NER Featured in Berne Union's The BUlletin
New Energy Risk is pleased to have been featured by Berne Union in its latest issue of The BUlletin, Summer 2021: Illuminating Climate.
Berne Union is the leading global association for the export credit and investment insurance industry. The BUlletin is a bi-monthly digest of news, views and statistics from the global export credit and investment insurance industry, curated by the Berne Union.
"Innovative sustainable technologies may find it a challenge to access affordable finance through traditional routes, partly because they are new and untested, even if performance risk is likely to be low. Tom Dickson, CEO at New Energy Risk, explores risk transfer solutions through insurance and looks at how technology risk can be transformed into credit risk."
View NER's article in The BUlletin here. The full text is included below:
Performance Insurance Solutions for Breakthrough Technologies
Mitigating and reversing climate change is arguably the greatest opportunity for innovation ever seen by humanity. Technology developers and their partners are stepping up to this enormous challenge with creative solutions that are both impactful and commercially viable. However, new technology comes with risks and uncertainty, both real and perceived.
Common doubts for technology advancement stem from new technologies’ lack of extensive long-term performance data at a commercial scale. This hinders teams from securing low-cost capital, getting to market, and achieving mass customer adoption.
Traditionally, a project developer attracts low-cost debt financing to a project by transferring key risks, including budget, timeline, and performance risks, onto other counterparties. For most large-scale infrastructure projects, an engineering, procurement, and construction (EPC) contractor will assume these risks through lump-sum fixed-price contracts or guaranteed max-price contracts. Only the most proven technologies, with known costs and construction timetables, can attract project finance without these ‘wrapped’ EPC setups.
Unfortunately, EPCs are limited in their ability to provide performance guarantees for technologies or processes that they have not previously built or delivered. This leaves an unmitigated risk in place for first-commercial projects that capital providers are poorly positioned to understand. For many of these projects, the actual performance risk is low, but the perceived risk from the EPC or capital provider prevents access to low-cost financing.
Insurance as a solution to transform tech risk to credit risk
However, this performance risk – when evaluated by an underwriter with sufficient technical expertise to understand the technology – can be mitigated through an insurance policy, enabling more efficient financing.
This risk transfer is an excellent solution to advance new and lesser-known technologies. Allay the concerns of investors and customers via an insurance policy that protects the insured technology from a performance failure, in effect transforming technology risk to the credit risk of an insurer. From this risk transfer, financiers and customers rest assured, and previously inaccessible low-cost capital is unlocked.
Practical example: Sierra BioFuels
As a case study, consider Sierra BioFuels, a project of Fulcrum BioEnergy, a first-of-its-kind initiative which aims to convert 175,000 tons of household garbage into 10.5 million gallons of ultra-low carbon fuel each year. Like many startups in the cleantech industry, Fulcrum was seeking low-cost financing from institutional capital sources to drive its growth. These sources are reluctant to lend when working with first-of-a-kind projects, and are ill-suited to understand the performance risk of new facilities with no commercial-scale analogue.
Our firm, New Energy Risk (NER), a California-based majority-owned indirect subsidiary of AXA SA (‘AXA’), operating under the global brand division of AXA XL, quantified these risks by bringing both a financing and an engineering understanding to risk assessment. Working with a dedicated team of engineers, scientists, and insurance professionals, NER performed detailed diligence on the technology, structured an insurance policy that met lender needs, and worked with AXA XL to execute the policy in support of the project.
In the event of a failure at Sierra BioFuels, projected performance data allowed NER to determine how long it would take to alleviate and whether there would be enough capital to handle the problem. NER also assessed whether delays could cause a shortfall in output great enough to impact loan covenants and debt payments.
NER’s insurance and warranty solutions helped Fulcrum BioEnergy attract financing options that were previously closed to them. We created a custom-built insurance policy that assessed and covered the risk of underperformance, helped pave the way for product adoption, and ensured that future financing would be minimally dilutive.
Through our partnership, Fulcrum BioEnergy secured over $175 million in bond financing for its Sierra BioFuels project. Ultimately, they estimated that our performance insurance solution saved them 2% annually on their 20-year bonds, equaling $35 million in savings.
Performance insurance to help sustainable projects scale
Performance insurance solutions can similarly support a wide range of energy technologies and related infrastructure projects and technologies that have a major impact on our world, from reducing emissions, to creating more sustainable fuels, to finding new uses for municipal and industrial wastes, to new models for low-carbon transportation. To meet today’s environmental challenges, it is imperative that these technologies scale to accelerate a more sustainable society.
The projected growth in capital investment is at historic levels for climatetech. This investment capital is coming from the private sector: the largest institutional and fund investors, venture capital, growth capital investors, public market investors, and yes, insurance companies. And it is also coming from the public sector, driven by new legislation and carbon-free mandates across many states, countries, and international organizations.
Many insurers have publicly committed to targets aligned with the Paris Agreement and to collectively investing many tens of billions of dollars in renewable energy over the coming years. We support this proactive step to advance sustainable innovations and technologies and are proud to be a part of the insurance industry as it evolves with our changing world.
Describing what insurers will do, not just what they won’t
Sustainability-focused insurers have generally described what they will not do: by limiting or withdrawing underwriting capacity from activities that contribute excessively to greenhouse gas emissions, like coal. However, insurance is inherently set up to lead in sustainability by deciding what we will do. As an industry, we need to send a clearer message about our unique core competences: risk assessment, risk selection, and the permanent capital to hold and manage these illiquid risks. Insurers can take advantage of these core competencies to expand and promote underwriting capacity for activities that contribute to the reduction of emissions as well as other sustainability measures. Reversing the script from ‘won’t’ to ‘will’ can allow the insurance industry to embrace its potential for leading sustainability efforts.
A new class of risk
NER follows this ‘green underwriting’ approach – a more forward-leaning perspective on sustainability in the insurance industry. We believe that the insurance industry is uniquely situated to deploy its risk capital to support new technologies and business models and advance their sustainability impact.
By transferring specific and carefully calibrated technology and financial risks to the insurance markets, more technologies can access efficient capital (faster, minimally dilutive and optimally priced), accelerate their time to market, and achieve commercial scale (with greater customer adoption).
This new class of risk brought to the insurance market will better help address major environmental issues while diversifying the insurer risk book and attracting significant premium volumes, as well. This approach can benefit a variety of industries including renewable energy, fuel cells, energy storage, energy efficiency, waste to energy, biofuels and chemicals, nuclear technologies, power generation, water treatment, indoor farming, industrial processes, carbon capture, biomass processing, anaerobic digesters, grid technologies, and more.
Within our own firm, NER has already paved the way through $1.3 billion in total insurance capacity deployed to date for clients ranging from Bloom Energy (a leading supplier of solid-oxide fuel cells) to Brightmark (a plastic waste-to-product technology company). These policies have unlocked over $2.5 billion in capital for first-commercial technologies.
Furthermore, the contributions from these projects to sustainable economies include the processing of 449,000 ton/year of waste (producing valuable products like low-carbon fuels and waxes), the generation of 695 MWh/year of clean energy (powering the equivalent of 63,000 US homes), the production of 50 million gallons/year of alternative fuels (filling the equivalent tanks of over 88,000 US drivers), and the avoidance of 320,000 tons/year of CO2 equivalent (preventing harmful greenhouse gas emissions). Where new technology risk might have limited any of our client’s successful financing, an insurance solution provided better terms and faster outcomes.
Taking on the crisis of a changing climate is critical, but that does not mean investors are willing to make uninformed sacrifices. By offering bespoke risk analysis and risk transfer, insurance can enable technology developers and their partners to step up to this enormous challenge when we need it most – now.
AXA Publishes its 2021 Climate Report
We are proud to be featured on page 69 of AXA's 2021 Climate Report, recognizing our work with clients addressing some of the greatest environmental challenges facing the world today.
Below is AXA's original press release. Peruse to learn more about the important initiatives of our affiliates.
AXA Publishes its 2021 Climate Report
AXA today announced the publication of its 6th Climate Report. This report fulfils the legal requirements for non-financial reporting as well as the voluntary approach of the Task Force on Climate-related Financial Disclosures (TCFD), which AXA has supported since its creation. It describes AXA's responsible investment and insurance initiatives in the fight against climate change and measures the Group's progress in its ambition to reach the objectives of the Paris Agreement.
Among the various indicators measuring AXA's activities with regard to climate change, this report highlights the "warming potential" methodology, which measures the impact of the Group's investments on global warming by 2050. This year, it stands at 2.7°C, significantly below the market, whose potential is 3.2°C. This indicator is key for AXA, which committed to limiting the warming potential of its investments to 1.5°C by 2050.
The report also shows that the "green" share of AXA's portfolios is increasing - driven in particular by the €25 billion green investments planned by 2023 - and that the carbon footprint of investments continues to decline, in line with the -20% target by 2025 set by AXA's strategic plan Driving Progress.
These indicators are part of a fundamental methodological effort by the financial industry to measure its climate impact, anticipate and manage climate-related risks for its business and stakeholders, and determine effective action plans.
A decisive decade begins in the fight against climate change. Our climate report is an essential tool for measuring the effectiveness of our strategy and the distance we still have to go to meet the Paris Agreement targets by 2050. There is still a long way ahead. We must all commit to accelerating the transition to lower carbon and more resilient economies. AXA is determined to play its part.
Thomas Buberl, CEO of AXA
This 2021 Climate Report is available on AXA’s website at the following address: https://www.axa.com/en/press/publications/2021-climate-report
CEO Interviewed by Risk & Insurance
New Energy Risk CEO Tom Dickson is quoted in Risk & Insurance for the article, "A Hardening Renewable Energy Market Renews Interest in Basic Risk Management: Soaring losses have underwriters raising rates while backers insist on greater coverage. Developers are caught in the middle."
Considering the headline, Tom says, "There could not be a more exciting and challenging time in renewable energy." Learn about how NER's "expansive view of renewables, from biomass to fuel cells to energy storage" is part of the solution, and more.
Read the complete article here.
NER Releases its 2020 Sustainability Report
Sustainability is at New Energy Risk's core. Our business model delivers performance insurance solutions to a wide range of energy technologies and related infrastructure projects and technologies that have a major impact on our world, from reducing emissions, to creating more sustainable fuels, to finding new uses for municipal and industrial wastes, to new models for low-carbon transportation. We help drive these technologies to scale and foster greater customer adoption to accelerate a more sustainable society.
We are proud of our clients, who are committed to solving some of the world's most pressing environmental issues. Collectively, they are reducing landfills and building a circular economy, reducing dependence on aging centralized power grids, reducing transportation’s dependence on petroleum, and preventing harmful greenhouse gas emissions.
Published on the heels of Earth Day, read a letter from our CEO, Tom Dickson, and chief actuary, Sherry Huang, plus learn about New Energy Risk's representative client impact in our second annual report:
Want to learn more about our contribution to sustainability efforts? Check out AXA XL's Climate Risk Report and find New Energy Risk on page 26.
NER Featured by AXA XL in Climate Risks Report
New Energy Risk is proud to be featured in AXA XL's Climate Risks report, Protecting What Matters. Read how NER is contributing to innovative insurance solutions for emerging climate risks in our spotlight on page 26. Download the full Climate Risk brochure here.
From our CEO, Tom Dickson, "Mitigating and reversing climate change is arguably the greatest opportunity for innovation ever seen by humanity. Technology
developers and their partners are stepping up to this enormous challenge with creative solutions that are both impactful and commercially viable. While new technology comes with risks, risk cannot stop us from creating a better future."
New Energy Risk Supports Carbon Capture Bill
As an insurance solutions provider who is contributing to the de-risking of $3B+ of carbon capture projects, we see how a longer development timeline and increased revenue certainty enabled by a 45Q extension and direct pay, coupled with increased credit values, would positively contribute to the financing and completion of these exciting projects.
Tom Dickson, CEO, New Energy Risk
Today, the US Senate introduced the Carbon Capture, Utilization, and Storage Tax Credit Amendments Act. Learn about the implications from the Carbon Capture Coalition's press release, and find the text of the Bill here.
###
New Energy Risk Helps Bring Fuel Cells to New York City
New Energy Risk (NER), a leader in customized performance insurance solutions for breakthrough technology projects, announced today that it has helped facilitate the purchase and financing of fuel cells in Staten Island, New York. The insurance solution developed by NER was a key component of the project’s financing and execution strategy.
The fuel cells totaling 12 MW in capacity across three sites were installed by joint venture including Daroga Power LLC. Project financing was in part provided by NY Green Bank, a division of the New York State Energy Research and Development Authority (NYSERDA), and New York’s $1 billion sustainable infrastructure investment fund. Daroga Power is poised to become the largest owner/operator of community distributed energy generation projects in New York City, with a total fuel cell and solar portfolio capacity of 20 MW.
NER, a member of the AXA XL group of companies, conducted a proprietary technoeconomic analysis, and then developed an insurance solution and monitoring schedule that addresses the operation of the fuel cells for up to 12 years. This is the first time NER has supported an investment by NY Green Bank.
“For years, we have been very pleased to support the expansion of fuel cells around the world,” said Tom Dickson, CEO of NER. “The installation of these fuel cells in New York City is another great example of infrastructure that provides reliable and cost-effective power, with the peace of mind that performance insurance provides.”
“Daroga Power is at the cutting edge of sustainable infrastructure serving New York City,” said Ory Moussaieff and David Matt, founders of Daroga Power. “With this insurance solution by New Energy Risk, we were able to close our financing and more than triple our fuel cell capacity. It would not have been possible without NER.”
“NY Green Bank is pleased to provide financing for fuel cell-powered community distributed generation projects, which benefit from the credit enhancement provided by NER’s performance insurance product,” said Alfred Griffin, president of NY Green Bank. “Our investments and activities support Governor Cuomo’s nation-leading goals to combat climate change, as outlined in the Climate Leadership and Community Protection Act, which requires that 70 percent of the State’s electricity come from renewable sources by 2030.”
###
About New Energy Risk
New Energy Risk is a pioneer of large-scale, breakthrough technology performance insurance solutions. Founded in 2010, the company provides complex risk assessment and serves as a bridge between technology innovators, financiers, and insurers. New Energy Risk has helped its customers unlock over $2 billion in financing for commercializing renewable energy and new technology deployments that address global challenges. Insurance policies are administered through New Energy Risk affiliate Complex Risk and Insurance Associates, LLC, CA License #0I24307. To learn more, visit www.newenergyrisk.com.
About AXA XL
AXA XL provides insurance and risk management products and services for mid-sized to large multinational companies, and reinsurance solutions to insurance companies globally. As a leading global insurer, AXA XL offers services in over 200 countries and territories for 90% of Fortune 500 businesses. To learn more, visit www.axaxl.com.
CEO Interviewed by AXA XL for Fast Fast Forward
New Energy Risk CEO Tom Dickson was interviewed by AXA XL, the #1 P&C commercial lines insurance platform serving clients in more than 200 countries, for Fast Fast Forward. This award-winning thought leadership platform provides articles, interviews and podcasts on a diverse range of topics, including technology, innovation and new thinking on risk.
Learn more about “the future of [our] custom technology risk solutions, and the crucial gap [we] fill in the marketplace,” plus a peek under the hood of our model and how diversity improves our team performance.
Read the complete interview here.
NER in The Economist
New Energy Risk is pleased to have been cited by The Economist in print (31-Oct-2020 edition) and online.
Greenbacks for greenery: Climate-conscious venture capitalists are back
"Specialised insurance firms, such as New Energy Risk... help financiers manage the risk" of "green innovators... attracting innovative financing methods."
Read the full article here (note: article may be behind The Economist's paywall).
New Energy Risk Helps Bring Fuel Cells to South Korea
New Energy Risk (NER), a leading provider of customized performance insurance solutions for breakthrough technology projects, announced today that it has helped facilitate the purchase and financing of fuel cells in South Korea. The insurance solution provided by NER is a key component of the project's financing and execution strategy.
The Bloom Energy fuel cells totaling 19.8 MW in capacity were installed by SK Engineering & Construction Co. Ltd. (SK E&C). The project is owned by SE Greenenergy Co., Ltd., in which Korea South-East Power Co., Ltd. (KOEN) holds an 85% stake and SK E&C holds the remaining 15%. This is the largest Bloom Energy project in South Korea to date, and Bloom Energy's second largest in the world.
This project reflects South Korea's growing interest in reducing carbon emissions, coupled with a power strategy emphasizing distributed power generation. The Bloom Energy fuel cells produce on-site power that is both clean and reliable. This is the first-ever solid oxide fuel cell project financed in Korea and will provide enough electricity to power approximately 43,000 homes.
NER, an affiliate of the global insurance group AXA XL, conducted a proprietary technoeconomic analysis, and then developed an insurance solution and monitoring schedule that addresses the operation of the fuel cells for 15 years. NER and Bloom Energy have worked together on prior performance insurance solutions in the United States.
"Our mission at New Energy Risk is to enable technologies that are addressing global challenges," said Tom Dickson, CEO of NER. "With this announcement of our first transaction in Korea, we are thrilled that our business itself can reflect that global perspective." He continued, "Bloom Energy is a longstanding client, and our relationship with Bloom is one that we're very pleased to support as the company expands its impact throughout the world."
"Technology innovation is a worldwide necessity and we are proud that New Energy Risk has helped bring the latest fuel cell technology to South Korea," said Tom Hutton, founder and chairman of New Energy Risk. "As NER grows, it further reflects our goal to expand the scope of insurable risks and develop high-value performance insurance solutions supported by deep technical domain and underwriting expertise."
###