Energy Risk Insurance in Kazakhstan

Energy risk insurance helps protect power plants, substations, generating equipment, networks and infrastructure from large property losses. A program may combine property insurance, machinery breakdown, business interruption, construction and erection works, and liability.

Important: an energy facility is assessed as a single technological system. Damage to one transformer, turbine or line can stop the whole production process, so the sums insured and limits must take into account not only the repair but also the possible restoration period.

Which facilities can be insured

• thermal, hydroelectric, gas-turbine and other power plants;
• solar and wind power plants;
• turbines, generators, boilers and auxiliary equipment;
• transformers, switchgear and substations;
• cable and overhead power transmission lines;
• control, automation, communication and dispatch systems;
• buildings, structures, warehouses and spare parts;
• facilities under construction, erection and commissioning.

The composition of the facility is recorded in the list of insured property. Land plots, documents, software, consumables and contractors' property are not considered automatically included.

Main sections of the insurance program

Which events may be covered

The list depends on the type of facility and the terms of the contract. For the property section, the following may be considered:

• fire, explosion and lightning strike;
• storm, hail, flood and other agreed natural phenomena;
• failure of engineering systems;
• falling objects and vehicle collisions;
• unlawful acts of third parties;
• sudden electrical or mechanical damage to equipment;
• personnel error during operation - if the risk is included;
• expenses for clearing, salvage and preventing greater damage.

The occurrence of an event does not yet mean an automatic payment. The insurer checks the proximate cause, the technical condition, compliance with regulations and the presence of exclusions.

Breakdown of machinery and equipment

Machinery breakdown insurance is intended for sudden internal damage that may not fall under ordinary property cover. For example, a short circuit, destruction of a rotating part, an adjustment error or a sudden failure of the control system.

Wear, corrosion, cavitation, metal fatigue and gradual deterioration are usually excluded. At the same time, the consequences of a worn part for other equipment may be considered separately if the contract contains a corresponding condition.

Production interruption

After a major accident, the cost of repair may be less than the financial losses from the stoppage. A business interruption policy may reimburse lost gross income, unavoidable fixed costs and reasonable additional expenses to shorten the downtime.

Such cover usually applies only after physical damage recognized as insured under the base contract. The following must be agreed:

• the estimated profit and fixed costs;
• the maximum indemnity period;
• the time deductible;
• the seasonality of production and the repair schedule;
• dependence on suppliers of fuel, water and external networks;
• the lead time for manufacturing and delivering critical equipment.

Insured value of an energy facility

For industrial facilities, the benchmark is often the replacement cost: the costs of acquiring, delivering, installing, customs duties, design and commissioning of a modern equivalent. The book residual value may be significantly lower than the actual cost of restoration.

If the facility is underinsured, the contract may provide for a proportional reduction of the payment. For unique turbines, generators and transformers, it is important to take into account the cost of urgent delivery, the currency and the production lead times.

What the insurance premium depends on

• the type of generation, the capacity and the technology of the facility;
• the age, manufacturer and technical condition of the equipment;
• the results of surveys and diagnostics;
• the preventive maintenance system;
• fire protection and emergency shutdown;
• redundancy of critical components;
• natural hazards at the location;
• the qualifications of personnel and emergency plans;
• the statistics of downtime and insured events;
• the sums insured, limits and deductibles.

Pre-insurance engineering inspection

Before a large contract is concluded, the insurer or an engineer-surveyor may study the facility, the documentation and the risk management system. The purpose of the inspection is to identify likely damage scenarios and propose measures to reduce them.

• the technical condition of the main units;
• thermography, vibration diagnostics and test results;
• fire detection and extinguishing systems;
• protection of transformers and oil-filled equipment;
• the availability of spare parts and standby capacity;
• response plans and staff training;
• the state of contractors and control of hazardous work.

The surveyor's recommendations may become mandatory conditions of the contract. The deadline for complying with them and the consequences of non-compliance must be clearly worded.

Main exclusions

• natural wear and gradual deterioration;
• defects known before the start of insurance;
• scheduled repairs and replacement of consumable parts;
• violation of mandatory technical requirements;
• experimental operation without approval;
• cyber events without special cover;
• loss of market, fines and contractual penalties;
• war, nuclear and political risks, unless included separately;
• downtime without covered physical damage.

Documents for buying the policy

• a description of the facility and a process flow diagram;
• a list of property with replacement cost;
• technical data sheets and operating hours data;
• maintenance and repair schedules;
• diagnostic and industrial safety reports;
• fire-extinguishing and emergency response plans;
• information on losses for previous years;
• financial data for calculating business interruption;
• contracts with key suppliers and contractors.

Actions in the event of an accident

1. Stop the dangerous process and ensure the safety of people.
2. Call the emergency services and the competent authorities.
3. Take reasonable measures to reduce the damage.
4. Notify the insurer within the established period.
5. Record the place, the equipment, the parameters and the readings of the systems.
6. Keep the damaged parts until the agreed inspection.
7. Do not begin full repair without recording the damage, except for urgent work.
8. Keep a separate record of expenses and the downtime period.

Frequently asked questions

Can a solar or wind power plant be insured?

Yes. Natural loads, equipment, grid connection, manufacturers, warranties, maintenance and the generation forecast are assessed.

Is a short circuit covered?

It may be covered under the machinery breakdown section or the property section. The cause, the damaged elements and the exclusions must be checked.

Is lost revenue reimbursed?

Only if there is business interruption cover and after physical damage recognized as insured, unless the contract provides for a different structure.

Does a power unit under construction need to be insured separately?

Yes, the periods of construction, erection, testing and operation have different risks. The transition between stages must be agreed in advance.

Conclusion

Energy risk insurance requires engineering and financial analysis. A reliable program takes into account the replacement cost, critical equipment, the duration of downtime, natural hazards, liability and realistic restoration times.

This material is for information purposes. The terms and insurance payments are determined by the contract of a licensed insurance company.