The drive to switch to renewable energy sources is gathering incredible speed globally. Targets are being continually raised as countries set new transition goals to reduce the use of carbon-based energy and its climate impact.
However, the scale of development and rate of technological advancements required to meet global targets means the renewable energy sector is becoming increasingly risk exposed as the supporting ecosystem struggles to keep pace, according to experts at the recent Crawford Technical Claims Forum in London.
Progress at a price
“We’ve seen monumental progress in the last 10 years in the renewable energy space, in terms of both scale of capacity and advances in technology. However, given the incredible speed of development there are inevitably issues that will catch us up,” said Martin Dobson, UK head of Renewables, Crawford Renewable Solutions.
Using the example of wind turbines, he noted that while in the 2000s, the average turbine output was about 1.5 megawatts – current levels are up to about 10 megawatts onshore and around 20 megawatts offshore – figures that Dobson said were previously considered “theoretically impossible."
“One of the big issues is the ability of supply chains to keep up with the level of change were seeing,” said Daniel Sim, strategic account manager – Power, Aon. “The companies that are developing and installing the necessary green technology and the networks required to support them, are struggling to meet this huge demand.”
The challenges facing the renewable energy sector are further exacerbated by the location of facilities in increasingly CAT exposed areas and the building of offshore facilities and more recently floating facilities.
“As soon as you move away from the shoreline, the complexity of the project build and the associated risks increases exponentially – and as a result the claims,” explained Sim. “Even if you have a relatively simple loss to an offshore turbine, just reaching that location is going to cost a lot more, with a large part of that claim due to transport costs and engineering time, with the actual physical damage likely to be a much smaller component."
Unique exposure dynamics
Dobson highlighted the important differences in the exposure dynamics of renewable energy facilities and other energy-generating plants, given that typically the facility is comprised of multiple assets such as turbines or solar panels.
“From an exposure perspective with renewable energy facilities we focus on single points of failure – switch gear, transformers, or underground cables – which can generate the biggest losses. If you lose one turbine, while you will have repair costs and downtime, you might only lose 5% of generating capacity. If you lose the main transformer that could cut capacity by 50%-100% - and then the exposure level rises rapidly.”
And this is where the sector is exposed to one of the biggest potential hurdles in its race to scale, according to the panel. If the supply chain is not there, then these critical failures can quickly become major issues.
As Mark Hale, national practice leader, Construction, Crawford Canada, explained, “Supply chain issues and delays in securing parts are a huge issue. With newer, taller turbines being introduced, the obsolescence factor is a major challenge when sourcing parts. We recently had to ship a critical component from India to Canada – this takes time, is costly and increases your business interruption losses.”
The talent shortage
The panel also flagged the talent shortage in renewable energy space. While the insurance sector is increasingly bringing specialist engineering expertise into its ranks, Sim said supply is not there to meet demand, adding that, “everybody in the market is struggling for that experience – it’s a very small talent pool and the issue runs the whole way through the supply chain.”
For Dobson, this lack of specialist expertise was also an issue for the renewable energy sector itself and had the potential to create exposure issues.
“The expertise is spread quite thinly across the sector,” he said. “Maintenance and the quality of the original installations are growing issues. The industry’s talent was stretched when I was an engineer ten years ago and since then the number of projects has increased tenfold, but we haven’t seen the number of engineers increase similarly. As a result, we’re seeing an increase in smaller claims from defective work.”
In his concluding comments, he said:
“The huge developments we have seen in renewable energy are helping countries achieve their sustainability targets. But the question is whether the sector itself is sustainable? There’s a huge amount of work needed to ensure the support network can keep up with the record levels of development and capacity that we are now seeing.”
