Fuel Switching Protection

Over the past few years, many companies have either purchased or built generating capacity to self-insure for outage events and/or to take advantage of market opportunities. Most of these generating units are gas-fired stations.

Some companies feel their exposure to ‘any’ outage at their facility is not catastrophic since they have considerable excess supply. But an outage at an inexpensive generating plant such as a coal or nuclear station could cause them to rely on either the market or their more costly, gas- or oil-fired generation, and could result in significant increases in power expenses, particularly in light of recent volatility in natural gas markets.

ACE implemented a PowerBacker solution that covered extensive unplanned outages at customers' coal-fired generating stations, and capped the indemnification at their marginal cost of generation at their gas-fired facilities. This coverage allows the customers to go to market when the price for electricity was below their cost to generate at their gas-fired stations and pays for the incremental cost of generation at their gas-fired station when the market price exceeds the operating and fuel costs at these units. For example, a customer budgeted for the most likely events, over $5 million, and ACE paid for 90 percent of the additional cost for replacement power after the $5 million was exhausted. As outages occurred during the coverage term, the customer was relieved, as the extent of the potential financial consequences was contained.

To learn more about these customized solutions call us directly at 1 800 356 2827 or call your insurance broker.