Understanding Wind Farm Exposures and Managing Risk

As developers know, constructing a wind farm is a multi-step, complex process where each phase, from site selection to maintenance and operations, necessitates attention to detail. But those immersed in the industry understand that the risks come from every direction and at every stage, even before the first blade turns, to capture energy from the wind. 

To cope with those risks, it is critical that wind farm developers find insurance that addresses the unique exposures of their business. Their goal in choosing an insurer should be the seamless delivery of coverage that helps them manage risk throughout the lifecycle of operation.

Site Location and Assessment

The success of a wind farm relies upon the availability and the speed of wind. Small variations in average wind speed over time can make a significant difference in the energy output of a farm. As a result, an early stage of most projects is to assess the wind conditions at a potential site, often for a year or more. Conducting these feasibility studies helps assess the potential energy output of the location. These evaluations necessitate a one-to-two year time commitment and are conducted through on-site installation of meteorological towers (met towers). 

Met towers, often soaring 130 to 165 feet in the air, are valuable assets, and can be subject to a variety of exposures from weather (lightning, wind, snow and ice) to fire, vandalism and even collapse. In case of damage, insurance protection during construction such as a builders risk or installation floater, or a scheduled property floater policy (later on) are extremely important.

In addition to exposures for the physical property, potential liability exposures should also be examined to determine if updates are needed to existing insurance coverages. There may be modifications to the property in order to set up operations for the wind farm, such as erecting the turbines in an area close to other structures, or building upon vacant land. The developer should review the following factors involved in the site selection process, including:

• Accessibility: Wind farms are often built on mountainous terrain or in remote areas, so consider the accessibility of the operation. Having an adequate roadway infrastructure in place can help ensure that the site is safely accessible to workers, heavy equipment and emergency responders.

• Environmental analysis: It is important to review the environmental impact of the development and construction of the wind farm at the chosen location. This analysis assesses whether the wind farm will affect the flying patterns of migratory birds, wildlife, endangered species and plants and soil.

• Floods and earthquakes: The site should be assessed for potential floods and earthquakes. Building a farm in an area prone to these hazards can significantly affect the farm and the wind turbines in the long-run.

• Grid and infrastructure: Ensure that there is adequate capacity to handle additional load from wind farm output. 

Contracts and Agreements 

As typical with any major development project, there are a number of contracts and agreements that will be necessary. Once the site has been selected and the land has been analyzed, project owners will turn their attention to the power purchase agreement (PPA), which is the detailed agreement between the owner and operators of the farm and the energy buyer. This agreement sets forth the price, expected production and overall expectations for the energy being bought and sold. 

The PPA also includes other important information such as liability for all involved parties, insurance coverage requirements and a waiver of subrogation. Each contract is unique, and could contain other important clauses, including different types of required insurance coverages. Having the right insurance and bonds in place is critical, as financing agreements are often contingent on both. Involving legal counsel in all contractual matters is also important. 

Another important contract is the interconnection agreement which outlines terms and conditions that dictate how the wind farm’s system can be connected to the utility grid. Both the PPA and the interconnection agreement are just two examples of key contracts developers may need to enter into.

Developers can work with their insurance agents to make sure they are reviewing all the necessary contracts and agreements with a true risk management eye. Other important agreements and contracts to be aware of and pay attention to include the sales agreement, construction contract, warrantees and the operations and maintenance agreements.

Permits and Ordinances

The process of securing a permit for the wind farm can be complicated and have a significant effect on the timing, cost and location of the operation. Developers can begin the process of securing permits once the environmental analysis progresses favorably.

The local zoning ordinances can vary vastly between locations, and continue to change as the wind energy industry evolves and grows. It is important to know about local zoning ordinances so that permits can be secured for all operations from assessments to construction. 

Turbines and Component Parts — Manufacture and Transport

The next key step is to purchase the right type of wind turbine components, transport them and install them for safe operation. Nacelles can weigh more than 50 tons, blades can be 150 feet in length, and the tower sections also present unique challenges for securing and transportation. When considering manufacturers, owners should review how liability and property exposures can change during this phase and remain cautious about non-certified or prototype turbines because they may not have been certified by qualified third parties. Additionally, ensure that industry standards are met for specific components such as electrical and mechanical parts and the foundations. Working with a manufacturer with a strong track record of exceeding industry standards when producing components can have a positive impact on the reliability and life of the turbine equipment.