Renewable energy providers are confident in their resilience. Are they right?
Renewable energy providers are remarkably confident in the resilience of their infrastructure – the solar panels and wind turbines they use to generate power, and the equipment they use to store it.
That’s one of the standout findings from FM’s global survey of 400 risk decision-makers at renewable energy companies.
- Nearly six out of 10 (59%) say they are either very or extremely confident in the resilience of their infrastructure projects.
This result surprised Cassian Walker, vice president, operations engineering manager at FM Renewable Energy. It reveals that the industry’s understanding of its risk exposure is still maturing, he suggests.
“This is an emerging market and no single company can realistically be expected to understand all the risks and all the ways to manage them, we are all learning.”
“That’s why collaboration with third-party experts, Original Equipment Managers (OEMs), and insurers is so important. It gives providers a better understanding of the kind of events they could experience and how they can manage and mitigate them,” Walker adds.
Focus on resilience, not just viability
During the construction phase of projects, renewable energy providers are most concerned about rising costs and project delays. Their top risks during construction are:
- Rising equipment costs (48%)
- Rising construction costs (43%)
- Regulatory and permitting delays (39%)
“These are all valid concerns in terms of project viability,” says Walker. “But I would argue that resilience is a far more pressing concern, given the long-term impact to a project following physical damage."
During the operational phase, renewable energy providers’ top-ranked risks are more attuned to resilience. Here, their top risks are:
- Weather damage (54%)
- Failure of generation equipment (50%)
- Supply chain disruptions (48%)
They are right to prioritize weather damage, says Walker, as weather events are the primary source of insurance claims on renewable infrastructure. According to recent research, hail accounts for just a small portion of solar panel claims, but represents the majority of overall claim costs. Mechanical breakdown happens more often, but represents a lower proportion of overall costs, according to recent research.
Staying ahead of mechanical breakdown is especially challenging in a technological world that never sits still, Walker explains.
“Much of the technology in renewable energy development is considered prototypical, so operators and insurers are learning about them as they are being deployed and tested in real-world conditions,” he says.
This may also contribute to providers’ remarkable confidence. “You can be confident you have built a very resilient wind turbine, only to find there is a fundamental flaw in the design or manufacture that manifests when you start operating.”
Seeing the risks that others don’t
Resilience is becoming increasingly important to the finance community. With several sizeable losses hitting the insurance market in recent years, underwriters have reduced their appetite and the limits they’re prepared to offer.
In many cases, the level of coverage a project can secure is far below the overall cost to build it, which has focused financiers’ minds on the issue of resilience. The more resilient the project, the more preferable (and affordable) the insurance terms.
To secure favorable financing, renewable energy providers must show why they're a resilient investment, with awareness and mitigation to physical damage the most worthwhile asset.
So how can renewable energy providers get the real picture of the risks to their infrastructure?
Rather than looking at individual risks in isolation, Walker believes the truth lies at the nexus between environmental and technology risks. “It is crucial to understand how a particular piece of technology or design is going to perform in certain conditions,” he explains.
“It’s not just about the design of the asset, it’s about how it performs in a specific geographic area. A highly resilient design for the Spanish climate could be very vulnerable if applied to Texan weather.”
Building resilience into renewable energy infrastructure
- Focus on the convergence of risks. Weather and developing technology bring unique risks to any operation that are compounded when they meet.
- Engage external experts to conduct risk assessments. Nearly half of the renewable energy providers we surveyed prefer to use internal resources to conduct risk assessments, but this may lead to internal priorities eclipsing long-term resilience.
- Get those experts engaged at the earliest possible stage. While resilience measures can be applied after construction, they will cost more and their effectiveness will be limited. Risk experts should be engaged from the design stage right through to the lifecycle of the asset..
- Build long-term partnerships. Long-term commitment allows risk experts to support resilience at every stage of an asset’s construction and operation.