshore Wind Projects
By frequency By impact
Large warranty claims are often
▪ due to generic failures affecting several or all components (Serial Loss)
▪ caused by faulty design, material, production or installation
▪ resulting from PD and to a large extend from defects
Basic warranty claims
Single main component
failures
Serial failures
Single main component
failures
Serial failures
Large
warranty claim
(Serial loss)
Large
warranty claim
(Serial loss)
Single
component failuresSingle component failures
Basic warranty
claims
Basic warranty claims
How much of EPC contractor‘s warranties are insured?
Feb 2020 15News on Munich Re’s EPC Cover for Offshore Wind Projects
▪ Warranty Period 5 to 10 years
▪ Liability for defects (no fit for purpose) and PD
▪ Serial Losses – also all defective parts – to be
rectified or replaced
▪ Entire offshore logistics and costs
▪ Responsibility for scope and performance of
suppliers & subcontractors warranties
CAR Maintenance Period EPC contractor’s warranties
▪ Covered period typically from 2 to 5 years
▪ PD is covered
▪ Only resulting from faulty installation
▪ No restriction (best case)
▪ PD resulting from defects are covered
▪ LEG 2: Offshore costs excluded
▪ LEG 3: Offshore costs included
▪ Serial Loss Clauses for proven PD vary
▪ Only foundations typically covered
▪ No recourse to EPC contractor’s warranties
(co-insured)
Contractual Warranties
Increasing threats for EPC contractors
Feb 2020 16News on Munich Re’s EPC Cover for Offshore Wind Projects
▪ 50 to 100% defects liability limit of contract value (vs. Oil & Gas 10–15%)
▪ Long-term warranties from 5 to 10 years
▪ Front-end-design transfer from employer to EPC contractor
▪ Fit for purpose warranted instead “made to specification”
▪ Extensive Defects and Serial Loss clauses
▪ Sub-contract values are extraordinary high due to high (steel) cost of components
(up to 80% of contract value goes into subcontracts)
▪ Faulty works or delays of subcontractors
▪ Non-performance of suppliers
▪ Limits or default of subcontractor & suppliers warranties
▪ Ultimate warranty exposure stays with EPC contractor
Employer’s demands
EPC contractors’ exposure to subcontractors & suppliers
How much is insurable in the EPC Cover?
Feb 2020 17News on Munich Re’s EPC Cover for Offshore Wind Projects
Our insurance solution provides a substantial buffer to safeguard the EPC contractor's existence even in the
event of large warranty claim. A substantial loss participation is expected.
Insured’s deductibles
▪ Insurance covers on a warranty claim basis in excess of the AAD
▪ In excess of the AAD the insured keeps a proportional participation (co-insurance): SIR
Policy Limit
Self-Insured Retention of client (SIR)
Annual Aggregate Deductible (AAD)
Offshore WoW Sublimit
Insurer
AAD
90%1 10%1
Insurer
1 Example figures
EPC Cover at a glance
Feb 2020 18News on Munich Re’s EPC Cover for Offshore Wind Projects
The EPC Cover delivers bankability and enables
EPC contractors new business
▪ Covers most of the actual cost of a large
warranty claim
▪ Closes risk gaps between EPC contractor’s
warranties and conventional CAR insurances
▪ Complements risk management strategy:
major commercial threat now insurable
▪ Secures liquidity of the insured in event of a
major warranty claim
▪ Competitive advantage:
Company warranties, backed by strong insurance
companies, appreciated by wind farm investors
and financial institutions
Image: CharlieChesvick / Getty Images