Page 273 - Sustainable On-Site CHP Systems Design, Construction, and Operations

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inspection, followed by resulting events, for example, serious worker injury or death,
followed by consequential effects, for example, OSHA citation(s), project delays, pros-
ecution and fines, and future increased cost of insurance.
The uncontrolled risks may require contingency provision(s) to deal with above
noted risks, with any contract liquidated damages liabilities, or with consequential
owner delay loss or third-party loss by establishing either worst- or a lesser-case even-
tualities. On such matters, contractors must carefully distinguish sources of risks from
the effects of risk and use common sense and experience in assigning contingency costs
particularly in competitive bid situations. Where possible, owners can consider alterna-
tive negotiated design-build proposals from a short list prequalified and experienced
general CHP engineering contractors to avoid costly change orders, to ensure timely
ordering of key equipment, to limit unwanted substitutions, to avoid construction
delays, and to help ensure CHP project delivery is on time and on budget.

Risk Management: The Insurance Industry Perspective
Managing the risk for a CHP plant can often be challenging particularly when state
and/or federal energy policies are in transition and when market conditions reflect
uncertainties of financing at reasonable cost, etc. Some of the key risk management
issues related to the operation of CHP plants in a business environment may be under-
going restructuring as a worst-case scenario.
Insurance underwriters cannot deal with concerns about negotiating pending power
sales contracts, current marketing studies, foreseeable area power growth needs or pro
forma cash flow analysis. While dealing daily with the risks associated with construc-
tion of known entities, for example, hospitals, retail malls, and apartment and office
buildings, insurance underwriters often find on-site CHP projects challenging when
quantifying risk. Therefore, one needs to initiate an early and continuing dialog with
one’s insurance and risk management professionals to familiarize them with your depth
of preparation and track record in prior successful CHP plant construction and profit-
able operation of private sector CHP projects, as applicable.
The following is a discussion from the perspective of the party responsible for deve-
loping a CHP project from the ground up, through design and construction including
managing ongoing operations after start-up. In the initial project stages, one needs to
1. Clarify the differences between “risk management” and “insurance.”
2. Identify the risks associated with a CHP power plant project.
3. Understand typical “insurance” policy concerns for above referenced project.
4. Meet with several insurance carrier representatives to discuss key issues with
your risk manager and better understand current insurance marketplace for
CHP plants.

When looking at risk, understand that insurance carriers generally assume that
uncertainty is not good. Therefore it is in the best interests of the enterprise to minimize
the probability of occurrence of those events or situations that contribute to uncertainty.
Most early CHP plant developers looked at risk from the perspective of finding avail-
able insurance products to meet their perceived risk needs. For example, fire insurance
is available, therefore, the, fire risk is “taken care” of by insurance. If a certain perceived
risk was not insurable, then it was essentially ignored or internal contingency funding
was established to handle the risk and added to the cost to construct.