Who Has Insured the Wind?

Canada’s growing wind energy industry presents a world of opportunities for project stakeholders and, for insurance, an interesting set of risks for each stage of a wind project from cradle to grave.

Wind energy is big business: it encompasses planning, parts manufacturing, supply and repair, transportation, turbine construction and operation and repair, right through to disposal. Each of these project aspects is associated with a unique and multifaceted set of perils to be considered in the underwriting process. Here are some things to consider about the dynamic and complex business of insuring wind.

Perils and Planning

According to the Canadian Wind Energy Association (CanWEA), the total cost of a large-scale wind farm ranges from US$2.2 million to US$2.8 million per installed megawatt of generating capacity.  The wind turbine makes up 70% to 75% of the cost, and engineering, site service and construction accounts for the rest of the balance.

For a project of this scale, the comprehensive planning phase alone generally takes more than two years and presents a long list of potential pitfalls. Given so many moving parts, project delays are possible at any stage of the planning process. Leading up to construction, project development includes municipal consultations, wind resource assessment, design, environmental assessment, land acquisition, obtaining permits, public consultation, economic and financial analysis, manufacturing and eventually site preparation. Each of these steps entails rigorous approval and administrative processes involving legislation, multiple stakeholders, consultants and government bodies. Although insurance – including physical and liability-related risks – comes into effect once the project is started, understanding this rigorous process and the potential delays is part of knowing the client’s business and the challenges they face.

Insurance and Site Preparation

Once all approvals are satisfied, the site is ready to be prepared and insurance comes into play. The site preparation process can include constructing access roads for transporting parts and clearing areas where turbines will be erected. This includes preparation of the foundations, excavation, formworks installation and pouring concrete and rebar. When a turbine is ready to be erected, construction happens on-site, assuming all turbine parts – from the tower to the nacelle (a cover housing for engines, fuel or equipment) and blades – have arrived on time and are ready for attachment. In addition, specialized construction equipment must be on hand to undertake turbine assembly.

The massive turbine parts can be a significant burden for transport ships, trailers and the routes on which they travel, creating a significant risk for damage or loss en route to the site. Issues arising during water transportation of a wind turbine might include a load shifting on a ship, which can cause damage to the blades, or a piece of equipment falling into the water at the port. Potential snags with land transportation include truck-hauling equipment getting stuck in soft soil, a landslide or road collapse due to the weight of the equipment. Also, a trailer could overturn during transport, causing equipment to fall off the trailer entirely. It is critical to identify the necessary turning radius and make sure roads are suitable for handling the weight of the equipment.

As wind projects increase in scale, turbines are getting bigger, and so is the equipment required to build them. Currently, a limited supply of contractors’ equipment meets the needs of the wind sector within Canada and around the world. Supply chain issues related to availability of turbine parts and construction equipment are added risk factors to be considered. A well-thought-out site delivery plan, including contingencies for unavailable equipment, is imperative. It is also important to have a good knowledge of experienced construction companies, contractors and well-made construction equipment.

Preventative Maintenance

When a wind turbine is operational, ongoing preventive maintenance is vital to sustained production and business continuity. At this point, it is necessary to have access to equipment and spare parts for repair when available or required. Common operating issues include breakdown within the nacelle, including the generator, gearbox or transformer units – all are critical to turbine function. Timely access to cranes and replacement parts is crucial in the event of equipment breakdown. Failure to obtain access to a crane or replacement equipment in a timely manner can seriously affect business continuity, since turbine replacement can take up to an average of two years. To minimize the business interruption element as much as possible, it is important to understand what parts are stored nearby, or at least in the country, as opposed to parts that may have to be sourced from Europe or other overseas warehouses. As the industry grows in Canada, some European parts manufacturers have established Canadian operations, making it easier to meet supply needs. To anticipate potential shipping delays, it is useful to know which manufacturers have set up shop in Canada, as opposed to those who operate overseas only.

If the list of considerations seems daunting, keep in mind a few key questions: How remote is the location and what are the limits to access? What supply chain issues exist with parts and construction equipment? What is the transportation method, and should additional considerations – i.e. building road access – be factored in? Who are the manufacturers, construction companies and contractors? Do any issues exist related to the quality or availability of parts or services?

Conclusion

It’s important for an underwriter to be familiar with the multitude of factors influencing each phase of a wind farm’s life cycle. Potential challenges outlined in this article are certainly not exhaustive. Each project is unique and we continue to build our knowledge and expertise in this emerging industry. Along with these challenges comes vast opportunity. Given increasing government support and investment in Canadian wind power, this sector will continue to grow, promising a diverse and interesting set of risks to write.