Machinery Breakdown Insurance CHP: Comprehensive protection for your energy centre to ensure over 90 percent operational continuity
30 Apr 2025
11
Minutes
Katrin Straub
CEO at nextsure
An unforeseen damage to your combined heat and power plant can quickly lead to costs in the six-figure range. A specialised machinery breakdown insurance for CHP protects against the financial consequences and secures your energy production. Learn how to create the optimal protection for your plant.
The topic in brief and concise terms
A machinery breakdown insurance for CHP (combined heat and power) plants covers unforeseen damages that are often not covered by standard insurances, especially operational errors, material faults, and technical malfunctions, and can cover repair costs of over €50,000.
Important additional coverages include business interruption, data recovery, and GAP coverages; the sum insured should correspond to the new value of the CHP to avoid underinsurance, with annual premiums for complex systems potentially amounting to several thousand euros.
Adhering to obligations such as regular maintenance according to the manufacturer's specifications (e.g., oil change every 500-1,000 operating hours) and keeping an operating log is crucial for full insurance coverage and can reduce the probability of failure by up to 25 percent.
Understand and mitigate risks in CHP operation
Operating a combined heat and power plant (CHP) is complex and involves specific risks that often only become apparent in the event of damage. Around 70 percent of all damages to technical systems are not covered by traditional fire or elemental insurance policies. A machinery breakdown insurance for CHP specifically fills this gap. It covers unforeseen damages that could threaten the value of your plant, often worth more than 100,000 euros.
The most common causes of damage include operating errors, accounting for about 30 percent of cases. Construction, material, or execution errors can also lead to costly failures, often not until after several thousand operating hours. Short circuits and overvoltage are further hazards, particularly affecting electronic components. Without appropriate protection, you bear these costs alone. Therefore, a comprehensive stationary machinery insurance is a must. The right coverage can mean the difference between a manageable risk and a potentially ruinous expense exceeding 50,000 euros.
These specific risks highlight the necessity of a specialized insurance solution for your CHP. In the next section, we will look more closely at the core services of such a policy.
Define core services of machinery breakdown insurance for CHP plants
A machinery breakdown insurance for a CHP unit offers extensive protection beyond standard insurance. It is akin to comprehensive insurance for your installation and covers damages that are not explicitly excluded. Essentially, the insurer covers costs for repair or replacement in case of damage or destruction. This typically includes damages caused by operating errors, clumsiness, or negligence, which account for up to a third of all machinery breakdowns. Also often insured are design, material, or workmanship defects, which may only become apparent after hundreds of hours of operation.
An important component of the coverage is protection against technical malfunctions. This includes short circuits, overload, or overvoltage, which can incapacitate sensitive control electronics worth over 10,000 euros. The failure of measuring, control, or safety devices is also usually covered. Many policies, as often specified in the General Conditions for Machinery Insurance (GCMI), also provide coverage for a lack of water, oil, or lubricant. Detailed conditions, such as the Mecklenburg GCMI 2019, define the extent in detail. For operators of biogas CHP units, it is relevant that often specific risks such as damages to gas, process, measuring, control, and regulation technology are also insured. A business interruption insurance can usefully complement this coverage.
In the event of partial damage, compensation is usually made at restoration costs, which include labor costs and replacement parts. In the case of a total loss, the current value is often replaced, with some policies offering a new value compensation in the first few years of operation, for example, two years. The following costs can additionally be insured, often up to a sum of 10,000 euros or more:
Clearing, decontamination, and disposal costs
Movement and protection costs for repair work
Air freight costs for rapid spare parts procurement, often up to 5,000 euros
Costs for restoring operational data, often up to 15,000 euros
Damage search costs, often up to 10,000 euros
These core services form the foundation of protection. But what factors influence the cost and optimal insurance coverage?
Optimize cost factors and insurance amount
The cost of machinery breakdown insurance for a CHP plant depends on several factors. A unit with an output of 50 kilowatts electric (kWel) will have different premiums compared to one with 500 kWel. The new value of the plant is a key factor; this can range from 50,000 euros to over one million euros. The age and technical condition of the CHP also play a role; for machines over 15 years old, coordination with the insurer may be necessary.
The choice of deductible significantly influences the premium: A higher deductible, for example, 2,000 euros instead of 500 euros, reduces the annual costs. The sum insured should correspond to the new value of the plant to avoid underinsurance. A precautionary provision of ten percent for price increases is often included. In the case of biogas plants, the sum insured for the entire facility can quickly reach 2,500,000 euros. An annual premium for a complex biogas plant, including machinery breakdown, can amount to 6,935 euros plus insurance tax.
Additional elements such as business interruption insurance increase the premium but offer important protection against loss of income. The indemnity period, often up to twelve months, and the sum insured for lost profits and ongoing costs are crucial here. A GAP cover for leased equipment is another cost factor, but it closes a significant financial gap in the event of a total loss, often over 20 percent of the residual value. A careful analysis of your own risk situation and a comparison of different offers help to find the optimal protection at reasonable costs. nextsure supports you in this analysis to develop a tailor-made solution that meets your specific requirements for CHP machinery breakdown insurance.
In addition to the direct risks of machinery breakdown, there are other aspects that operators should keep an eye on. The next section is dedicated to important exclusions and obligations.
Observe exclusions and obligations for seamless protection
Every insurance policy contains exclusions and obligations, knowledge of which is crucial for full insurance coverage. In the case of machinery breakdown insurance for CHP plants, typical exclusions include damage due to the intent of the policyholder or their representatives. War, nuclear energy, and often earthquakes are also not covered, unless there are special additional agreements like natural disaster insurance. An important point is the exclusion for operational normal wear and tear. Here, a clear distinction from insured breakage damage is important; however, consequential damage to adjacent parts is often covered if they were not already in need of renewal.
Defects that were already present at the time of policy conclusion and should have been known to the policyholder can also lead to a release from liability. Another common exclusion concerns damages for which a third party, such as the supplier or installer under warranty, is liable. Here, some insurers will provide advance payment if the third party disputes their obligation to cover. For biogas plants, specific exclusions may apply, such as damages due to the use of unauthorized substrates or if maintenance requirements, like oil analyses every 1,000 operating hours, are not adhered to.
The policyholder's obligations include complying with all legal, regulatory, and contractually agreed safety regulations. Any increase in risk, such as significant structural changes without the insurer's consent, must be reported immediately. In the event of damage, there is a duty to minimize and promptly report the damage. Keeping an operational logbook that documents all essential data and maintenance work, at least once daily, is often a requirement. Violation of these obligations can, depending on the severity, lead to either partial or complete loss of insurance coverage. A cost-effective liability insurance can act in support here, but it does not cover self-damage to the CHP plant.
Adhering to these points is fundamental. But what does the process look like in the event of a claim?
Understand and accelerate the claims handling process
In the event of damage to the CHP, quick and correct action is crucial for swift resolution. The first step is always to report it to the insurer immediately, often by phone. Try to minimise the damage as much as possible without jeopardising your own safety. Document the damage thoroughly, for example with photos, before making any changes. For minor damages, often up to an amount of 5,000 euros or 10,000 euros, repairs can usually begin immediately; however, the damaged parts must be kept for evidence purposes.
The insurer will examine the damage and requires your full cooperation for this. This includes providing all necessary information and permitting investigations into the cause and extent of the damage. Often, an expert is brought in to determine the scope of the damage and restoration costs. The costs for such an expert procedure are usually borne by each party for their own expert, and the costs of an arbitrator are shared. Compensation is due once the insurer’s findings are complete. You can often claim an advance payment of the amount that must be paid at least according to the situation, one month after reporting the damage.
Compensation in the case of partial damage includes the necessary expenses to restore the previous operational condition, less the value of the old material. This includes costs for spare parts, labour costs (including overtime), disassembly and reassembly costs, as well as transport costs. In the event of a total loss, the depreciated value is usually reimbursed unless a new value compensation for the first, for example, two years of operation is agreed upon. A commercial legal protection insurance can be helpful in disputed cases. Prompt and transparent communication with the insurer is key to a quick settlement, which can often be completed within four weeks.
Good claims handling is important, but preventive measures can prevent many damages from the outset.
Optimising preventive measures and maintenance
While a good machine breakdown insurance provides financial protection for CHP units, preventing damage is always the better option. Regular and professional maintenance according to manufacturer specifications is essential here. This includes, for instance, oil change intervals, which are often every 500 to 1,000 operating hours, and the replacement of spark plugs. Adhering to these maintenance obligations is important not only for smooth operation but also as a condition in the insurance contract. Keeping a detailed operation log, documenting at least daily checks and all maintenance work, is often required and helps to identify problems early on.
Technical monitoring systems play a major role. This includes monitoring exhaust temperature, speed, and methane content in the room. Modern CHP units are equipped with automatic shutdown devices when limits are exceeded, for example, for gas pressure or coolant temperature. These safety devices must be regularly tested for functionality. For biogas CHP units, effective gas cleaning and drying to prevent corrosion, such as by hydrogen sulphide (H2S content often required to be below 200 ppm), is crucial. Regular oil analyses, at least with every second oil change, help assess engine condition and prevent wear.
The following preventive measures are recommended:
Entering into a full maintenance contract with the manufacturer or a qualified specialist, covering at least the manufacturer's specifications.
Daily checks for weak points and their written documentation (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 qualified personnel.
Training operating personnel to minimise operational errors, a common cause of damage.
Checking the fire protection measures, as fire is often excluded from pure machine breakdown insurance but can be covered by fire insurance.
Through these measures, the probability of failure can be reduced by up to 25 percent. They significantly contribute to the longevity and economic efficiency of your CHP unit. But what specific aspects apply to CHP units in biogas plants?
Consider the specifics of biogas CHP units and their safeguarding
Combined heat and power plants in biogas plants are subject to special conditions that require an adapted machinery breakdown insurance. The composition of the biogas, particularly the content 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, reducing the engine's lifespan by up to 30 percent. Therefore, it is important that the insurance policy explicitly includes operation with biogas and clearly defines the specific obligations, such as limits for gas impurities (e.g. H2S < 200 ppm).
Another important aspect is the fermenter biology. Although not directly part of the CHP, a disturbance in the fermenter, for example due to poisoning, can affect gas production and thus the operation and revenue of the CHP for weeks. Some specialised biogas plant insurance policies therefore offer additional modules for damage to fermenter biology, covering costs for emptying, cleaning, and refilling the fermenter, as well as the replacement of the biology up to an amount of, for example, 20,000 or 30,000 euros. A product liability insurance may also be relevant if defects in purchased substrates cause damage.
Insuring peripheral equipment such as substrate dryers or transfer stations in heat networks can also be sensible and is often possible through additional clauses. The insurance sum for a complete biogas plant can quickly amount to several million euros, with the machinery breakdown insurance for the CHP comprising a significant part of that. The Biogas010 clause of Mecklenburgische, for example, extends the standard machinery insurance to include specific aspects for biogas plants, including theft protection for permanently fixed plant components. Ensure that the insurance cover also includes the trial operation, which often lasts two to four weeks.
These particularities show that standard machinery insurance is often not sufficient. Individual consultation, like that offered by nextsure, is essential here to adequately cover all risks with a suitable machinery breakdown insurance for your CHP. Now let's summarise the key insights.
Expert tips for optimal insurance coverage of your CHP plant
More useful links
Statista offers data on the number of CHP units in Germany.
The Federal Environment Agency provides information about the role of combined heat and power (CHP) in the energy system.
The BDEW supplies data and charts on combined heat and power (CHP).
Statista offers a dedicated page on combined heat and power (CHP).
The CHP Information Centre delivers statistics on CHP and energy.
Wikipedia provides a comprehensive overview of cogeneration plants.
Energie & Management presents a CHP ranking that highlights the strained market.
The CHP Information Centre analyses the 2024 CHP ranking and the uncertainties hindering the CHP market.
Energie & Management lists companies according to the output of their sold cogeneration units in Germany.
FAQ
Why is a special machinery breakdown insurance necessary for my CHP unit?
A CHP unit is a complex and expensive system. Standard insurance policies such as contents or building insurance often do not cover specific machinery damage (e.g. due to operator error or internal operational damage). Machinery breakdown insurance fills this coverage gap and protects against high repair costs, often exceeding 50,000 euros, and loss of earnings.
What role does the maintenance of my CHP play in insurance coverage?
Regular and proper maintenance in accordance with the manufacturer's specifications (e.g., oil change every 500-1,000 hours, keeping a logbook) is a contractual obligation. Non-compliance can lead to reduction or loss of insurance coverage. Good maintenance also significantly reduces the risk of damage.
What is the difference between new-for-old and current value compensation in machinery breakdown insurance for combined heat and power plants?
Replacement cost coverage means that in the event of a claim, the costs for a new, equivalent machine or repair are reimbursed on a replacement cost basis. Depreciated value compensation takes into account age and wear, so the reimbursement amount is lower. Many policies offer replacement cost coverage in the initial years of operation (e.g., the first two years).
Are damages caused by construction or material defects in the CHP unit also covered by the insurance?
Yes, damage due to design, material or workmanship errors is a typical component of machinery breakdown insurance for CHP plants. These errors often only become apparent after several thousand operating hours.
Does the machinery breakdown insurance also cover loss of income if my CHP is out of operation?
The pure machinery breakdown insurance primarily covers the property damage to the CHP. For loss of earnings (lost profit, ongoing costs), you additionally need business interruption insurance. This is often offered as a component to machinery breakdown insurance and is highly recommended for CHP operators, typically with coverage periods of twelve months.
How can nextsure help me choose the right machinery breakdown insurance for my CHP plant?
nextsure offers a digital insurance portal with an individual risk analysis for your CHP plant. We help you identify your specific needs, compare services and costs from different providers, and ensure you receive a tailored and comprehensible insurance solution that optimally protects your investment. Request your free evaluation now.
