In Part I of "Mitigating Risk," Stephen Morris covered topics such as planning projects, engaging contractors and equipment issues. Part II discusses project construction, operation of an installation and the role of insurance companies.
Constructing the project
Once a project has started additional risk factors need to be considered to ensure successful completion of the installation. Several points to consider:
Site security: Proper site security is an important issue for allrenewable energy installations. Theft, particularly of copper cables and other metalcomponents, is a concern, and some sites may be vulnerableto vandalism and arson. Good site security,monitoring systems and ‘just-in-time’ delivery of materials to the site all help to reduce these securityexposures. Where possible cables should be buried underground rather than run on the surface between installations. This will help reduce the incidence of theft.
Testing and commissioning: Following installation, the machinery is tested and commissioned. During this phase the risks and exposures can be reduced through the use of proven machinery and techniques, and by selecting a competent contractor. At this stage of the project, it is important that appropriate insurance protection is in place and risk engineers with knowledge and experience of the technology can advise on the insurability of the equipment being considered.
Once an installation begins to operate and produce power, construction-phase exposures such as foundation design and site access are superseded by new exposures such as breakdown, fire and business interruption risks.
Fire risks: Fire, although infrequent, usually causes extensivedamage and becomes a much greater hazard forall renewable energy installations once testing and commission commences.
Biomass installations in particular face even greater risk from fires and explosions. Fires in these technologies generally start in hydraulics, flumes, filters, conveyors or gearboxes, but can also start in fuel sources as a result of spontaneous combustion.
Fire detection and suppression systems are important tools for combating the risk of fire. Having well designed and installed systems together with appropriate power back up, such as onsite generators, is an essential part of mitigating fire risks. Note: A full fire risk assessment may be necessary in accordance with local regulatory requirements to ensure that a suitable site specific ‘Fire Safety Plan’ is created.
Operating an installation
After successful construction and commissioning the installation remains at risk from damage caused by fire, theft and natural hazards. In addition damage caused by breakdown now also needs to be considered.
Equipment breakdown: According to HSB Engineering Insurance, 69% of losses involving wind turbines relate to mechanical and electrical breakdown, with the most common failures occurring in transformers and gearboxes.
Transformer breakdowns may result from overloading individual export transformers. From a business interruption point of view, housing multiple export transformers is one of the best ways to reduce this risk.
Warranties have an important role to play in new installations. If a warranty is still in place, it can help protect against the material cost of equipment failure, but it does not usually afford protection against business interruption.
When a breakdown occurs, sourcing the correct parts can sometimes be difficult. A robust parts inventory needs to be designed around a good risk assessment to ensure that the correct replacement parts are available quickly in areas where breakdowns are common. For example, access to spare parts for high-risk items such as transformers minimises downtime.
All machinery and equipment requires maintenance. Having a robust preventative maintenance programme in place can help mitigate the risk of equipment breakdown. Monitoring equipment with defect notification systems can also play a key role in detecting potential problems early to eliminate or mitigate potential damages.
The role of insurers
Across the world, new renewable energy capacity is coming on-line every day. Significant future investments are planned and growth will continue as governments strive to meet their renewable energy commitments and diversify from more established technologies.
It is inevitable that with an increased focus on renewable energy, these types of projects will become more attractive to investors. With each installation bringing different risk challenges, access to specialist knowledge on risk management can help control and reduce potential risk exposures and aid investment decisions.
Collaboration with clients is the key to a successful partnership and insurers can add value by working with installers, operators and risk managers to control and mitigate risk from the construction phase right through to operation.
We believe that insurers play an essential role and are responding to the challenge of offering insurance products for renewable energy technologies that cover the evolving risks.
Read Part I of "Managing and mitigating risk for renewable energy projects" online.