Canadian Underwriter

Resource risk top concern for wind energy sector: GCube Underwriting

May 23, 2017   by Canadian Underwriter

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Resource risk has surpassed mechanical and electrical breakdown to become the number one potential source of financial losses for onshore wind energy developers, owners and operators globally, suggests a new report from GCube Underwriting Ltd.

Despite continued development and improvement of protective measures, “it remains clear that there is absolutely no room for complacency when it comes to investing in thorough financial and technical risk management,” Jatin Sharma, head of business development at GCube Underwriting, cautions in a company statement Tuesday.

The report from U.K.-based GCube Underwriting – which provides insurance services for renewable energy projects in wind, solar, biofuels, wave, hydro and tidal around the globe – is the latest in a series produced for its insured clients and brokers.

Related: Weather risk accounts for an estimated US$56 billion in untapped wind energy asset values globally: GCube

Resource risk is expected to have legs, at least for a number of years, remaining the top concern for wind energy stakeholders as the installed asset base grows, the company notes of findings in Risky Business: Assessing Future Threats in Onshore Wind Development, Financing and Operations.

The expectation is that this will drive uptake for revenue protection mechanisms like as Weather Risk Transfer (WRT) and Proxy Revenue Swaps (PRS). “These products will be an essential factor in accounting for an estimated US$56 billion shortfall in total asset values across the globe,” GCube Underwriting reports.

Despite resource risk taking the top spot, mechanical and electrical breakdown continue to be substantial threats. This demands that developers and asset owners “maintain a strong focus on project maintenance and technical risk management procedure,” the company cautions.

GCube Underwriting advises sector stakeholders to keep a close eye on mechanical and electrical breakdown “with the increasing size and capacity of new technologies, and more assets than ever before moving into the post-warranty phases throughout the mature markets of Europe and the U.S.”

GCube Underwriting’s analysis of the past five years of onshore wind mechanical breakdown claims shows that the industry experiences the following:

  • an average of 3,800 incidents of blade failure each year, each costing as much as US$1 million to resolve;
  • 1,200 incidents of gearbox failure, each costing between US$200,000 to US$300,000; and
  • approximately 50 turbine fires, with an average claims cost of US$4.5 million.

The top five most prominent threats to the performance and profitability of onshore wind energy assets worldwide are: resource risk; mechanical breakdown; political and regulatory risk; project development in remote locations; and extreme weather and nat-Cat.

GCube Underwriting notes that “in remote regions of Asia, Africa and Latin America, lack of familiarity with unique logistical, political and natural catastrophe risks, alongside shortfalls in infrastructure and the availability of high-quality labour, commonly result in significant unforeseen losses during construction and operation.”

The report further mentions the emerging threat of cyber attack, as well as the potential for increasing personnel turnover to inhibit knowledge transfer.

Related: Canada second largest energy and power insurance market globally, with US$1.77 billion in premiums in 2014: Finaccord

“Across a number of established and developing wind energy markets worldwide, low wind speeds are negatively affecting the ability of assets to deliver the output forecast by resource analysts prior to construction,” the company statement notes.

“The inability to effectively transfer weather risk has led to numerous, high-profile examples of sub-par project performance, directly cited in the financial results of major utilities and portfolio owners, and manifested in damaging ratings downgrades.”

“GCube’s data shows how the risk landscape is constantly changing, and the need for stakeholders to stay ahead of the curve if projects are to remain profitable,” Sharma comments.

“The insurance markets continue to develop new and improved means of protecting onshore wind developers and asset owners, both from the sudden and unforeseen impacts of mechanical breakdown, and the longer-term financial damage caused by resource-related project underperformance,” he notes. Still, high-profile incidents of both are “still prevalent across the industry.”