The importance of expertise in renewable energy underwriting
The rapid evolution of the wind energy industry is raising new questions for underwriters.
Developments in wind turbine technology have been one of the key drivers in reducing the cost of renewable energy production and fueling the growth of the wind industry over the past decade.
While the rate of change in wind turbine technology has been astonishing, improving levels of energy production and resilience to external forces such as weather, this rapid evolution has also posed questions for underwriters.
In an industry where models change every few years and larger, more productive models are purchased by project developers before they have been fully tested, understanding new technology is key. Underwriters constantly need to keep up with, understand and identify the risk ramifications of these changes.
To put these technology advancements into perspective, between 2000-2019 the average rotor diameter of an onshore wind turbine blade in the U.S. increased from 48 meters to 121 meters and the average hub height (distance between the ground and the nacelle) increased from 58 meters to 90 meters, according to the American Clean Power Association.
While these numbers are based on an average machine size of 2.55 MW, most of those are legacy turbines installed over the last 20 years.
As turbines grow in size, capacity increases accordingly. Of the 21 models installed in the U.S. in 2019, a capacity of more than 2 MW was the norm, while the average capacity for onshore wind turbines is expected to increase by up to 58% by 2050, according to the Global Wind Energy Council.
As turbines increase in size, so does the value of any one individual claim, which makes understanding the technology even more important.
In the offshore wind industry, the advancements have been even more pronounced. In 2018, General Electric announced the 12MW Haliade-X, at the time the world’s largest wind turbine. This has since been updated to a 13 or 14 MW machine, with a height of 260 meters and a blade length of 107 meters.
In the intervening period, Siemens Gamesa has announced the SG 14-22, which also stands 260 meters tall, with a power capacity of up to 15 MW. Vestas, the world’s largest wind turbine manufacturer, expects to start testing its 280 meters tall 15 MW, V236-15 with prototypical blades that measure 115.5 meters in the second half of 2022, while Chinese manufacturer Ming Yang has announced plans to install a prototype turbine in 2023 with a power capacity of 16 MW.
Competitive innovation
This shows the depth of competition within the industry. As turbines advance in size, new technologies will need to be created, and there will be new risk exposures that must be taken into consideration.
For example, as onshore wind turbines become taller they have also become more susceptible to lightning strikes. Lightning strikes primarily damage wind turbine blades, which are one of the most expensive pieces of equipment to replace. As onshore turbines are generally positioned in flat open land, which is prone to lightning strikes, lightning has become an increasingly common cause of insured loss in the last five years.
Changing weather is another issue affecting how insurers underwrite wind farms. For example, when Winter Storm Uri hit Texas in 2021, it demonstrated what happens when severe weather events take place in unexpected areas.
Underwriters must now consider the risk posed when South Texas wind turbines are not equipped with cold weather systems that heat certain wind turbine components such as the blades, gearboxes and motors. As weather systems become more complex, it is even more important for insurers to have a deep understanding of the systems that protect those turbines.
Underwriting experience is key in order for insurers to help clients navigate these evolving risks. This technical industry will only become more technical, and underwriters will need to rely on their experience of old technologies and claims to understand the risks of new products, which may be prototypical.
In addition, insurers need to know how to deal with the unintended consequences of advancing technology and external issues such as weather. These risks can only be managed well by those that have experience and that are willing to undertake the large amounts of due diligence necessary to fully understand the risk landscape.
Melissa Marsh and Kristopher Williams are renewable energy underwriters with AXIS Capital.
Opinions expressed here are the authors’ own.
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