Munich Re (MUV2), the world’s largest reinsurer, may generate 500 million euros ($658 million) in annual revenue within five years from insuring renewable energy projects, including protecting against the risk that their solar suppliers become insolvent.
If solar module output falls below guaranteed levels and the manufacturer is unable to meet liabilities because of insolvency, Munich Re will protect the project investor, management board member Thomas Blunck said.
“This relieves a lot of the risk that investors have to cope with when they devise their business strategy for investing in renewable energy,” he said by phone from Munich.
Solar makers such as Germany’s Q-Cells SE and Conergy AG face pressure from foreign competitors including Chinese companies that have accelerated expansion even as the spot price for photovoltaic panels slumped about 44 percent last year, according to Bloomberg New Energy Finance. Berlin-based module maker Solon SE and Solar Millennium AG, with headquarters in Erlangen, filed for insolvency in December.
Munich Re said the coverage that it started selling in January makes it easier for solar park operators to get bank loans because the project’s cash flow is easier to calculate.
Munich Re has sold two of the solar “option cover” it developed over two years and has others in the pipeline, Blunck said. The first was at a solar park in southern Italy financed by Deutsche Bank AG and Rabobank Groep.
Blunck, responsible for most of the new Munich Re renewable energy insurance products, expects revenue from that area of about 500 million euros in three to five years from a “double- digit million” euro figure now.
Wind Turbine Coverage
Munich Re already insures solar module and wind-turbine makers if their products’ performance capacity falls below the level pledged to project operators. The new option cover for insolvency must be used with that. The company also plans to sell option coverage for wind turbines in the “medium term.”
The insurance will benefit investors because it acts like a certification of the manufacturer. More risk-averse investors such as pension funds may be likely clients, Blunck said.
Munich Re has invested about 500 million euros so far in renewable projects, he said. “If enough attractive projects come to our table and we can close them, then on average we expect to invest about 500 million euros per year,” reaching 2.5 billion euros in about four years, Blunck said.
The company invests in different countries to dilute the effect of subsidy cuts that European governments are undertaking amid austerity moves. It will invest in U.S. projects among others and is also studying Brazil, Blunck said.
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