Key Insurance Considerations In Renewable Energy
As we strive for a “greener” lifestyle the contribution of renewables to sustainable energy production across the globe is becoming increasingly important.  Last month the U.K. broke its record for power generation from Solar Power – on Friday 26th May 8.7 GW of Solar Power had been generated by lunchtime, accounting for 24.3% of total daily power generation across the U.K. In this Insight we look at some of the insurance considerations for developers and lenders in this sector with a particular focus on wind and solar.
Wind
Current onshore wind technology is now widely accepted in the insurance market and many mainstream insurers are active in the sector.  However, there are still a number of risk exposures where insurance cover may require careful thought on the part of brokers and underwriters.
The logistics of accessing sites in remote locations can be a challenge for all and can significantly increase the cost of claims.  Losses can occur during sea transit due to inappropriate stowage or during loading / offloading at the port.  Inland transits can also be the source of significant loss exposure, particularly in countries with poor transport infrastructure.  Route surveys by experienced surveyors and specialist handling are essential if losses are to be reduced / minimised.  It is important to maintain clear lines of communication with contractors and their transit sub-contractors to ensure contractual transparency on who is responsible for the equipment and the requirements to insure it.
Even where infrastructure is well developed, the nature of onshore wind energy means that sites are very often in exposed and remote locations.  This can present challenges during construction, testing and commissioning.  Insurers will seek reassurance that exposure will be actively managed by competent and experienced contractors.
For offshore projects, logistics and weather related delays are compounded by the challenging environment.  Delays can be caused by the uncertain availability of specialist contractors and it is important for stakeholders to understand the circumstances in which their insurances will and will not respond.  
Damage to sub-sea array and export cables and foundation integrity have been the subject of complex claims in this sector. The breakdown of fibre-optic cables is becoming something of an issue as infrastructure matures. Detailed root cause analysis may be essential to determine whether losses are recoverable.
Once construction is complete the risk focus will switch to the operations and maintenance regime.  Insurers will be keen to understand single point of failure exposures such as sub-stations and transformers, the availability of spares and the manufacturer’s warranty undertakings.  Gearbox failures, lightning and other extreme weather damage are common issues.  Understanding design tolerances and the extent of operations and maintenance / warranty parameters is key to avoiding delay during the claims settlement process.  Insurers will want to be certain that losses are fortuitous and arise as a result of an insured event. Engaging fully in the root cause analysis investigation and maintaining a clear audit trail of costs are essential for prompt claims settlement.
Although wind farms are not usually considered to have a high exposure to third party liability claims, they can present some unusual risks.  Turbines have been known to create air traffic control interference by appearing as “blips” on radar screens, particularly in busy airspace. Corrective software can help to manage the risk under a third party liability policy.  It may be a policy condition that the operator shut down the turbine if such interference occurs.  In this case it may be possible to extend Business Interruption cover to provide some indemnity in the event of a longer term shut down.  Again this will require a bespoke amendment to standard cover as the trigger for such a claim would be non-damage related.
Solar
Photovoltaic (PV) panels are the simplest form of commercial solar energy technology.  Solar PV with its lack of moving parts is considered low risk and is widely covered in the insurance market.
However, there are still issues regarding defects and serial loss exposures. Insurers will look at the availability of spares, in-service records of major component suppliers and manufacturer’s warranty undertakings.  But warranties are of little value if the company giving them is no longer trading when called on.  Specialist insurances are now offered by a limited number of markets to back the manufacturer’s warranty in the case of insolvency or degradation of solar panels outside of the design parameters.  However, insurers will carry out stringent credit checks and diligence audits before cover is offered.
Most commercial solar PV farms use ground mounted technology so third party liability is not usually a material risk; however, where rooftop installations are deployed the third party exposure is obviously more significant.  Exposures, including any interfaces with the host building’s power system, should be thoroughly considered and discussed with insurers.
Concentrated solar power (CSP) is a more complex technology.  Whereas transportation and site logistics are not generally a problem for solar PV this is not the case for CSP.  Mirrors can be easily damaged if not packed and transported correctly and whilst the value of an individual mirror does not generally amount to much, significant losses can accrue where whole containers are affected.  Once operational, natural perils such as localised windstorm and flash flooding can also be the cause of widespread and repetitive damage with insurers seeking to apply higher deductibles and robust weather monitoring and risk management measures.  These can add significant cost to a project and need to be considered during the development stage.
Looking Forward
The renewable energy sector is still in its relative infancy. Developing technologies such as wave and tidal will inevitably face challenges in securing insurance cover as markets will see these as prototypical risks.  Developers may need to look to a mix of alternative risk transfer methods to make these projects viable in the short term.
One of the key hurdles to be overcome if the sector is to become part of mainstream energy production is the ability to produce baseline power. Battery storage solutions to enable energy to be collected and stored during daylight or when the wind is blowing are likely to become increasingly important.
Another variable is the uncertain nature of the weather dependent fuel supply.  Weather hedging products to transfer the risk of lack of wind or lack of solar irradiation to the insurance market have been around for some years now although take-up of these products has not been significant.  However, weather risk transfer can provide lenders and developers with a means to stabilise project cash flows over short to medium term timelines.  These contracts are written around bespoke weather data and therefore tailored to the specific risk profile. We see this as a risk transfer method where uptake will increase over the coming years as more modelling data becomes available and premiums reduce.     INDECS is currently advising a number of clients on renewable projects across all sectors of our consultancy offering.  If this article has catalysed any additional questions, please get in touch.  
Please contact us if you have any questions concerning this INSIGHT article.
CONTACT
This INSIGHT edition was prepared by the INDECS Renewables team.
If you would like to know more about INDECS, please contact us on +44 (0)207 397 4141.