the growth in the size of wind turbines
Introduction – bigger is better! When it comes to wind turbines, there is little debate in regard to size: bigger is most certainly better. The reason behind this is two-fold:
But do larger turbines bring more risk? The challenge to continual growth in size and power output is only limited by mechanical engineering. As we dream of ever-larger wind turbines bringing an increased and less volatile revenue stream, it is easy to lose focus on the increasing fatigue stresses which these turbines can be exposed to at increased wind speeds. For example, longer blades will bend and flex, which can cause associated damage.
The Haliade-X Nothing reflects the rapid upscaling in technology size more than General Electric’s (GE) announcement of their new offshore turbine, the 12 MW Haliade-X.
This wind turbine is of titanic proportions, with rotor blades measuring 351 feet long (longer than a football pitch) and a rotor diameter of 722 feet. This enormous diameter will drive a high capacity factor of 63%, which is five to seven points above industry standard. GE states that ‘each incremental point in capacity factor represents around US$7 million in revenue over the life of a windfarm’.1
Insurance implications
Whilst the growing turbine sizes from various manufacturers are exciting for developers, it is worth considering their impact on securing cover and the associated cost of insurance. No developer is going to be in a position to raise project finance to commercialise a project if the financial risks associated with the operation of new technology cannot be mitigated in a meaningful way by an insurance policy.
To achieve the required level of risk transfer to make the new technology bankable, international insurers commonly expect new technology (new operating platforms or evolutionary developments) to have achieved:
Procurement challenges
With the rapid deployment of new technology, it is common for procurement orders to be submitted and substantial down-payments before the new technology has left the factory, or achieved any operating experience. Essentially this is the same as buying a house from a design website, with the assurance that it will meet all your specified design requirements.
This process is facilitated by type certification only being required by insurers to achieve the required level of design exclusion cover for a project to be broadly accepted as bankable (London Engineering Group (LEG 2/96). This is an internationally accepted exclusion clause defining the level of insurance cover available following defects in design, plan, specification, materials or workmanship which result in physical loss or damage and any ensuing loss of advanced loss of revenue for construction by projects before commencement of the hot testing and commissioning phase. This can be a substantial time after the procurement purchase order has been submitted and the fleet leader of the new technology has achieved the requisite experience.
Potential coverage restrictions can slow deployment of new technology
If type certification cannot be achieved before the first turbine is ‘switched on’, then it is likely that insurers will restrict their cover to a lesser form of cover (London Engineering Group) LEG1/96 which is an outright exclusion of physical damage consequences of any defects in design, plan, specification and materials and does not cover ensuing advanced loss of revenue. While most large scale commercial projects involve debt financing, the requirement to achieve the required level of comfort through insurance risk transfer mechanisms can slow the early deployment of technology while lessons are learned (and corrected if required with the fleet leader) or trouble-free experience is achieved.
Conclusion – can the insurance market keep up with the pace?
The insurance market is grappling with the fast pace of upscaling, evolutionary design improvements and outright new designs. Insurers have to assess each design evolution and its effect on risk exposure, which may or may not impact the profitable performance of their underwriting portfolio.
Insurers will often comment that they are not in the business of bankrolling research and development but delivering value to their shareholders. This dynamic is creating an increase in the value to the buyer of the insurance market, which has the technical risk engineering teams capable of making informed assessments and who regularly participate in and review technology advances, supported by close relationships with the manufacturers.
Conversely, it is increasingly important for project developers to work with risk advisors/brokers who are dedicated to operating in this technical space, to present and position their technology and project in the best possible way with potential insurers.
Freddie Cox is an Account Executive in the Renewable Energy division at Willis Towers Watson in London.
1 https://www.ge.com/renewableenergy/wind-energy/turbines/haliade-x-offshore-turbine
