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Monday 04 July 2011
Author: Russell Group

Marsh and Munich Re have announced the creation of major new policy to convert the risks for a state of the art energy project.

The broker and underwriter have joined with project developer Exorka, insurance to develop the insurance concept covering the exploration risk of a geothermal energy project in Taufkirchen, near Munich. Drilling operations have now begun.

Munich Re is assuming what it described as “the significant risk” of failure that thermal heat drilling entails.

Deep geothermal heat is considered a very promising form of renewable energy. It involves pumping hot water from strata at a depth of up to five kilometres to the earth's surface, where it is used to generate heat and/or electricity. However, the substantial drilling and development costs associated with this technology often constitute a huge investment barrier because there is a high risk of not making a find, in which case the investment is lost.

Munich Re is providing cover for the risk for the failure of a find and is utilising one of its primary insurers to realise the insurance solution.

The deep geothermal energy drilling will be carried out by drilling-technology specialist Daldrup & Söhne AG, which recently successfully completed drilling operations for the neighbouring Grünwald/Oberhaching project.

The output of the existing biomass power plant is to be increased by 20 MW to 80 MW with the aid of geothermal heat. GeoEnergie also plans to produce electricity.

Up to four wells are planned at a cost of around €35m. Whether this outlay is worthwhile for investors depends on whether water is found underground that is hot enough and available for exploitation in substantial quantities.

Marsh, which has been advising project developer Exorka for four years, ascertained the insurable risks of the Taufkirchen project and prepared them for the insurance market.

"A further milestone has been achieved in that we have been able to involve Munich Re in this project, based on our special concept – recognised in the field of deep geothermal energy – for the critical exploration risk", saidSiegmund Fahrig, head of Marsh GmbH. “This underscores Marsh's market leadership as a consultant dealing with exceptional renewable energy risks."

Munich Re has set up a dedicated geothermal energy team since developing the world's first exploration policy in 2003, and regards itself as a know-how leader in this field.

Munich Re Board member Thomas Blunck said: "With our expertise, we can also assume renewable energy risks that are not everyday occurrences and thus help provide greater investment security."

He added: "We see climate change not only as a risk but also as a great opportunity, because if climate protection is pursued resolutely, new technologies will have significant growth potential."