Mitigating Renewable Energy Risk
"Understanding a renewable energy farm's building and operating risks can make financing a renewable project much easier. For example, when owners can illustrate to lenders that they have anticipated their risk exposures, minimized the potential for interruptions and that the renewable energy farm will be properly insured from the start, banks and investors are more likely to provide the requested financing." -- Lauren Berry, Vice President, Travelers
Q: What risk management tactics can solar and wind farm operators employ to mitigate risks?
A: Some carriers provide proactive risk assessments to identify and suggest ways to mitigate risk. For example, one of the biggest risks operators face is theft, given the highly valuable equipment and materials that make up wind and solar farms. If a high risk of theft is identified as part of a proactive risk assessment, mitigation measures that can be taken to protect against theft may be recommended. Such preventive measures can include connecting panels to an alarm system, installing solar panel fasteners, or etching individual ID codes on panels so they are readily identifiable if stolen.
Q: What should wind and solar operators keep in mind as they expand their operations?
A: As solar and wind farm operators grow their businesses, it is important to consider often-overlooked processes that evolve with the business, such as transportation risks. Longer hauls and bigger shipments create greater potential for generating revenue – and greater risk. When an operation begins moving more costly and oversized solar panels, 50-ton wind turbines, or 150-foot blades for example, safe transit is not a minor detail. In fact, according to an industry report by the University of California Irvine, turbine transportation costs account for 20% of a project's total cost.
Also, as a wind or solar business evolves, the need for more land is often necessary. Many solar and wind farm operators fail to recognize that such farms are sometimes built on what is largely unusable property for other purposes because of flood exposure or other potential hazards. Developers should be consulting with their design team and their insurance carrier's risk control team to review the site and the unique exposures that the site may present, and then proactively addressing any exposures identified. For example, if a farm is located in a flood plain, the electrical junction boxes and inverters should be elevated above historical flood water levels. This simple step may minimize an operator's potential loss, and, as a result may make their operation more profitable.
Q: What insurance solutions do solar and wind farm operators need to know about?
A: Increased demand for renewable energy options present new growth opportunities for solar and wind power operators. Operators should seek insurance solutions from providers with an established track record and deep industry expertise. It's important to find solutions that offer a holistic approach to risk management and the flexibility to grow as the industry evolves. Some products are designed to meet the specific needs of wind and solar farm operators so that in the event of a loss, their profit margins are protected. For example, such insurance would cover the costs associated with a business interruption that impacts the ability to produce power.
Q: How can proper risk mitigation and insurance coverage help increase the success of renewable energy facilities?
A: Having the right advisors assist with the development of a risk management plan and the right insurance coverage in place should lessen the focus on the potential for loss and financial setback, allowing energy facilities to put their focus on the potential for sustainable growth and continued innovation.
Q: How do these techniques apply elsewhere?
A: Understanding a renewable energy farm's building and operating risks can make financing a renewable project much easier. For example, when owners can illustrate to lenders that they have anticipated their risk exposures, minimized the potential for interruptions and that the renewable energy farm will be properly insured from the start, banks and investors are more likely to provide the requested financing. Considering that competition for financing continues to increase with the growth of the renewable industry, risk management is more of an invaluable tool than ever.
Q: How can risk management techniques improve the cost effectiveness of renewable energy?
A: Mindful renewable energy operators do not rely solely on warranties for their equipment, but also implement proactive maintenance measures. Scheduling diagnostic tests as part of a regular maintenance program allows owners to troubleshoot areas that are prone to malfunction, preventing interruption and the resulting power outage and profitability that outages can cause. Smaller investments over time in proper maintenance and diagnostic testing extends the lifetime of equipment and helps make sure that renewable operators avoid hefty, unwanted repair expenses and lost revenue.
Q: Are there any new risk management techniques that have emerged that are impacting on the sector?
A: For wind operators, battery load tests, oil and vibration analyses and boroscope inspections can serve as important early indicators of problems and are important components of proper risk management. For solar operators, monitoring electrical connections, combiner boxes and air filters are essential as loose overloaded electrical connections can lead to equipment breakdown from overheated and overextended inverters. Panels should also be cleaned to maintain their energy output. For both wind and solar energy operators, working with an experienced agent and broker with extensive knowledge about the renewable energy space is essential. They can provide a risk-assessment on the farm to identify where potentially overlooked risk exposures are, advise about the most reliable contractors to work with and provide the insurance coverage solutions that make the most sense for the needs of a renewable energy farm owner or operator.
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