Page 344 - Sustainable On-Site CHP Systems Design, Construction, and Operations

Sustaining CHP Operations 317

life versus the total expected equipment life taking into consideration the time value of
money. For example, neglecting inflation and savings interest, if a piece of equipment
cost $100,000 and the life expectancy is 20 years, the facility should add $5000 to the
reserve fund every year and if 6 years of life remained, then the reserve fund should
hold $70,000 for that piece of equipment in this simplified example. Of course, in reality,
purchase escalation costs as well as return on reserve fund investments must be taken
into account.

Insurance Requirements
The responsibility for developing a risk management strategy and arranging and
placing the insurance clearly lies with the designated CHP plant owner-operator fol-
lowing completion of construction, receipt of permit to operate from all authorities
having jurisdiction, and completion of 24/7 shift operator hands-on training and
commissioning. The coverages are essentially the same as for the construction phase
except for the need to address the CHP plant equipment breakdown and business
interruption exposures.
The financial interests also have a keen interest in the insurance program from day
one, and will want an assurance that the CHP plant owner-operator can service the
debt, that is has other insurance against the financial consequences of interruption of
CHP plant operations.
With respect to the CHP plant time operational exposures, for example, delay in
CHP plant start-up and interruption to power sales, the willingness of the insurer to
grant the latter additional insurance coverage will depend upon the ability of the CHP
plant owner-operator and their insurance broker to adequately explain the nature of
anticipated exposure to the insurance underwriters.
When the insurance broker is asked to quote coverage for business interruption, he
understands that during a period of business interruption its insurance must cover the
cost of the insured CHP plant owner-operator’s continuing expenses, business earnings
including profit that the CHP plant owner-operator would have been responsible for
and due had no loss from business interruption occurred. It is important for the CHP
plant owner-operator to understand that the period of recovery applies only for the
time required to repair or replace damaged CHP equipment and/or related physical
plant structure, property, etc. assuming reasonable speed is undertaken to fix the prob-
lem so that normal CHP plant operations are not unreasonably delayed.
Expect insurers of technical risk situations, generally associated with on-site CHP
plant operations, to expect detailed engineering data and documents detailing mainte-
nance histories and procedures, fire protection system capabilities, and operating logs
to properly underwrite the CHP plant owner-operator’s account.
The basics of business interruption are slightly more complex when insuring CHP
plant owner-operators. Disagreement and/or confusion over agreement on lost CHP
plant income, and expenses or how to budget for CHP plant operating interruption
exposure offer the leading cause of insurer disinterest in dealing with CHP plant
exposure.
Since most owner-operator CHP plant purchase agreements provide for availability
clauses and incentives, the actual period of loss can extend well beyond the repair period.
Underwriters and claims adjusters, when not completely familiar with the terms of such
customer contracts, may resist accepting the agreed upon incentive or penalty clauses