Chapter 6: New risks from renewables

Understanding of the risks associated with the engineering and construction of new technologies such as renewable energy are still in their infancy, particularly where natural catastrophes are concerned

With the introduction of new tools and technologies in renewable energy, the construction and engineering industry faces major changes. Solar and wind sites present fresh challenges for project owners, construction companies, and insurers, requiring ever-increasing attention.

Modern renewable energy facilities, such as solar energy production sites and offshore wind farms, pose significant challenges to insurers responsible for underwriting risks. Larger, more complex projects mean bigger potential losses, while the threat of natural catastrophes looms large.

There are myriad risks on solar production sites, according to Eddie Ong, deputy head of engineering and construction, Asia-Pacific, at Swiss Re Corporate Solutions. While solar is viewed as a cutting-edge technology, production sites are often “not very high tech in the way they are constructed”. He says solar sites require “a lot of skills” to be effective for power generation, and standards must be high for them to generate the necessary amount of power.

There are plenty of risks around solar sites, including “micro-cracking” on solar panels, that can worsen over time and weaken energy production capacity. Identifying cracked panels among thousands in a facility can be a significant problem.

“Those kinds of issues aren’t there when you first install them,” Ong says. “They can arise at the manufacturing stage or the installation stage, or during their transportation. So we see those issues commonly as claims in the market.”

It can be challenging to review the level of risk, and whether cracked panels had arisen at the factory, during transportation, or on-site. This can lead to disputes over claims. Events like lightning strikes can also lead to cracks.

“We sometimes see 200,000 pieces of panel at a location,” says Ong. “If there has been a lightning strike at a location, and the insured puts forward a claim, how can a loss adjuster check every panel and identify how many of them have actually been damaged?”

Solar energy production sites have varying construction standards, depending on the location, with no tried-and-tested standards across the industry. And some solar sites are more exposed to natural disasters, in places like Taiwan and Japan, with typhoon exposure.

Insurers will benefit from their experiences covering renewable energy sites. A centralised building code and quality assurances can also help insurance buyers and underwriters.

Exposed to Typhoon Alley

Meanwhile, offshore wind projects also presented exposure for insurers, with natural catastrophe risks a key concern. The growing size of offshore wind farms created challenges, with 10MW wind farms beginning to emerge in places like China. Newer, larger wind turbines are also untested in extreme conditions.

“Offshore sites are in the deep sea, and there are elements over which we have no control,” says Ong. “You have larger wind turbines, so you minimise the number you have in the sea. But with bigger turbines, you have bigger structures installed into the sea, and limitations on cranes that can carry equipment.”

“No one knows how well they will withstand a typhoon because no one has tested it,” he continues. “You can’t test that in the production process. All these things are unknown. This is why the price of [insurance] offshore is higher than onshore. The cost of repairing an offshore wind farm is more expensive.”

Bigger turbines require larger, more expensive installation vessels, which are also more vulnerable to natural disasters. Typhoon exposure remains the biggest natural catastrophe risk for offshore wind farms. Earthquakes are less of a risk, but liquefaction of the soil is dangerous for onshore and offshore arrays.

In 2006, a M7.0 earthquake off the southwest coast of Taiwan, caused extensive disruption after eight submarine cables (used for telecommunications) were damaged by a subsea landslide. The event demonstrates the potential exposures caused by earthquakes. Subsea cables used for wind turbines can also present exposures to insurers, according to Ong.

“Once you can generate power from the turbine, you need to lay the cables down, and submarine cables, although not a new technology, they are one of the most exposed parts of wind turbine projects.”

Floating arrays are one solution under development in some of the more earthquake-exposed parts of the world. These are structures which allow electricity to be generated without fixed foundations. They also present new challenges to insurers, Ong says. Wind can blow the structures over and delay power generation projects, he adds.

Offshore wind farms face threats from water and wind, making them a complex risk. “Offshore arrays are subject to the waves, and at the same time, the wind,” says Patrice Nigon, head of construction and engineering, APAC, Swiss Re Corporate Solutions. “The combination of the two can be a very complex addition of forces and stresses on the structure.”

Bigger turbines require larger, more expensive installation vessels, which are more vulnerable to natural disasters. “If you have an earthquake when the vessel is elevated, or a storm, the vessel could sink. This could delay the construction of your wind farm,” he adds. “The first locally-built vessel in China had a problem with the thruster and sunk, so these vessels are complex and specific. Failure can mean a delay, as the number of them available worldwide is limited.”

Such accidents can lead to delays and insurance claims. “The difficulties with liquefaction problems is that they can affect massive surfaces,” adds Nigon.

He thinks risk managers must pay close attention to natural catastrophe risks, ensure precautions are in place and be transparent in order to help underwriters understand the full nature of their exposure.

“Nat cat can be underestimated by insurers and risk managers, and in a risk management survey, greater attention should be paid to catastrophe risk and protections against natural peril events. Also, risk managers need to allow underwriters to understand the precautionary measures that have been taken as this influences the cost and scope of coverage.”