Managing Technological Risk in the New Era of Advanced Gas Turbines

Managing Technological Risk in the New Era of Advanced Gas Turbines
October 31, 2025 8 mins

Managing Technological Risk in the New Era of Advanced Gas Turbines

Managing Technological Risk in the New Era of Advanced Gas Turbines

Aon has deep experience in natural resources industry - including alternative energy, chemicals, mining, oil and gas, power, renewables, and utilities.

The energy sector stands at a pivotal moment in history. As the global community races to decarbonise, reliable and efficient electricity generation remains a critical pillar supporting economic growth and societal needs. While renewable energy continues to gain prominence, gas-fired power generation — particularly combined cycle technology — remains a vital complement to variable renewables, offering dispatchable and stable capacity for energy transition.

In this environment, gas turbine manufacturers are fiercely competing to deliver the next leap in technology. The latest H- and J-class gas turbines have been engineered to achieve higher efficiency, larger power outputs, and lower emissions, offering customers the promise of lower total lifecycle costs. This aggressive technological innovation introduces new challenges — particularly for the insurance and financial communities responsible for underwriting project risk.

The Push Toward Higher Efficiency and Lower Cost

Historically, gas turbines evolved gradually, with incremental improvements in thermal efficiency, capacity, and reliability. Recent market dynamics, including increasing competition from renewable energy sources, pressure to reduce the carbon footprint, and the need to lower electricity tariffs have forced OEMs to push beyond traditional engineering limits.

Today’s large-frame turbines offer significantly higher output and thermal efficiency compared to their predecessors. In parallel, EPC (Engineering, Procurement, and Construction) pricing for combined cycle plants has shown a downward trend, especially in competitive markets such as Asia Pacific. Modern combined cycle plants, which deploy advanced gas turbines, are now being delivered at significantly lower capital costs. The EPC pricing per kilowatt is notably below the levels typical of a decade ago. OEMs have achieved this through a combination of scaling up turbine size, streamlining designs, optimising manufacturing processes, and in some cases, accepting razor-thin or even negative profit margins on initial equipment sales in order to secure long-term service revenues.

While this strategy can deliver immediate cost advantages to project developers, it also carries implications. Reducing margins on turbine sales may pressure OEMs to find cost savings elsewhere in the manufacturing and quality assurance processes. In some cases, quality gate checks originally intended to safeguard long-term performance, may be simplified or bypassed, introducing new layers of risk into already complex supply chains.

As new turbine models often involve novel materials, cooling techniques, or blade designs, their long-term behaviour under real-world operating conditions may not be fully understood when first deployed.

The Challenge of Insuring New Technology

From an insurance perspective, particularly Construction All Risks (CAR), Machinery Breakdown (MB), and Third Party Liability (TPL), new or significantly modified gas turbine models are typically classified as 'unproven' until they accumulate sufficient operational history.

Until then, insurers and reinsurers view such machines as carrying heightened technological risk. This can manifest in several ways:

  • Higher Insurance Premiums

    New technology risk often leads to significant premium uplifts compared to proven equipment.

  • Higher Deductibles

    Insurers may impose substantially higher deductibles for damage to unproven turbines.

  • Restrictive Coverage Terms

    Exclusions such as moving from LEG 2/96 (which covers certain design defects) to LEG 1/96 (more restrictive) may be applied.

Ultimately, this can jeopardise the bankability of a project. Financiers expect projects to carry comprehensive insurance while project developers push for predictable, reasonable insurance costs. When insurance becomes expensive, restricted, or unavailable, it raises red flags that can delay or derail project financial close.

Beyond technological uncertainties, projects deploying advanced gas turbines in emerging markets may also face elevated credit and political risks. These exposures — ranging from counterparty default and currency inconvertibility to regulatory instability and expropriation — can significantly impact the reliability of revenue streams and the enforceability of long-term contracts. These risks must be carefully assessed and mitigated to preserve project bankability. The introduction of advanced but unproven gas turbines creates a tension between the desire to embrace technological innovation and the need to manage project risks responsibly.

Crafting Solutions to Transfer Technological Risk

At Aon, we recognise that innovation should not come at the cost of insurability or project bankability. To bridge this gap, Aon has pioneered structured solutions that transfer technological risk back to the party best positioned to manage it — the OEM.

Rather than asking insurers to shoulder the uncertainty of unproven technology, our approach ensures that manufacturers stand behind their machines in a manner that satisfies both insurers and project sponsors. This is achieved through a combination of contractual undertakings, insurance structuring, and disciplined risk assessment processes.

Key components of our solution include:
  • Operational Benchmarking: We work with technical experts and reinsurers to classify gas turbines based on their accumulated operating hours and performance records.
  • Special Undertakings: Tailor for unproven turbine as part of the project sponsors’ contract structure, to close the gaps between the insurance market solutions against the bankable and prudent project sponsors’ requirement.
  • OEM Risk Assumption: In certain cases, if adequate insurance cannot be secured at reasonable terms despite best efforts, the OEM may assume direct financial liability for losses attributable to their equipment. In parallel with technological risk transfer, Aon also supports clients in structuring credit and political risk insurance programs tailored to the unique challenges of each jurisdiction. These instruments protect against counterparty default, currency inconvertibility, expropriation, and other sovereign-related risks that can derail even technically sound projects and undermine project viability.

Through these mechanisms, projects can maintain insurance coverage aligned with lender expectations without absorbing disproportionate costs or unacceptable exclusions.

  • Aligning Interests for Sustainable Growth

    This approach offers a win-win for all stakeholders:

    • Project sponsors and lenders gain confidence that their investment is protected by strong insurance programs and OEM commitments.
    • OEMs are incentivised to stand behind their latest technology and can accelerate market adoption by removing barriers to financing.
    • Insurers and reinsurers avoid being forced to underwrite unknown technological risks, preserving underwriting discipline and pricing stability.

    Similarly, credit and political risk insurance can help align interests between sponsors, lenders, and host governments. By mitigating concerns around payment default, contract frustration, or adverse government actions, these solutions enable stakeholders to proceed with confidence even in jurisdictions with volatile regulatory or macroeconomic environments. This alignment is especially critical for accelerating energy infrastructure investment in frontier and developing markets.

    By setting clear expectations around performance benchmarks and risk assumption, Aon’s solution promotes responsible innovation. OEMs are encouraged to ensure that their new models are thoroughly validated before widespread commercial deployment, contributing to better long-term outcomes for the industry as a whole.

  • Other Insurance Solutions
    Single Project Professional Indemnity

    We have focused above on the impact of new technology on insuring physical damage and machinery breakdown risks. However, an owner may suffer financial loss due to negligence in the design of a gas fired power plant, resulting in redesign and rebuild costs. With no damage or breakdown occurring there will be no (or limited) recourse against the main construction or operational period insurances. Instead, the owners might seek recourse against the contractors, relying on their balance sheet and willingness to pay compensation. Owners can lessen the risk of the contractor being unable to pay or contesting a claim by contractually requiring the contractor to buy Single Project Professional Indemnity (SPPI) Insurance.

    SPPI provides cover for legal liability for the owners’ (or other third parties) loss, plus defence costs incurred by the contractor. It has the advantage of only covering the specific project, rather than being a blanket cover across all projects undertaken by the contractor, and is purchased for the term of the project plus a run-off period, hence avoiding the uncertainty of renewing every year.

    A derivative product to SPPI is Principal Controlled PI (PCPI). With PCPI an owner becomes the insured — rather than suing the contractor when they believe they have suffered loss due to the contractors negligence, they bring a claim directly against the insurers.

    In situations where the technology is prototypical SPPI or PCPI may have more value as a risk management tool. Conversely, the number of insurers willing to insure may be limited and coverage and pricing less in favour of the insured. It will be essential to illustrate how the insured has taken measures to avoid loss in order to get support and the best possible terms from underwriters.

Looking Forward

As the energy transition accelerates, the role of flexible, efficient, and low-emissions gas-fired power will remain crucial. The need for innovation is undeniable, but so is the need for robust risk management practices that safeguard the long-term viability of projects. By thoughtfully transferring and managing technological risk, we can unlock the benefits of next-generation gas turbines without exposing stakeholders to unacceptable uncertainties.

At Aon, we are proud to support organisations to navigate this evolving landscape, embrace new technology with confidence, and build the energy systems of tomorrow.

Aon’s Thought Leader
  • Melissa Shepherdson
    Head of Energy and Mining, Asia Pacific
  • Benjamin Ng
    Power Leader, Natural Resources, Asia
  • Ming Hui Lim
    Head of Corporate & Global Accounts and Industry Specialties
  • Justin McCarthy
    Growth Leader, Financial Services, Professions & Cyber Solutions Asia
  • Ankit Tambe
    Regional Director, Credit Solutions, Asia

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The information provided in this publication is current as at the date of publication and subject to any qualifications expressed. Whilst Aon has taken care in the production of this publication and the information contained has been obtained from sources that Aon believes to be reliable, Aon does not make any representation as to the accuracy of information received from third parties and is unable to accept liability for any loss incurred by anyone who relies on it. The information contained herein is intended to provide general insurance related information only. It is not intended to be comprehensive, nor should it under any circumstances, be construed as constituting legal or professional advice. You should seek independent legal or other professional advice before acting or relying on the content of this information. Aon will not be responsible for any loss, damage, cost or expense you or anyone else incurs in reliance on or use of any information in this publication.

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