Wind power operators face a unique set of risks that can be effectively managed to protect wind farm assets and ensure the viability of the operation. Whether facing required upgrades to an aging equipment fleet or incorporating new technology into the operation, wind operators can plan for associated risks with the support of healthy, vetted original equipment manufacturers (OEMs) and an experienced renewable energy insurance broker.
Here are some emerging topics when it comes to managing risk in the wind energy segment and developing a successful risk management program.
Check on OEM health
In the wind power segment, the importance of vetting EPC contractors cannot be overstated. Wind energy operators should always request credentialing information from tier-one contractors and verify the contractor’s experience and track record of successful development and completion of projects.
It will prove valuable to ensure the OEM has access to a reliable supply chain with inventory and continency for spares, especially when sourcing components from overseas. When sourcing international equipment, wind operators should request details around the OEM’s supply chain and their contingencies around Plan B’s outside traditional domestic content. Specifically, transformer availability is currently a widespread industry issue, spanning wind farms to utility applications. Lead time is also a major consideration factor for acquiring components, from blades and nacelles to transformer batteries. It’s critical that the OEM is proactive in managing the supply chain queue to ensure the timely availability and delivery of parts when they are needed.
Once a project is underway, what capability does the OEM have to replace broken and damaged equipment? There are significant solvency and profitability concerns around major OEMs in today’s wind market. As wind assets come out of warranty, how does the solvency of OEMs impact the validity of warranties and the likelihood that the manufacturer of components will be sustainable to honor those warranties? From the carrier perspective, they are concerned with the validity of warranties going forward, which will be reflected through the underwriting process. M&A activity presents an additional challenge and whether acquired OEMs can remain financially viable to fulfill their provided warranties.
New technology risks
Technology is spurring advancements across all industries, and the wind market is seeing the rapid evolution of larger turbines and blades. It’s important to stay ahead of the insurance and risk management factors associated with technology evolution to ensure new projects continue to be insurable at economic levels.
Considering the overall field experience of newer, larger parts, carriers may have concerns that as projects grow larger, so too does the possibility for greater downtown caused by losses. For OEMs producing newly constructed parts, this circles back to the importance of vetting — will the OEM remain viable to satisfy their obligations to the buyers of their equipment?
As smaller wind fleets cross multiple decades in production, this aging equipment may require repowering action, which brings its own insurance considerations. For instance, to utilize newer technology-driven equipment, one may need to upgrade foundations for a 4-MW turbine vs. the older, 2-MW model. When upgrading equipment for aging fleets a broker can spec the correct coverage to support the associated engineering upgrades.
Inherent risk and weather events
As weather events grow more significant in scale and in their levels and paths of destruction, an experienced insurance broker can determine how to value wind project equipment. Tornadoes present an increasingly frequent threat to wind farms, especially in susceptible areas. Lightning protection is also crucial, and lightning protection systems should be installed to protect against catastrophic fires.
Wind power operators typically take a broad-brush approach when determining estimated costs for replacement and expected business interruption. Wind customers specifically need to account for coverage for each equipment component under the policy, as they may run into issues when trying to file a claim for a single turbine, for instance.
Insurers may try to cap the cost of what a wind operator can declare in the statement of values (SOV). It’s important to have discussions around policy language when forming the original SOV to ensure proper coverage in the event of a claim — whether it’s one turbine or a whole site.
Alliant’s renewable energy insurance experts help ensure customers in the wind energy segment can secure ironclad renewable energy insurance coverages that address the unique risks facing each operation. From traditional solutions to a full range of innovative specialty solutions custom designed for the renewable energy space, Alliant provides seamless project coverage, from inception to completion and continued operation.
Edward Stewart is a Senior Vice President at Alliant Insurance Services, based in Seattle, Washington. Focused on the renewable energy industry, Edward works to de-risk innovation, support growth and enable complex and challenging project development using insurance and risk transfer strategies to lower the cost of risk.
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