Author: Robert McMillan
The 2023 Atlantic hurricane season is well underway and follows some historically bad wildfires and extreme flooding events. Any weather we haven’t planned for poses a risk, and the insurance and reinsurance industries are here to help mitigate and manage some of the hurt.
But payouts for losses inevitably come at a cost, in the form of increases in policy deductibles or premium rates. And coverage may not keep up with inflation. So, it's a situation an asset owner never wants to be in.
Thankfully, the renewable-power industry is making great strides in mitigation. A panoply of techniques and technologies has been developed to make wind farms and solar projects more resilient to weather damage. Insurers have a great deal of expertise to call upon when promoting mitigation solutions among their clients. The question for insurers to think about is this: how are those clients incentivized to employ such measures?
What mitigation techniques are available?
Mitigating the risks for solar installations and wind farms could pay off when it comes time to renew coverage. Below are some options for both types of renewable energy sources.
Mitigating risk for solar installations
For solar projects, some of the biggest losses can arise from fire, flood, wind and hail. Wildfires in particular can move extremely fast and have devastating consequences. These consequences will be exacerbated if equipment isn't properly isolated. Isolation using switchgear — equipment such as circuit breakers that can cut off parts of a system to prevent overload — is now standard practice across the industry, but the triggers for interrupting the flow of power should be regularly reviewed and can be improved for very little cost if necessary.
Since few solar plants are constructed near forests, the most common route for fire transfer is through tinder-dry conditions in nearby grass or shrub. Most installations will have management plans to cut or clear nearby vegetation, but since installations are often in isolated locations, if the worst does occur then fire crews may not have easy access to water supplies or have difficulty accessing because their tenders are incompatible.
Regular reviews of fire procedures, and alignment on possible fire scenarios with local services, are certainly useful mitigants. There may also be a business case for “sense-and-stow” solar panels, where automated systems can orient panels from vertical to horizontal depending on weather conditions:
- Verticalizing the panels can dramatically reduce damage from hail, make agricultural land between solar panel arrays available for crop cutting and minimize the amount of surface area that severe wind contacts under the arrays.
- Orienting the panels horizontally reduces their vulnerability to flood waters by raising the lowest point of contact to the electrical panel.
Of course, as with all operational improvements, the business case needs to stack up — but such mitigating factors could help reduce premiums and increase safety.
New project construction sites that employ the newest mitigation design features will have an opportunity to present these mitigation efforts to the insurance market and agree to premium levels that reflect these efforts — rather than being inflated due to losses at other solar farms.
Mitigating risks for onshore wind-power installations
For onshore wind installations, the situation is more challenging. Turbines are large, highly engineered machines, and replacing damaged parts can have long lead times. Any damage that makes the tower unstable will potentially necessitate demolition, and unless the damaged turbine is still in production, then the nacelle and blades will be challenging to replace.
That said, it's usually only fire outbreaks that cause damage beyond simple blade replacements. Excessive vibration from overspeed in high winds can potentially cause blades to detach or break and collide with the tower, causing extensive damage — but these events are very rare, and systems can be set up to detect high winds and place turbines into safe mode.
Fire can be combatted with detection systems, revised material usage to remove flammable fuels, and even through industrial fire suppression systems. Modern-day fire suppression systems shouldn't be confused with the older systems often used in gas turbine enclosures. These older systems had significant safety problems, since they typically release carbon dioxide or other gases to starve flames of oxygen; depleting oxygen can cause asphyxiation for workers caught in the area.
Modern systems use the inert and inexpensive gas nitrogen to dilute the oxygen. These systems can be used for larger and more expensive turbines and protect both the asset and the personnel. It's also rare for turbines to be generating when people are present, which also vastly reduces the exposure to personnel. For operators, such systems are very much worth considering — turbine manufacturers also want to avoid further losses for their clients and can be reasonable when approached on the topic. Insurers can assist clients by requesting the appropriate (and often legally required) risk assessments and operator manuals that support the resilience of the turbines being purchased.
Mitigating risks for offshore wind-power installations
Finally, for offshore wind turbines, both the risks and the mitigations are significantly different. Whilst they are very similar in core design to land-based turbines, they are even larger and more complex machines and have greater built-in resilience. They're rarely susceptible to fires and wind-related overspeed damage, and tend to be built with more monitoring and consideration of preventive measures. They often have greater control over the rotor and how it catches the wind, ensuring it can resist turbulence as well as storm wind speeds by maneuvering to a safer direction — sometimes by using its own emergency power supplies.
As for fire, the design procedures for offshore turbines have fire safety and risk assessments at their core, since there is an added responsibility on operators to evacuate personnel.
These are among the reasons why catastrophic failures haven't been common in offshore wind installations. Nevertheless, significant storms over wind farms should be followed by due diligence in checks — both subsea and above sea level.
The supply chain for these larger turbines is even more challenged than their little brothers onshore, especially when manufacturers discontinue older models. The difficulty getting replacement parts only increases the need for built-in safety features. This point applies equally to the supporting electrical infrastructure — the connections to the onshore grid — which will have very similar difficulties in time and cost to repair and replace.
If suppliers can provide estimated delivery times that are regularly updated and verified for accuracy, remedy planning can be more certain.
A promising future for safe production of renewable energy
Consideration of risks — and the technologies and techniques that can mitigate it — should be built into the DNA of any large construction and engineering project, and the renewables industry has a good track record on this. Equally, there's always a need for rigorous safety reviews, and when disasters do happen, analysis of what went wrong.
These tools can also complement the transfer of risk to the insurance and reinsurance industries and assist in risk mitigation. It shouldn't be an onerous request for insurers to ask for significant hazard risk assessments and built-in or optional mitigations. Most professional engineering firms have this information already available, and it can be helpful in mapping the risk landscape for a product. And when an event happens, having options to prevent further events is good planning.
The alternative is that insured losses will inevitably drive premium payments higher, or ultimately even make these assets uninsurable. Since most losses are attritional rather than catastrophic, this shift would become more noticeable only slowly, as underwriters home in on problem issues by adding clauses and exclusions.
However, the good news is that this shift doesn't currently seem to be happening. The growth in gigawatt size and industry knowledge over the last 10 years for solar, onshore wind and offshore wind is bringing with it a product, project development and operational maturity that should offer an annual loss experience that's smaller year by year relative to the growth in power output of those industries.
The growing maturity in product design gives the renewables industry a good story to tell its insurers about mitigation.
