Marsh has announced the launch of a first-of-its-kind insurance and reinsurance facility to provide dedicated insurance capacity for new and existing low-carbon hydrogen energy projects. The insurance broker is already in talks with clients, and said that it expects the facility to streamline the financing process.
The simplification of project insurance will accelerate hydrogen developments throughout the Americas, Europe, Asia, and Oceania.
“Dependent on the project's timeline, we hope the first attachment to the facility would be signed before the end of the year,” Marsh Global Hydrogen Practice Leader Mark Heneghan told pv magazine. “If not, in early 2023.”
Generally, insurance brokers have to individually negotiate each insurance clause and condition, along with lender endorsements, on behalf of their clients. Marsh’s facility includes them all directly, eliminating the need for continual negotiations. It also focuses on small- to medium-sized projects.
“The facility is not designed for mega projects. We are looking at the smaller end of the scale. The contract value is somewhere in the region of $500 million to $600 million or below,” Rob Hale – Marsh's London market leader, power and renewable energy practice – told pv magazine. “Those are the operations we are targeting with this facility.”
The London-based team of the global insurance broker modeled the facility around its understanding of non-recourse project finance. They focused on all of the clauses and conditions needed to make projects bankable from an insurance standpoint. The launch marks the culmination of a 12-month process, including calls with potential clients and internal meetings through different regional offices.
“Rather than going through a normal placement process, which could take several months, the facility should be able to provide that solution very quickly, enabling either the sign-off of all the lender endorsements and agreements or, if any negotiation with the lender is required, you can have it early,” said Hale.
Similar risk-transfer programs are needed, as insurance is part of the required documentation to access financing. The insurance only kicks in when the project construction starts.
The facility is global, but it will not focus on China and Russia for now, according to the company.
“Chinese projects typically have a lot of capacity within the domestic market space, and they tend to insure home-grown projects locally,” Hale said, adding that projects in Russia are not on the table now, due to international sanctions. “One day maybe, if the sanctions are lifted.”
The facility also targets “clean hydrogen,” which does not necessarily mean blue or green hydrogen.
“If the project is outside the norm, additional discussions with the facility markets would be needed,” said Heneghan.
Marsh expects the facility to gain momentum in the months and years ahead. As more projects are insured, more information is generated about risks to be covered by insurance, simplifying the whole process and streamlining hydrogen projects.
However, it is too early to speak about possible market share, according to Marsh. The company noted that there will be plenty of opportunities for other insurance organizations in the coming years, especially after 2030.
“Globally, $13 trillion needs to be invested by 2050 – that is an extensive amount of capital expenditure that has to happen,” Heneghan said. “We are now at around $500 billion to $700 billion dollars announced by 2030, so much more still needs to be done.”
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