According to the Global Wind Energy Council (GWEC), average capacity factors for onshore wind turbines will increase by somewhere between 32% to 58% by 2050. (Photo: iStock)

During a decade of writing renewable risks, the AXIS renewable energy team has seen the cost of wind energy projects decline to such an extent that the industry is not just competitive, but in many cases, cheaper than traditional forms of energy. This decline in cost has been propelled by rapid improvements in technology, allowing wind turbines to increase in size, which in turn has reduced the cost of energy per megawatt (MW). While this has been a welcome boost for developers it also poses a challenge to the way that insurers underwrite projects.

According to the American Clean Power Association (ACPA), in the year 2000, the average rotor diameter of an onshore wind turbine blade in the U.S. was 48 meters; in 2019, it was 121 meters. In terms of hub height (the distance between the ground and the nacelle), this has increased from 58 meters in 2000 to 90 meters in 2019. According to the Global Wind Energy Council (GWEC), average capacity factors for onshore wind turbines will increase by somewhere between 32% to 58% by 2050.

What does this development mean for insurers? Larger turbines mean larger claims, so underwriting each project individually is key. Insurers must understand that repairing damage to a 5MW turbine is not simply twice the cost of repairing damage to a 2.5MW turbine. The true cost of the repair will depend on numerous factors.

Using a wind turbine blade as an example: as turbines grow in size, specific cranes will be needed to detach and reattach blades. This is due both to the increasing size of the blades themselves and the increased hub height of the turbine. Suppose the necessary crane is not available at the time of the incident. In that case, the project will either have to wait until the crane becomes available or pay more to receive earlier access. Projects should have spare blades, but if they don’t, there can be long lead times to receive a newly made blade. With blades reaching 80 meters in length, logistics can be difficult, impacting the potential business interruption costs for insurers. Costs will also be affected by the make and model and the extent of the damage. Having detailed and extensive knowledge of the scope and complexity of potential damage will improve insurers’ ability to quantify an insurable risk.

Such Issues highlight the highly specialized nature of renewable energy. A number of insurers have entered the market and then left, unable to understand the technical nature of many claims. While the hard market has gone some way to rectifying this issue, turbine sizes will continue to increase, and so will the size of claims. Experience and technical expertise in managing these complex risks will be the key factors that allow insurers to be successful in the future. Experience aids in understanding how the different turbine manufacturers operate, but technical expertise will be the key to appreciating how changes in technology will change the risk profile of a project.

While insurers will lean on experience and technical expertise, they must also take the next step and communicate their understandings to the industry at large. Insurers must be clear in their support for the industry while also communicating the issues that arise as components increase in size and complexity. Renewable energy presents both a tremendous business opportunity for our industry as well as a great opportunity to help leverage our skills to promote positive change. Achieving success will require in-depth knowledge of these complex risks, strong technical expertise, great communications and comprehensive service to our clients.

Melissa Marsh and Kristopher Williams are renewable energy underwriters at AXIS Insurance. This article is printed here with permission. 

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