As renewable sources play an increasingly important role in producing sustainable energy, the need to recognize, define and manage the risks associated with these technologies is an emerging priority. New risks are arising even from renewable technologies that have been used for years, as solar, wind and other projects are pursued on an industrial scale, in new environments and in novel ways. These new exposures underscore the importance of selecting the right risk partner to mitigate operational risks and de-risk with regard to certain financial or regulatory exposures.
“Green” power, like any energy source, has the potential to turn “black” overnight through environmental incidents or negative publicity generated by environmental or local groups. Given the potential for negative publicity, the risks to corporate reputations in the wind, solar and biofuels industries can be very high. Identifying and managing the risks of innovative and pioneering projects can be highly challenging, yet effective risk management is a fundamental prerequisite for developing a financially viable renewable energy project.
Wind, Solar and Biofuels Are Leading Renewables
Wind turbines are among the most readily identifiable sources of renewable energy. The simplicity of the windmill concept belies the complexity of today’s multi-megawatt turbines and most risk assessments focus on the major mechanics and standard elements, including gearbox failure, cable damage or damage to nacelles or transformers. But operators should not ignore the risks to less obvious areas such as foundations, or the dangers that ice, lightning and tornadoes pose to such tall structures. The time lost to repair, re-source or replace damaged components can have a devastating impact on the ability to maintain energy output.
Risks in solar energy relate not only to the technology itself, but also to the environmental factors that can affect surrounding and supporting structures. Particular risks for solar include the high combustibility of heat transfer fluids, hailstorms, theft and electrical fires. In biomass power, in which the United States is a world leader, the costs of systems to control the high fire risks are often perceived to be disproportionate to the plant costs. This threat can pose a problem to the operator and insurer alike.
Managing Renewable Energy Risks
While some renewable energy technologies have established track records and relatively well-defined risks, newer projects are widely diverse and often include evolving technologies. That means the plans and operations require comprehensive scrutiny throughout the project lifecycle. To begin with, any project should be compared to existing technologies to identify potential risks. Existing environmental and structural aspects common to traditional industrial or power generation plants should be evaluated. When examining risk transfer strategies, risk managers should also think beyond solely physical risks. In many situations, risk can be mitigated through geographic and technological diversification.
Because renewable projects often operate in challenging environments, every physical aspect of the facility must be evaluated, right down to the concrete foundations and rooftops. Owners and operators need to be confident about the physical construction of the facilities, as well as the contractors, and lay out clear responsibilities in case of failure. Renewable energy facilities, especially those that rely on the weather, can be particularly vulnerable to extremes conditions, including hail, snow, freezing, flooding and drought. Understanding exactly how a plant may be affected by extreme weather is crucial to its design and operation. Owners and operators need to be confident that all potential threats have been considered and planned for, including transport, construction, liabilities to third parties and employees, environmental-related liability, fire, and business interruption. Such threats can potentially jeopardize an entire renewable energy project.
Select the Right Risk Partner
Planning, developing and operating renewable energy projects with the right risk management consultants makes a substantial difference to their future viability. An effective risk management consultant should have experience in all of the many sectors that apply to a specific project. This should include knowledge of operational risks such as construction, transportation, public and employee liability, environmental liability and business interruption. However, selecting the right consultant is about more than identifying operational risks, the process must examine strategies to de-risk where possible from credit, financial and regulatory exposures.
In addition to a risk management specialist who can help in effectively identifying and managing risks, project developers, owners and operators should select an insurer that offers a broad spectrum of the specialized expertise needed as well as the financial strength to provide the necessary protection for the project. Given the variable scope of renewable energy projects, it’s critical to work with an insurer that can tailor solutions and policy terms for the size and complexity of a specific development. The insurers should offer insurance expertise and products for every phase of a project, from initial design to construction and operation, including maintenance and service.
Renewable projects tend to be complex and innovative, and there is much that can happen or go wrong, but recognizing and defining renewable energy risks have never been more of a priority. With the right partners and expertise, it is possible to obtain comprehensive risk management, with de-risking and seamless risk transfer that can help facilitate a successful rollout and support long-term production continuity. The development of renewable energy depends not only on the technology, but also on effective risk management.
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