Mike Balmer, Executive Vice President, Willis North America

Financing Solar Projects:Risk Management and InsuranceConsiderationsEBC Solar Energy SeminarApril 2011

Risk Management• Progress always involves risks. You can't steal second base andkeep your foot on first - Frederick B. Wilcox• The best we can do is size up the chances, calculate the risksinvolved, estimate our ability to deal with them, and then make ourplans with confidence - Henry Ford• There are worse things in life than death – have you ever spent theevening with an insurance salesman - Woody Allen2

Risk Management Life CycleRiskAnalysisRisk IdentificationRisk MonitoringUncertaintyandOpportunityRisk EstimationRisk EvaluationRisk ResponseControlledRiskEnvironmentSystematic process of managing an organization's riskexposures to achieve its objectives3

Types of Risks in Energy ProjectsLoss inRevenuePhysicalFinancial&EconomicPoliticalandEnvironRisksContractualConceptandDesignOperationConst.Related4

Key Project PhasesConception and DesignConstruction and TestingOperationMaterialsEquipmentContractsProjectRevenuesSite & EnviroProjectDelayCostOverrunRevenueReductionFaultydesign ormaterialsForceMajeureContractorPerformancePhysicalDamage5

Key Elements of a Project InsuranceProgramProperty/First Party coverages:• Builder Risk (course ofconstruction) – physical damageand time element/loss of use• Property – physical damage andtime element/loss of use• Equipment Breakdown• Contractors’ Equipment• Cargo / transportation• Performance guaranteeCasualty/Third Party coverages:• General Liability• Workers’ Compensation• Excess / Umbrella• Professional & Pollution Liability• Contractors’ Equipment• Other Coverages6

Important Program Considerations• Objectives? Develop/Build/Sell or Develop andOperate• Risk appetite and risk bearing capacity ?• Financing arrangements, lender requirements?• Project Delivery system – contractual relationships ?• Site occupancy details – buy or lease ?• RFP or Contract requirements ?• What perils are to be, or can be insured• Whose interests are to be protected ?• What deductibles apply? Who is responsible forthem?7

InsurersConventional Markets:Established construction and energy insurers providing conventional programs which aretailored to the specific needs of each individual project.Typically offer separate programs that are combined to address the risks associated withthe various project phases and the potential loss in revenue that is associated with thesedifferent interests.Specialty Markets:Dedicated divisions within established insurance companies and specialist Underwritingagencies focusing on the renewable energy market.Typically offer composite package programs that cover transit, construction, and operatingrisks including the lost revenue that is associated with these different interests (can includetax credits or incentives that would have been earned)Each would include physical loss or damage and time element components such asmechanical and electrical breakdown.8

Performance GuaranteesAwarding authorities and investors often require a guaranteedenergy output or a hedge against performanceFactors affecting system efficacy include:–Design defects in panels or ancillary equipment (serial defects)–Degradation of panels over time (e.g. delamination)–Improper installation–Damage during transit, installation, maintenance or operation–Environmental factorsRisk Mitigation options:–Manufacturer warranties–Contractual arrangements–Property and equipment breakdown insurance–Performance Warranty / Extended Defects9

Willis Solar Power PortfolioRegionNumber ofMWsPremiumVolume (EUR)Asia Pacific 150 100,000Europe, MiddleEast and Africa(EMEA)1,000 3,000,000Latin America N/A N/ANorth America 500 6,000,000Total 2,050 9,100,000Highlights:• Construction broker for the largest Solar Thermal Project in the World – Ivanpah 1 (392 MW).• Broker for the first and largest European Parabolic Trough Solar Project in Spain (50 MW Phase 1).10

11Suddenly, a heatedexchange tookplace between theKing and the moatcontractor……..