Revolutionised renewables?

A global energy shift is taking place. But can we rely on wind and solar on such a growing scale? Battery storage could provide much-needed stability.

A global energy transition is under way. Year-on-year we are seeing record new additions of renewable energy capacity, along with rapidly falling costs, particularly for solar
photovoltaics and wind power. This is leading to a major global shift away from a world run on fossil fuels.

In 2016, about $297bn was spent on renewables – compared with $143bn on new nuclear,
coal, gas and fuel-oil power plants. The two countries currently driving this change are
China, largely through wind power, and India, focusing on solar power. But there have also been huge pushes in Australia and the EU.

It’s estimated that global wind energy capacity could increase by more than half over the next five years, according to the Global Wind Energy Council (GWEC). In its annual report on the status of the global wind industry, the GWEC said cumulative wind energy capacity stood at 539 Gigawatts (GW) at the end of last year – a massive 11% higher than the previous year. In addition to the declining price of kit, further drivers to growth have included government requirements and regulatory support towards clean energy; payment incentives and tax incentives, such as feed-in tarifs; and greater efficiencies when compared to fossil fuels.

But this boom brings with it new risks. Good wind sites are ož en in remote locations, far from cities where the electricity is needed. Transmission lines must be built to bring the electricity from the wind farm to the city. This can increase the cost of expanding wind projects and grows exposure to risk. There are also very real issues around dealing with an inherently unreliable and hard to-predict resource, such as the weather.

“Wind power must still compete with conventional generation sources on a cost basis,” says Jonny Martin, associate, renewable energy for JLT Specialty Ltd. “Depending on how energetic a wind site is, the wind farm might not be cost competitive.”

However, innovations in battery storage are making renewable energy projects a lot more viable and profitable – it helps firms maintain renewable energy output when the wind doesn’t blow or the sun doesn’t shine for long enough.

“In the energy industry we’re already starting to see that the combination of renewables and battery storage offers the opportunity for wind and other renewable plants to perform peak shaving – a process whereby energy is stored at times of peak energy production to use during periods of intense demand – to help better balance supply to demand,” says Renewable Energy

Association policy manager Frank Gordon. “Storage projects also potentially provide
additional income streams through ancillary services markets that help regulate the power grid.

The ‘Batwind’ project in Aberdeenshire, Scotland, is one such example of a wind developer pairing wind with battery storage. The battery storage system earmarked for this remarkable project – the world’s first floating wind farm – could be applied for use in other future developments under a collaborative agreement announced in January
2018 by the project’s owners, Statoil and Masdar.

Gordon says: “We expect more projects similar to Batwind to follow in the coming years, not only in wind but also solar and other renewables, adding to cost-effectiveness of the technologies and creating new employment opportunities.”

But this new technology – and its risks – mean massive changes for the insurance sector.
“There are absolutely huge implications,” says Allied World’s Jacob Hewitt. “For example, look at the sheer scale of the increase in Chinese capacity – with this comes a risk consideration around the new technology.”

Risk managers need to find ways to work out how to reduce the risk when firms are trying to expand rapidly, using technology that might only be just beyond the prototype stage.

Hewitt says: “My advice is to use a contractor with a successful track record, with robust quality control and good project management experience. The technological risk will reduce over time, as the market settles down and companies gain more experience.”
But it’s not just the tech that you need to be thinking about – it’s how you get the kit where it’s needed. “Large projects are being installed in some very challenging
locations: they can be steep, remote,”

Hewitt says. “And one of the major challenges is actually the transportation of blades and arrays into these locations. Imagine trying to take a 70 metre blade into some
remote mountainous region in Pakistan.”

He advises linking multiple insurance products across different risks, such as transport, marine and construction, and using this to close gaps wherever possible. “Using a single insurer is preferable,” Hewitt

says. “Because if you have bought insurance products from different insurers, you may get some disputes over coverage; it is far better to have a single point of contact.”
In a rapidly changing sector, risk managers need to have their wits about them. Focus, prepare – and get ready for the future.

Published 2018

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