Machinery breakdown insurance for CHP plants: comprehensive protection for your energy centre to ensure over 90 per cent operational continuity
30.04.25
4
Minutes
Katrin Straub
Managing Director at nextsure
An unforeseen loss at your combined heat and power plant can quickly lead to six-figure costs. A specialised machinery breakdown insurance policy for CHP systems protects you from the financial consequences and safeguards your energy production. Find out how to create the optimal cover for your system.
The topic in brief and concise terms
A machinery breakdown insurance policy for BHKW covers unforeseen damage that standard insurance policies often do not cover, in particular operator errors, material defects and technical faults, and can cover repair costs of more than €50,000.
Important additional cover includes business interruption, data recovery and GAP cover; the sum insured should correspond to the new replacement value of the BHKW to avoid underinsurance, with annual premiums for complex systems potentially amounting to several thousand euros.
Compliance with obligations, such as regular maintenance in accordance with the manufacturer’s specifications (e.g. oil changes every 500-1,000 operating hours) and keeping an operating logbook, is crucial for full insurance cover and can reduce the likelihood of breakdown by up to 25 per cent.
Understanding and mitigating risks in CHP operation
Operating a combined heat and power plant is complex and entails specific risks that often only become apparent in the event of damage. Around 70 per cent of all damage to technical systems is not covered by conventional fire or natural hazard insurance. An engineering breakdown insurance for CHP units closes this gap in a targeted way. It covers unforeseen damage that can endanger the value of your plant, often worth over 100,000 euros.
The most common causes of damage include operating errors, which account for around 30 per cent of cases. Design, material or workmanship defects can also lead to costly breakdowns, often only after several thousand operating hours. Short circuits and overvoltage are other risks, particularly affecting electronic components. Without suitable protection, you bear these costs alone. Comprehensive stationary machinery insurance is therefore a must. The right cover can mean the difference between a calculable risk and an existentially threatening expense of over 50,000 euros.
These specific risks underline the need for a specialised insurance solution for your CHP unit. In the next section, we take a closer look at the key benefits of such a policy.
Define the core coverages of machinery breakdown insurance for CHP units
Insurance cover against machinery breakdown for a CHP plant offers extensive protection that goes beyond standard insurance policies. It should be understood as a kind of comprehensive cover for your system and covers damage that is not explicitly excluded. At its core, the insurer reimburses the costs of repair or replacement in the event of damage or destruction. This typically includes damage caused by operating errors, carelessness or negligence, which account for up to a third of all machinery breakdowns. Often insured are also design, material or workmanship defects that may only become apparent after hundreds of operating hours.
An important element of cover is protection against technical faults. This includes short circuits, overcurrent or overvoltage, which can bring sensitive control electronics worth more than EUR 10,000 to a standstill. Failure of measuring, control or safety devices is also generally covered. Many policies, such as those often specified in the General Conditions for Machinery Insurance (ABM), also provide cover for lack of water, oil or lubricants. The exact terms, for example the Mecklenburgische AMB 2019, define the scope in detail. For operators of biogas CHP plants, it is relevant that specific risks such as damage to gas, process, measurement, control and regulation technology are often also insured. A business interruption insurance can sensibly complement this cover.
Compensation in the event of partial damage is usually based on reinstatement costs, which include labour costs and spare parts. In the event of a total loss, the current market value is often reimbursed, although some tariffs provide for new-for-old compensation in the first years of operation, for example two years. The following costs may also be insured, often up to a sum of EUR 10,000 or more:
Clearance, decontamination and disposal costs
Movement and protection costs for repair work
Air freight costs for rapid procurement of spare parts, often up to EUR 5,000
Costs for restoring operational data, often up to EUR 15,000
Loss detection costs, often up to EUR 10,000
These core services form the foundation of the cover. But which factors influence the cost and the optimum scope of insurance?
Optimise cost factors and sum insured
The cost of machinery breakdown insurance for a CHP unit depends on several factors. A system with an output of 50 kilowatts electrical (kWel) will have different premiums than one with 500 kWel. The replacement value of the plant is a key factor; this can range from 50,000 euros to well over one million euros. The age and technical condition of the CHP unit also play a role; for machines over 15 years old, consultation with the insurer may be necessary.
The choice of excess significantly influences the premium: a higher excess, for example 2,000 euros instead of 500 euros, reduces the annual costs. The sum insured should correspond to the replacement value of the plant in order to avoid underinsurance. A contingency allowance of ten per cent for price increases is often included. For biogas plants, the sum insured for the entire system can quickly reach 2,500,000 euros. An annual premium for a complex biogas plant including machinery breakdown cover can, for example, amount to 6,935 euros plus insurance tax.
Additional modules such as business interruption insurance increase the premium, but provide important protection against loss of income. The indemnity period, often up to twelve months, and the sum insured for lost profit and ongoing costs are decisive here. GAP cover for leased systems is another cost factor, but in the event of a total loss it closes an important financial gap, often of more than 20 per cent of the residual value. A careful analysis of your own risk situation and a comparison of different offers will help you find the optimum cover at reasonable cost. nextsure supports you with this analysis to develop a tailor-made solution that meets your specific requirements for machinery breakdown insurance for CHP units.
In addition to the direct machinery breakdown risks, there are other aspects operators should keep in mind. The next section is dedicated to important exclusions and duties.
Please note exclusions and obligations for seamless protection
Every insurance policy contains exclusions and obligations, knowledge of which is crucial for full insurance cover. In the case of machinery breakdown insurance for CHP units, typical exclusions are damage caused intentionally by the policyholder or their representatives. War, nuclear energy and often earthquakes are also not covered unless there are specific supplementary agreements such as natural hazard insurance. An important point is the exclusion for normal wear and tear due to operations. Here, a clear distinction from insured breakage damage is important; however, consequential damage to adjacent parts is often compensated if these were not already in need of replacement.
Defects that already existed when the insurance was taken out and should have been known to the policyholder can also lead to a lack of cover. Another common exclusion concerns damage for which a third party, for example the supplier or installer under the warranty, is liable. However, some insurers will make an advance payment here if the third party disputes its obligation to pay. For biogas plants, specific exclusions may apply, for example for damage caused by the use of substrates that have not been approved, or if maintenance requirements, such as those for oil analyses every 1,000 operating hours, are not complied with.
The policyholder’s obligations include compliance with all legal, regulatory and contractually agreed safety regulations. Any increase in risk, for example due to significant structural changes without the insurer’s consent, must be reported immediately. In the event of a claim, there is an obligation to keep the damage to a minimum and report it without delay. Keeping an operating log that records all essential data and maintenance work, at least once a day, is often a requirement. Depending on the severity, a breach of these obligations can lead to partial or complete loss of insurance cover. A favourable public liability insurance policy can provide complementary protection here, but does not cover own damage to the CHP unit.
Compliance with these points is fundamental. But what does the claims process actually look like in the event of a loss?
Understand and accelerate the claims handling process
In the event of damage to the CHP unit, swift and correct action is crucial for prompt settlement. The first step is always to notify the insurer without delay, often by phone. Try to keep the damage as limited as possible without jeopardising your own safety. Document the damage thoroughly, for example with photographs, before any changes are made. For minor damage, often up to €5,000 or €10,000, repairs can usually begin immediately; however, the damaged parts should be retained for evidential purposes.
The insurer will assess the damage and requires your full cooperation. This includes providing all necessary information and allowing investigations into the cause and extent of the damage. An expert is often brought in to determine the extent of the damage and the restoration costs. The costs of such expert proceedings are usually borne by each party for their own expert, while the costs of an umpire are shared. Compensation becomes due once the insurer’s findings are complete. You can often claim an interim payment one month after reporting the damage, in the amount that is at least payable according to the circumstances.
In the case of partial damage, compensation covers the necessary costs of restoring the previous, operational condition, less the value of the salvage material. These include costs for spare parts, labour costs (including overtime), dismantling and reassembly costs, as well as transport costs. In the event of a total loss, the current value is usually reimbursed, unless new-for-old compensation for the first, for example two, years of operation has been agreed. A commercial legal expenses insurance can be helpful in disputed cases. Swift and transparent communication with the insurer is the key to prompt handling, which can often be completed within four weeks.
Good claims handling is important, but preventive measures can prevent many losses from the outset.
Optimise preventive measures and maintenance
Although a good machinery breakdown insurance policy for CHP plants offers financial protection, avoiding damage is always the better option. Regular and professional maintenance in accordance with the manufacturer’s specifications is essential for this. This includes, for example, oil change intervals, which are often every 500 to 1,000 operating hours, and replacing spark plugs. Compliance with these maintenance obligations is important not only for smooth operation, but also as a duty under the insurance contract. Keeping a detailed operating log that documents at least daily checks and all maintenance work is often required and helps to identify problems at an early stage.
Technical monitoring systems play a major role. This includes monitoring exhaust gas temperature, speed and methane content in the room. Modern CHP plants have automatic shut-off devices if limit values are exceeded, for example for gas pressure or coolant temperature. These safety devices must be checked regularly for proper functioning. For biogas CHP plants, functioning gas cleaning and drying to prevent corrosion caused by, for example, hydrogen sulphide (H2S content often required to be below 200 ppm) is crucial. Regular oil analyses, at least every second oil change, help assess the condition of the engine and prevent wear.
The following preventive measures are recommended:
Conclusion of a full maintenance contract with the manufacturer or a qualified specialist company that covers at least the manufacturer's specifications.
Daily inspections of weak points and written records thereof (engine operation, pumps, gas quality).
Ensuring that only engines and components approved for operation with the specific gas (e.g. biogas with a specific composition) are used.
Regular inspection and maintenance of lightning, surge and overcurrent protection devices by specialist personnel.
Training operating personnel to minimise operating errors, a common cause of damage.
Review of the fire protection measures, as fire is often an exclusion in the pure machinery breakdown insurance policy, but can be covered by fire insurance.
These measures can reduce the likelihood of failure by up to 25 per cent. They make a significant contribution to the longevity and cost-effectiveness of your CHP plant. But what specific aspects apply to CHP plants in biogas facilities?
Combined heat and power plants in biogas facilities are subject to special conditions that require tailored machinery breakdown insurance. The composition of the biogas, particularly the levels of hydrogen sulphide and siloxanes, places high demands on the material and maintenance of the engine. Insufficient gas cleaning can lead to corrosion and increased wear, which can shorten the engine’s service life by up to 30 per cent. It is therefore important that the insurance policy explicitly includes operation with biogas and clearly defines the specific obligations, such as limits for gas contaminants (e.g. H2S < 200 ppm).
Another important point is digester biology. Although not directly part of the CHP unit, a disturbance in the digester, for example due to poisoning, can affect gas production and thus the operation of the CHP unit and revenues for weeks. Some specialised biogas plant insurance policies therefore offer additional modules for damage to digester biology, which can cover the costs of emptying, cleaning and refilling the digester as well as replacing the biology, up to a sum of, for example, EUR 20,000 or 30,000. A product liability insurance policy can also be relevant if defects in purchased substrates cause damage.
Insuring peripheral systems such as substrate dryers or transfer stations in district heating networks can also make sense and is often possible through additional clauses. The sum insured for a complete biogas plant can quickly amount to several million euros, with the machinery breakdown insurance for the CHP unit making up a substantial part of this. The Biogas010 clause from Mecklenburgische, for example, extends the standard machinery insurance to include specific aspects for biogas plants, including theft cover for permanently connected plant components. Make sure that the cover also includes trial operation, which often lasts two to four weeks.
These particularities show that standard machinery insurance is often not sufficient. Individual advice, such as that offered by nextsure, is essential here to adequately protect all risks with suitable machinery breakdown insurance for your CHP unit. We will now summarise the key findings.
Expert tips for the ideal insurance cover for your CHP system
To ensure the best possible insurance cover for your combined heat and power unit, you should consider a few expert tips. Our expert tip: Before taking out machinery breakdown insurance for CHP units, carry out a detailed risk analysis. Identify all potential sources of danger and assess their possible financial impact. This will help you determine the necessary sum insured and the relevant cover components precisely, often saving up to 15 per cent on the premium by avoiding over-insurance.
Pay attention to a clear definition of the scope of insurance. Clarify whether new-for-old or indemnity based on current value is provided in the event of a claim, especially in the first years of operation. A new-for-old settlement can mean a substantial financial advantage of up to 40 per cent of the current value in the first two years. Carefully check the amount of the excess; adjusting it can influence the premium by up to 20 per cent. Compare not only prices, but also the detailed descriptions of benefits and exclusions from different providers. For example, contents insurance does not cover typical machinery breakdown damage.
Here are some important design tips for your policy:
Make sure that internal operating damage to electronic components is insured up to a sensible sum (e.g. EUR 2,500), even if no external influence can be proven.
Arrange sufficient cover for clearing-up, decontamination and disposal costs; often EUR 20,000 or more is required here.
Check whether additional costs due to technological progress are included, if spare parts of an older design are no longer available; cover of 15 per cent of the claim cost is common here.
Take out business interruption insurance with an adequate indemnity period (at least six, preferably twelve months) and sum insured to cover loss of revenue and ongoing costs.
Clarify cover for damage during transport and assembly, if relevant.
Pay attention to clear arrangements for the restoration of data and software; sums of up to EUR 15,000 are often sensible here.
Our expert tip: Document the condition of your plant and all maintenance work without gaps. This is worth its weight in gold in the event of a claim and can shorten the settlement time by up to 50 per cent. Regular review and adjustment of your insurance cover, at least every two years, is also recommended in order to respond to changed operating conditions or new risks. With these measures, you can protect your investment in the best possible way.
A solid machinery breakdown insurance policy is an important building block. The next step is to get in touch for individual advice.
More useful links
Statista provides data on the number of CHP plants in Germany.
The Federal Environment Agency provides information on the role of combined heat and power (CHP) in the energy system.
The BDEW provides data and graphics on combined heat and power (CHP).
Statista offers a topic page on combined heat and power (CHP).
The BHKW-Infozentrum provides statistics on CHP units and energy.
Wikipedia provides a comprehensive overview of combined heat and power plants.
Energie & Management presents a CHP ranking that sheds light on the strained market.
The BHKW-Infozentrum analyses the 2024 CHP ranking and the uncertainties holding back the CHP market.
Energie & Management lists companies by the capacity of their CHP units sold in Germany.
FAQ
Why is a special machinery breakdown insurance policy necessary for my CHP unit?
A combined heat and power (CHP) unit is a complex and expensive system. Standard insurance policies such as contents or buildings insurance often do not cover specific machinery damage (e.g. caused by operating errors, internal operational damage). Machinery breakdown insurance closes this coverage gap and protects against high repair costs, often over €50,000, and loss of earnings.
What role does the maintenance of my CHP unit play in insurance cover?
Regular and proper maintenance in accordance with the manufacturer’s specifications (e.g. oil changes every 500-1,000 hours, keeping an operating log) is a contractual obligation. Failure to comply can lead to a reduction in or loss of insurance cover. Good maintenance also significantly reduces the risk of damage.
What does replacement value versus actual cash value compensation mean in machine breakdown insurance for CHP units?
New replacement value compensation means that, in the event of a claim, the cost of a new, equivalent machine or repair is reimbursed on a new-for-old basis. Actual cash value compensation takes age and wear and tear into account, so the reimbursement amount is lower. Many policies offer new-for-old compensation in the first years of operation (e.g. the first two years).
Are damages caused by design or material defects in the CHP unit also insured?
Yes, damage due to design, material or workmanship defects is a typical benefit included in machinery breakdown insurance for CHP units. These defects often only become apparent after several thousand operating hours.
Does machinery breakdown insurance also cover loss of income if my CHP unit is out of service?
The standalone machinery breakdown insurance primarily covers material damage to the CHP unit. For loss of earnings (lost profit, ongoing costs), you also need business interruption insurance. This is often offered as an add-on to machinery breakdown insurance and is highly recommended for CHP operators, with indemnity periods often of twelve months.
How can nextsure help me choose the right machinery breakdown insurance for my CHP unit?
nextsure offers, as a digital insurance portal, an individual risk analysis for your CHP unit. We help you identify your specific requirements, compare the services and costs of different providers, and ensure that you receive a tailored, easy-to-understand insurance solution that optimally protects your investment. Request your free review now.
