In recent years the use of renewable technologies to generate power has increased at an exponential rate. This growing focus on new sources of energy has seen increased investment in renewable technologies across the globe.
Investment in renewable energy is increasing in both established and new territories. Whilst OECD countries still account for the majority of renewable energy production, over the past six years non OECD growth has exceeded OECD growth in percentage terms.
Growth in all types of renewable technologies is already being seen in South America, Turkey, eastern Europe, southeast Asia, southern Africa and China. Whilst in the Middle East, Africa and parts of Asia there is increasing interest in photovoltaic installations.
Financing an onshore renewable energy project has unique complexities. By the very nature of the technologies involved, there are numerous risk factors which have to be considered from early phases of planning, through construction to final operation.
Each installation project offers different risk challenges from environmental hazards, natural catastrophes, planning, equipment breakdown and loss of profits. Each phase of a project involves different considerations and the diversity of risk means that it is essential that insurers and their engineers are involved from the start of a renewable energy installation. With proper risk management and appropriate insurance in place a project’s attractiveness to an investor may be enhanced.
It may sometimes be tempting to build an installation on undeveloped land without consideration being given to why the land is available. Expert advice from specialist insurers on natural catastrophe and flood exposures can provide valuable information at the planning stage.
Finding the Right Contractor
The growth in renewable energy has prompted contractors with little experience in this sector to enter the market. Engaging the services of an experienced contractor with strong project management skills and previous experience in similar renewable energy projects is therefore crucial.
Foundation Design and Geotechnical Conditions
Given the size and weight of modern wind turbines it is vital that the geotechnical conditions are appropriate and the foundation design is reliable. There are numerous examples of inadequate foundations leading to collapse, such as wind turbines being erected over mining shafts or on unstable soil. A full assessment should be made of the geotechnical conditions and foundation design.
Natural Perils and Climate Conditions
In any renewable energy project, consideration needs to be given to the natural environment and weather conditions, the suitability of the technology to withstand those conditions, and the risk-reducing factors which can be engineered into the design.
Work on site can be restricted by climate conditions and exposure to the elements. In some regions, winters are too harsh for work to continue and these need to be taken into account in the planning stage. During site lay-off periods, measures should be taken to preserve partially built equipment and material on site.
Site Access and Construction Equipment
Access to the site should be considered in the planning stage. Wind farms are often erected in remote locations making it difficult for trucks to manoeuvre along narrow roads. Planning permission may be required to extend and widen roads for the duration of the project, and it may be necessary to remove overhead cables, traffic lights and other street furniture on the route. Once the project has been completed, this infrastructure needs to be restored to its previous state.
It is also essential to ensure that the right construction equipment is on hand for the project. For instance, at least one crane is needed to erect a wind farm. It is necessary to plan the availability of appropriate cranes of suitable size, as well as to arrange for replacements in the event of any problems. In addition, the operation of cranes and the provision of hard standing are all features which need to be taken into account.
Proper site security is an important issue for allrenewable energy installations. Theft, particularly of copper cables and other metalcomponents, is a concern, and some sites may be vulnerableto vandalism and arson. Good site security,monitoring systems and careful planning of materialsdeliveries to the site all help to reduce these securityexposures.
Testing and Commissioning
Following installation, the machinery is tested and commissioned. During this phase the risks and exposures can be reduced through the use of proven machinery and techniques, and by selecting a competent contractor.
At this stage of the project, it is important that appropriate insurance protection is in place and risk engineers with knowledge and experience of the technology can advise on the insurability of the equipment being considered.
Once an installation begins to operate and produce power, construction-phase exposures such as foundation design and site access are superseded by new exposures such as breakdown, fire and business interruption risks.
The most frequent losses involving wind turbines relate to equipment breakdown, with the most common failures occurring in transformers and gearboxes.
Transformer breakdowns may result from overloading individual export transformers. From a business interruption point of view, housing multiple export transformers is one of the best ways to reduce this risk.
Warranties have an important role to play in new installations. If a warranty is still in place, it can help protect against the material cost of equipment failure, but it does not usually afford protection against business interruption.
When a breakdown occurs, sourcing the correct parts can sometimes be difficult. A robust parts inventory needs to be designed around a good risk assessment to ensure that the correct replacement parts are available quickly in areas where breakdowns are common. For example, access to spare parts for high-risk items such as transformers minimises downtime.
All machinery and equipment requires maintenance. Having a robust preventative maintenance programme in place can help mitigate the risk of equipment breakdown. Monitoring equipment with defect notification systems can also play a key role in detecting potential problems early to eliminate or mitigate potential damages.
Fire, although infrequent, usually causes extensivedamage and becomes a much greater hazard forall renewable energy installations once the installationis operational.
Biomass installations, face even greater risk from fires and explosions. Fires in these technologies generally start in hydraulics, flumes, filters, conveyors or gearboxes, but can also start in fuel sources as a result of spontaneous combustion.
Fire detection and suppression systems are important tools for combating this risk. Having well designed and installed systems together with appropriate power back up, such as onsite generators, is an essential part of mitigating fire risks.
How Can Insurers Help Manage Renewable Risks?
Across the world, new renewable energy capacity is coming on-line every day. Significant future investments are planned, and growth will continue as governments strive to meet their renewable energy commitments and diversify from more established technologies.
It is inevitable that with an increased focus on renewable energy, these types of projects will become more attractive to investors. With each installation bringing different risk challenges, access to specialist knowledge on risk management can help control and reduce potential risk exposures and aid investment decisions.
Collaboration with clients is the key to a successful partnership and insurers can add value by working with installers, operators and risk managers to control and manage risk from the construction phase right through to operation.
Against such a sustainable outlook for the industry, we believe that insurers play an essential role and are responding to the challenge of offering insurance products for renewable energy technologies that cover the evolving risks.
Lead image: Wind turbines via Shutterstock