By Stephen Fox ,
Senior Vice President, Property Consulting Solutions | Risk Engineering & Resiliency
06/23/2021 · 5 minute read
The increased frequency and severity of extreme weather events, and the devastation they cause, is top of mind for many organizations. For renewable energy companies, the potential destruction following a storm often translates to higher insurance costs at a time when coverage premiums are already increasing substantially.
The potential for damage is often leading companies to make overly conservative risk estimates to ensure sufficient protection. This means, however, that many renewable energy organizations may be purchasing unnecessary insurance coverage at the expense of investments in their projects.
But newer modeling techniques that take into consideration additional variables are providing renewable energy companies with more accurate and higher confidence risk estimates — and empowering them to achieve substantial cost savings.
Risk modeling for renewable energy properties, such as wind or solar farms, has traditionally taken into consideration the location of the insurable entity. But models are rarely able to account for the large areas covered by a single operation. Further, traditional models often base their estimates exclusively on location without considering other attributes that could affect a structure’s resilience during a storm.
Let’s take the example of a solar farm that spans over 100 acres in an area prone to convective storms. A traditional model will consider the likelihood that the solar farm is hit by a hailstorm and estimate the potential damage, often in the tens of millions of dollars.
But the storm’s intensity is unlikely to be uniform across the large area. While some solar panels may be damaged by hail, others may be completely unscathed.
Similarly, a flood may not lead to the same water elevations across a large insured property, with some areas experiencing water damage and others left completely dry.
Single-location risk models tend to provide an all-or-nothing result that may not reflect a property’s real exposure. Concern around lack of accuracy often leads risk managers of renewable energy companies to err on the side of caution and purchase additional coverage.
Newer, more granular modeling techniques can look at aggregate locations as well as engineering information, such as the type of property and construction material, occupancy, layout, and elevation. Engineering information allows for more accurate risk estimates based on the main exposures of different property types. Hail, for example, is likely to impact a solar farm more prominently than a wind farm, while lightning is generally more problematic for wind farms. Windstorms and flooding may also affect solar and wind farms differently, leading to more accurate information when models are run for each peril.
Often, these newer models show credible exposure reductions in the range of 25% to 35% for rare weather events that can have a very big impact, although some companies have seen their exposure go down by up to 60%. At times, the models reveal that a company’s exposure is below the primary insurance limit and remove the need to purchase excess coverage or extra limits, leading to substantial savings.
Although rare, there is the potential that more precise modeling will instead uncover a higher exposure for companies. While this would require increased insurance coverage and translate into additional costs, renewable energy organizations in this position can still benefit from increased certainty that they are purchasing the right amount of coverage.
With more accurate information in hand, risk managers can not only negotiate insurance terms with greater confidence but also enact important risk mitigation measures.
Renewable energy technologies are experiencing accelerated growth and profound change. Designs and installed components are evolving rapidly. In some cases, those changes may introduce new risks and in others they may prevent them.
Aside from gaining greater clarity and more accurate estimates to help risk professionals purchase the most appropriate insurance coverage, sophisticated energy risk engineering solutions can support your:
As the industry matures, renewable energy companies can benefit greatly from implementing advanced risk engineering strategies to not only better manage hazard exposures, but also to confidently invest in their project’s future.