In recent years, Indonesia has shown a very positive trend in green energy development. The government is targeting a 23% renewable energy mix by 2025, resulting in projects such as solar farms (including floating and rooftop), wind farms, hydroelectric power plants, and biomass being increasingly developed by both domestic and foreign investors. Regulatory support, growing awareness of climate change, and the demand for clean energy are key drivers of increased investment in this sector.
However, despite these significant opportunities, the main challenges for green energy projects are high investment costs and significant risks during the construction and operational phases. For example, floating solar farm projects are vulnerable to storms, flooding, or technical damage to the solar panels. Wind farms face the risk of extreme winds that can damage turbines, while hydro and biomass projects are vulnerable to natural factors and environmental disturbances.
In these circumstances, one of the most frequently asked questions from investors and contractors is: “How much does an insurance premium cost for a green energy project?” Insurance premiums are not just an additional expense, but a strategic element in risk management. The premium amount will impact cash flow, ROI (Return on Investment) calculations, and the level of trust of banks and lenders financing the project.
This is where the role of an experienced insurance broker like L&G Insurance Broker becomes crucial. L&G helps investors and contractors compile comprehensive underwriting information, negotiate the best premiums with national and international insurance companies, and ensure optimal coverage. Furthermore, in the event of a claim, L&G acts as a strategic partner, fighting for clients’ rights to ensure maximum and timely recovery of losses.
This article aims to provide a comprehensive overview of how to reduce the cost of green energy project insurance premiums without compromising the quality of coverage. With the right understanding and the support of a professional broker, investors can obtain maximum coverage at more efficient premiums.
Contact L&G Insurance Broker now at Phone number 08118507773 for a free consultation before the risks haunt your business.
Potential & Characteristics of Green Energy Projects in Indonesia
Indonesia has enormous, yet untapped, green energy potential. With its strategic location on the equator, the country receives an average of 4.8 kWh/m² of sunlight per day, making it an ideal location for solar power generation, both in the form of rooftop solar systems and floating solar farms in reservoirs and lakes. Furthermore, eastern Indonesia boasts high wind speeds suitable for developing wind farms, such as those already underway in Sidrap and Jeneponto, South Sulawesi.
The potential for hydropower is also enormous, given that Indonesia has thousands of rivers with water discharges that can be utilized, from small-scale (mini hydro) to large-scale (mega hydro). Equally important, biomass sourced from agricultural, plantation, and forestry waste also presents a significant opportunity to support the clean energy mix.
Each type of green energy project has unique characteristics and risks that affect insurance costs:
- Solar farms (rooftop and floating): Risk of panel damage due to wind, storms, lightning, or even theft.
- Wind farm: Risk of turbine damage due to extreme wind speeds, material defects, and installation failure.
- Hydro: Risk of floods, landslides, earthquakes, and failure of dam structures or water pipe installations.
- Biomass: Risk of fire, explosion, disruption of raw material supply, and environmental risks.
Indonesia’s vast green energy potential is making these projects increasingly attractive to both foreign and local investors. However, to ensure projects proceed as planned, investors need to consider appropriate insurance coverage from the outset. This way, the significant risks inherent in each project’s characteristics can be managed, while insurance premium costs can be kept low through effective risk management strategies.
Key Risks in Green Energy Projects
Every green energy project—despite its noble goal of supporting the clean energy transition—is inherently fraught with risks that can lead to significant losses, both during the construction and operational phases. These risks then form the basis for determining insurance premiums.
- Risks in the construction phase (Construction Risks)
During the construction phase, green energy projects face risks such as delayed material deliveries, work-related accidents, equipment damage during installation, and natural disasters that damage structures during construction. For example, wind farm projects are vulnerable to turbine damage during erection, while floating solar farms are at risk of pontoon leaks or panel damage due to strong winds.
- Risks in the operational phase (Operational Risks)
Once a project is operational, the risks persist. Solar farms can potentially experience panel damage due to storms or lightning strikes. Wind farms face turbine gearbox wear or control system failure. Hydro farms face risks from floods, landslides, or earthquakes that could damage dams. Biomass faces the risk of fires due to the storage of organic material or boiler failure.
- Financial and business risks (Financial & Business Risks)
In addition to physical losses, green energy projects also face financial risks, such as payment defaults due to project delays, lost revenue due to power plant shutdowns, and credit risk from business partners. This often necessitates additional protection through Business Interruption Insurance (BI).
- Regulatory and environmental risks
Other factors that need to be taken into account are the risk of regulatory changes, rejection by local communities, or unexpected environmental impacts.
Given this complex nature of risks, green energy companies require the right combination of insurance coverage. The greater and more complex the risks, the more important it is to find strategies to reduce premium costs without compromising the quality of protection. One way to do this is through the services of an experienced broker.
Examples of Accident Cases in Green Energy Projects
To understand the importance of insurance coverage in green energy projects, let’s look at some real-world examples:
- Wind Turbine Damage in Sulawesi
One wind farm project experienced a technical failure with its turbine during commissioning. A crane beam fell, damaging a giant turbine blade. The estimated loss was millions of dollars, which was ultimately covered by a Construction All Risks (CAR) policy.
- Solar Panels Damaged by Strong Winds
At a floating solar farm project, several rows of solar panels were dislodged from their retaining pontoons by a storm. This incident caused material damage and loss of electricity production during repairs. The claim was handled by Property All Risks (PAR) and Business Interruption (BI) policies.
- Fire at Biomass Plant
A biomass project in Java faced a major fire due to prolonged storage of organic raw materials, which triggered a natural chemical reaction. Losses included storage buildings, boilers, and production downtime. Fire insurance and additional machinery breakdown (MB) coverage were crucial.
- Landslide in the Hydro Power Plant Area
At one hydropower plant site, a landslide hit a canal wall, causing extensive damage. In addition to construction losses, the project was delayed for months. EAR Insurance and Delay in Start-Up (DSU) protection proved to be effective in protecting investors from further losses.
These examples demonstrate that without insurance, losses can halt projects or even drive investors away. With the support of an experienced broker, these risks can be better anticipated and premiums optimized.
Types of Insurance for Green Energy Projects
Green energy projects such as solar farms, wind farms, hydro, and biomass require comprehensive protection due to the complex and significant risks they face. The following are the types of insurance commonly required:
- Construction/Erection All Risks (CAR/EAR Insurance)
Used throughout the construction and installation phase. Covers physical losses due to sudden accidents, such as turbine collapse, solar panels breaking during installation, or landslides in the construction area.
- Property All Risks (PAR Insurance)
Once the project is completed and operational, this policy protects assets such as solar panels, turbines, generators, and supporting facilities from the risk of fire, storms, floods, or other accidents.
- Business Interruption (BI Insurance)
Green energy is a long-term project that relies heavily on continuous electricity production. This policy provides compensation for lost revenue due to operational disruptions, such as solar panels damaged by a storm, which halts production.
- Machinery Breakdown (MB Insurance)
Large machinery such as wind turbines, hydro generators, and biomass boilers is vital. This policy covers the risk of sudden machine breakdowns that could result in downtime and high repair costs.
- Delay in Start-Up (DSU Insurance)
Particularly relevant for loan-financed projects. If a project is delayed due to an accident covered by a CAR/EAR policy, the DSU compensates for the loss of potential revenue.
- Liability Insurance
Protects against third-party claims resulting from accidents at project sites, such as worker injuries or damage to property of the surrounding community.
- Surety Bond dan Performance Bond
It is a guarantee for the employer that the contractor will carry out the project as agreed.
With the combination of policies above, green energy projects can be comprehensively protected. An experienced insurance broker like L&G is crucial in selecting the appropriate policy, arranging additional clauses, and keeping premium costs low to ensure investment efficiency.
Green Energy Insurance Premium Cost Estimate
Insurance premiums for green energy projects in Indonesia vary widely depending on the project scale, the type of technology used, the location, and the contractor’s track record. Generally, premiums are calculated as a percentage of the project or asset’s value insured, in accordance with OJK tariff guidelines and international market practices.
- CAR/EAR Insurance: typically ranges from 0.15% to 0.25% of the contract value. For large projects like a 50 MW solar farm worth USD 50 million, premiums can reach USD 75,000 to USD 125,000.
- Property All Risks (PAR): premium rate is around 0.30% – 0.35% of the asset value per year.
Business Interruption (BI): additional approximately 30% – 50% of the PAR premium, depending on risk exposure.
- Machinery Breakdown (MB): generally 0.25% – 0.5% of the machine value per year.
- Delay in Start-Up (DSU): relatively high rates, around 0.3% – 0.5% of the value of delayed revenue.
Although this figure may seem significant, premiums can actually be reduced through the preparation of complete underwriting information, the arrangement of appropriate clauses, and negotiations with insurance companies.
This is where the role of an experienced insurance broker like L&G Insurance Broker becomes crucial, ensuring that investors and contractors receive maximum protection at the most cost-effective premiums.
The Important Role of Insurance Brokers for Green Energy Projects
Green energy projects have unique characteristics: high investment costs, sophisticated technology, and often challenging locations (at sea, in the mountains, or in remote areas). These conditions make risk management extremely complex, and this is where experienced insurance brokers like L&G Insurance Broker play a crucial role.
First, the broker helps compile detailed underwriting information so the insurance company clearly understands the project’s risk profile. Technical data, designs, construction plans, and risk mitigation systems are presented to secure lower premium offers.
Second, brokers have extensive access to national and international insurance markets, allowing them to compare various policy options and select the most competitive one. This is especially important for large projects with investments of hundreds of millions of dollars.
Third, brokers also assist clients in the claims process. In the event of an accident, such as a turbine failure, biomass fire, or flooding at a hydropower plant, the broker acts as the client’s advocate to ensure the claim is promptly approved and paid in full.
With the support of brokers, investors and contractors can ensure their green energy projects are maximally protected with efficient premiums, appropriate clauses, and strong claims guarantees.
Conclusion
Green energy investment in Indonesia continues to grow rapidly in line with global commitments to a clean energy transition. However, despite the potential for long-term benefits, these projects also carry significant risks, from construction to operation. Accidents such as turbine failure, solar panels being hit by storms, biomass fires, or landslides at hydropower plants can cause millions of dollars in losses and hinder investment success.
Insurance premium costs are a key issue for investors and contractors. With varying premium rate estimates—CAR/EAR, PAR, BI, MB, and DSU—strategies to reduce premium costs without compromising protection are essential. This is where an experienced insurance broker like L&G Insurance Broker plays a key role.
L&G not only ensures the selected policy meets your needs, but also assists with premium negotiations, prepares underwriting documents, and fully assists with the claims process. With this support, investors can focus more on project development while financial risks are professionally managed.
👉Don’t let risks hinder your move towards clean energy.
Contact L&G Insurance Broker now and ensure your green energy project has the best protection with the most efficient premiums.
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