The most expensive part of the Tungatinah Power Station loss may not be rebuilding the station. It may be clearing the ground it stood on.
Graham Peters (pictured), national executive adjuster and head of class action at Crawford in Australia, was asked how the market approaches reinstatement when a 1950s industrial building has to be demolished and where sums insured most often turn out to be short. A Tasmania Fire Service investigation revealed on September 10 2026 that the fire which gutted the Central Highlands station was accidental, clearing the way for demolition and putting quantum questions in front of the claim.
"In our experience, debris removal and site remediation are among the areas where costs can sometimes be underestimated when sums insured are established," Peters said.
Those two items are rarely assessed on their own. On most industrial placements they sit in the schedule as a sub-limit or a fixed percentage of the declared value, carried forward from the prior year and adjusted by indexation rather than by reference to what clearing the actual site would cost. On a modern warehouse, a formula-based figure is usually close enough. On a steel-frame asset built in 1953 and facing full demolition, the gap between that figure and the real cost of clearing the site can be substantial.
Reinstating an older industrial building is rarely a matter of replacing what was there.
"Construction methods, materials and regulatory requirements have evolved significantly since the 1950s, meaning the cost of rebuilding today may differ substantially from original expectations," Peters said.
The era of construction carries its own liability.
"Materials such as asbestos, which were commonly used in industrial construction during that period, can add considerable complexity and cost to demolition and clean-up works due to modern health, safety and environmental requirements," he said.
The assumption that a newer replacement building will be cheaper to deliver does not survive contact with the site.
"While rebuilding a modern equivalent facility may offer some construction efficiencies, those benefits can be offset by the time and expense involved in preparing the site before reinstatement can begin," Peters said.
Heritage protections, planning controls and environmental requirements can extend that further. Peters said determining an acceptable reinstatement approach in those circumstances may take time and require engagement with a range of stakeholders.
Whether the programme absorbs any of it is settled at placement.
"Many power generation insurance programmes include extensions such as extra cost of reinstatement and additional extra cost of reinstatement," Peters said. "Depending on the policy wording, limits and circumstances of the loss, these provisions may assist in responding to some of the increased costs associated with regulatory compliance and rebuilding requirements."
The consequential loss exposure may prove larger than the property damage. The station had a generating capacity of 142.2 megawatts, close to five per cent of Tasmania's electricity supply, and Hydro Tasmania has brought the gas-fired Tamar Valley Power Station back online to cover the shortfall.
Energy and Renewables Minister Nick Duigan has committed the state to reinstating the station, saying Tasmania would "be back generating electricity here at site in the not-too-distant future". How long that takes is unresolved. Premier Jeremy Rockliff told parliament the work would take "at least a year, certainly many months", while Hydro Tasmania chief executive Rachel Watson has said it is too early to tell, with the timeline depending on the condition of the turbines.
That uncertainty is itself the exposure, and the policy question is whether the cost of covering the gap is recoverable.
"Where a generating station is unavailable following an insured event, operators may incur significant expenditure to secure substitute generation capacity, alternative energy supplies or other measures aimed at maintaining supply obligations," Peters said.
The indemnity period decides how much of it survives.
"Because major generation assets can take considerable time to repair or replace, business interruption (BI) cover is often arranged with longer indemnity periods in mind," he said.
Peters said policies are generally designed to consider not only lost generating revenue but, in many cases, additional operating costs incurred in mitigating the consequences of an outage, with recoverability depending on the specific wording and the circumstances of the loss.
The declared value on a policy like this covers the building and the plant. It does not cover the cost of clearing what is left of them and it does not cover the cost of buying electricity from somewhere else for a year or more. Those two costs, which may well be the largest in this loss, sit in a debris removal and site remediation sub-limit and in the indemnity period and increased cost of working extension respectively. Both tend to be rolled forward from the previous year and indexed, rather than tested against what the work would cost today. Both are where this claim will be argued.
