RENEWABLE GUARD TAKES ON HARVEY, IRMA AND MARIA

6 Hurricane Insurance & Loss Prevention Strategies Renewable Energy Owners Should Implement Today

BY: Michael Cosgrave, CIC, CRM | Renewable Guard Certified Risk Manager

Hurricane season runs between June 1st and November 30th and you need only look back to 2017 to find a year of records for the insurance industry…but for all the wrong reasons. The Caribbean hurricane trio of Harvey, Irma and Maria cost the insurance industry $135bn in claims, with uninsured losses adding another $195bn. While hurricanes are nothing new to regions like the Caribbean, the rapid growth of the renewable energy industry there is. It is now estimated that over half the utilities own or operate solar PV as part of their generation mix and the increase of renewable energy production doesn’t seem to be slowing anytime soon.

Solar developers know there is opportunity and demand in these wind prone regions, so what can be done to help ensure their systems are still standing after the storm? Well, it turns out, quite a bit!

In a study completed by RMI last year which deployed teams of engineers to investigate the root causes of solar PV system failures in the wake of Hurricanes Irma and Maria, they uncovered several causes as to why some systems withstood the storm much better than others. Despite winds of over 180 MPH, systems that implemented these 6 specific wind controls on their solar projects saw little to know damage during the storms and were even producing electricity the very next day:

6 Controls to Reduce Hurricane Losses

  1. Dual post piers
  2. Through bolting of solar modules (no top down or T clamps)
  3. Lateral racking supports
  4. Structural calculations on record
  5. Owner’s engineer of record with QA/QC program
  6. Vibration-resistant module bolted connections such as Nylocs

Key attributes of failed systems

  1. Top down or T clamp failure of modules
  2. Undersized racking
  3. Lack of lateral racking support
  4. Undersized bolts
  5. Under torqued bolts
  6. PV module design pressure to low for environment

The investment in these hurricane protection strategies pays off as reported by global insurer FM Global which found that each dollar a business spends on hurricane protection reduces loss exposure by an average of US$105.

So, What About My Insurance?

A true solar property insurance policy often has wind coverage, but not all policies are created equal. An experience renewable energy insurance broker would know how to tailor their client’s policy to achieve the following:

  1. Use Probable Maximum Loss (PML) studies from the insurance carrier to achieve better terms where possible. (Here is a tool for insureds to check their own exposure to Wind/EQ/Flood etc.)
  2. Negotiate higher wind limits in areas with high wind exposures
  3. Negotiate lower wind deductibles.
  4. Consolidate both high and low wind prone projects onto a single master policy to reduce premiums. Then, negotiate better coverage terms for the entire portfolio by blending the good risks with the bad.
  5. Place insurance policies with carriers who were less impacted by past hurricanes as they may be more inclined to offer better coverage terms.

Hurricanes aren’t going anywhere anytime soon, but by implementing a combination of sound wind controls along with good insurance policy management, owners of solar will find themselves spending less time watching the weather channel and more time selling electricity.

For more information on how to better protect your assets from catastrophic losses such as hurricanes while improving your overall insurance program, contact the risk managers at Renewable Guard for a consultation.

This article was written by Michael Cosgrave, Principal and Chief Risk Officer for Renewable Guard Insurance Brokers LLC. Renewable Guard is a specialty renewable energy insurance and risk management firm insuring hundreds of MWs in the U.S. and abroad.

RenewableGuard: Trump Tower vs. The Eiffle Tower

The Paris Climate Agreement shows us how Political Risk can impact the Renewable Energy Industry, while also shedding light on the need for increased private financing. Bill Gates and his Breakthrough Energy Fund shows us just how to get that done…

http://Bill Gates Launches $1 Billion Breakthrough Energy Investment Fund

RenewableGuard.com, Certified Renewable Energy Risk Managers providing insight and expertise on how best to protect Renewable Energy Business in a world with dynamic and ever changing risks. RenewableGuard.com provides these businesses with the ability to roll incumbent insurance policies into a unique insurance product that insures all lines of coverage. Work with experts who understand your business and the industry’s risks: Property | Bonding | General Liability | Builders Risk | WC

Contact us if you are an Energy Developer, EPC Contractor, or O&M provider…you may be eligible to Activate RenewableGuard’s unique coverage for your business

THE EPA MEETS THE ITC – WHERE ACRONYMS COLLIDE

THE ENVIRONMENTAL PROTECTION AGENCY (EPA) HAS A NEW CHIEF AND THERE IS GROWING SPECULATION ON WHAT THAT MIGHT MEAN FOR THE RENEWABLE ENERGY INDUSTRY & ITS FEDERAL INVESTMENT TAX CREDITS (ITC) – HERE'S A LOOK AT MANAGING POLITICAL RISK

In an article I wrote almost a year ago titled “Finding the Balance: Growth vs Risk”, I outlined how renewable energy companies could address operational risk associated with the rapid growth that was expected in response to valuable industry investment tax credits Congress had just extended. At the time, Bloomberg New Energy Finance was projecting the net result of these tax credits to be 37 gigawatts of new wind and solar capacity. This would translate to a 56 % boost to the industry over five years, quantified by a $73 billion surge in new investment and enabling as many as 8 million more households to access clean, renewable, affordable energy.

Well, there have been a lot of changes to our executive branch and government agency heads since then and many are interested to see what that might mean for the Renewable Energy industry. If you ask the new EPA head Scott Pruitt, he doesn’t seem to think that a changing of the guard makes much difference. In a quote from the Wall Street Journal (illustration: Ken Fallin), Mr. Pruitt states “There is no reason why the EPA’s role should ebb or flow based on a particular administration, or a particular administrator. Agencies exist to administer the law. Congress passes statutes, and those statutes are very clear on the job EPA has to do. We’re going to do that job.”

The success of these ITCs has given the new administration strong reason to simply administer the status quo. Fortune published an article just last month reporting the Renewable Energy Industry is creating jobs, “12 times faster than the rest of the US economy”.  It is estimated that the industry now represents 4-4.5 million jobs in the U.S., up from 3.4 million in 2011. Furthermore, due to the on-site nature of many renewable energy jobs, these jobs cannot be outsourced and can pay above average wages. Such U.S. based job growth is in line with the goals of the new administration.

SO, WHAT’S THE RISK?

Despite all the positive growth, there are still threats to the industry. Policy changes in the tax code could eliminate or reduce investment tax credits. Renewed focus on increasing jobs and production in more traditional areas of energy like coal and fossil fuels could have an inverse impact on renewables.

Renewable Energy Developers and other segments of the industry benefiting from policies of the prior administration would be wise to mitigate the risks to their operations by taking the following steps:

Identify

What are your exposures? In this instance, the risk is mostly political. Identify the policies and laws which you now benefit from.

Analyze

Conduct both a Qualitative (The What) and Quantitative (The How Much) analysis of the exposures. To what extent financially are you benefiting from these current policies and how would you be impacted if tax credits were reduced or went away. We already know the ITC falls to 10% in 2020. So even if nothing changes with the current laws, what impact would the planned reduction in ITCs have on your business?

Control

Take conscious action to avoid/prevent/reduce/segregate and transfer risk. Are there states that are greater proponents of renewable energy? If you are concerned over Federal laws, perhaps their state laws that might better insulate your business model. Stratify operations across multiple projects in multiple states as a hedge against negative outside policy decisions. Maybe you need to consider expanding operations and development to other countries that have strong incentives for renewable energy as well. If the concern is over financing for new development opportunities, perhaps focus on diversifying your revenue stream by building out an O&M operation and capitalize on projects that are already built.

Finance

Should a loss to your business occur, consider your financial options. Are there external funds available to cover losses? Political Risk Insurance coverage already exists and can be purchased to protect your operations in foreign countries. This type of insurance covers loss from revolution or other political conditions that could result in a financial loss to your business. U.S. based companies are constantly expanding coverage and developing new endorsements to protect loss of business income from a wide range of factors: solar shortfall, contingent BI from loss of an off-taker, even ITC protection exists. Know your options. Find an insurance broker familiar with your industry and its innovative carrier options.

Administration

Once you have identified the risks and implemented strategies to address them, implement a desired risk management plan and monitor your results. Your risk management program should involve members of your risk management team: legal, finance, insurance, and HR (due to risk to employees). Your plan’s goal is to address and monitor the exposures you identify in Step 1.

HOW DO I KNOW IF I AM COVERED?

The risks outlined above are just a few of the risks that are incumbent upon developers to plan for when considering investment in renewable energy projects in the United States. Particularly when you consider that the U.S.’s elected officials and the political views that come with them are always changing. If you are uncertain about how your policy will respond, your coverage, or are not comfortable with your overall insurance and risk management strategy, you may want to consult with a renewable energy industry risk manager.

PARDON THE INTERRUPTION

NO POWER? NO INCOME? NO PROBLEM. HOW TO GET PAID BY YOUR INSURANCE COMPANY WHEN YOU'RE RENEWABLE ENERGY PROJECT GOES UP IN FLAMES!

California is home to some of the world’s most notable renewable energy companies and projects. It’s also become a state prone to substantial wildfires due to recent droughts. With the fire season coming to an end, we are reminded of the dangers natural disaster pose to our renewable energy projects and infrastructure. You need only look back to the summer of 2015 when The Valley Fire in Sonoma and Lake counties laid waste to 1,900 structures and left more than 3,000 Northern Californian residents homeless.

It’s also worth mentioning that one of the most notable commercial structures suffering significant damage in this fire was Calpine’s geothermal plant. While initial estimates reported repairs to infrastructure would cost close to $35MM, little mention was made of the lost income due to having to operate at three-quarters of its normal energy output during lengthy repairs. To put that into numbers, Calpine was contributing 725 MW to the electricity grid prior to the disaster. New production was reduced to 540 MW after the fire causing income losses to the company that were in addition to the $35MM needed to repair property.

TAX CREDITS ARE INCREASING THE NUMBER OF UTILITY SCALE PROJECTS LIKE CALPINE’S

As noted in my article from March 8, 2016 titled “Finding the Balance”, the extension by congress of the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) tax incentives is projected to result in $73B of new investment pouring into the renewable energy industry over the next several years. Similar sized projects to Calpine’s Northern CA plant are becoming more abundant. Like many utility scale projects, the investment tax credits will likely be leveraged to help finance the deal. However, there is an inherent risk with how the credit vests. These credits carry with them a 5 year vesting schedule in most instances, with 20% of the credit vesting each year for the first 5 years. The plant must also produce energy output at a certain level to fulfill the tax credit requirement.

SO, WHAT’S THE RISK?

If a plant were to burn to the ground due to a wildfire, equipment failure, cyber-attack, or be destroyed by some other method, the project’s investors would not meet the production requirements and the government would “claw-back” the issued tax credit dollars. This claw-back would be significant, as the $ amount often attributes to 30% of the project’s overall development financing.

HOW CAN INSURANCE HELP?

A small handful of carriers have worked to develop cutting edge insurance products to meet the needs of emerging risks associated with the Renewable Energy Industry. Coverage now addressed:

  • Loss of tax credits that would have been earned or incurred
  •  Actual loss of income (net profit or loss before income taxes), including income from renting or leasing your covered property to others
  • Continuing normal operating expenses, including payroll
  • Other financial incentives listed and described in your insurance policy schedule
  • “Green” soft cost expenses – Coverage for soft costs such as engineers, architects and administrative fees needed to apply for green certification, incurred because of a covered loss to covered property
  • Extended lost income coverage from 12 – 36 months. Particularly important for roof mounted projects where the building may take longer to rebuild.
  • Solar-Shortfall coverage to replace lost income in the event the sun does not shine at predicted levels.

RENEWABLES IN RIO – RISKY BUSINESS?

THE OLYMPICS ARE DRAWING ATTENTION TO RISKS ASSOCIATED WITH ADVANCING RENEWABLE ENERGY SUPPLY IN DEVELOPING COUNTRIES

The 2016 summer Olympics are just getting under way in Brazil with what the country promised to be the “greenest games” ever, but a closer look at the countries politics/economy/security is also uncovering the risks inherent with renewable energy advancement in developing countries worldwide.

When Brazil won it’s bid in 2009 to host the 2016 Olympics, the country pledged to make these games the greenest games ever, even more so than the 2012 London games.  The pledge seemed attainable given the fact that Brazil currently uses renewable energy to make about 85 percent of its electricity.  That number is impressive not just for a developing country, but any country.  By contrast, the United States generates only 13 percent of its electricity from renewable sources.

As far as the country goes as a whole, there is clearly strong support in Brazil for renewable energy development from its government.  In 2002 the government created the Program for Incentive of Alternative Electric Energy Sources (Proinfa) which has helped the country’s wind energy production grow from 22 MW in 2003 to 602 MW in 2009.  45 additional projects have been approved, so the commitment to renewable energy remains high.

HIGH DIVE DEEPER AND YOU’LL SEE THERE’S RISKS IN RIO

One doesn’t need to look far to see that a prime venue at the Rio Olympics, Guanabara Bay where sailing competitions will be held, is so polluted that countries are debating holding their athletes out of the events due to health concerns.  Walk the streets beyond the tourist lined beaches and you’ll begin to see poor neighborhoods in unsanitary and unhealthy conditions.  The country as a whole has shown many signs in recent years which might make outside investors nervous about diving into the Brazilian energy game.  Most notably, President Roussef was recently forced to step down, highlighting political turmoil and uncertainty.  The economy is no better off, with the deficit widening by -10.3% of GDP in 2015 (vs. 5.5% in 2014).  As noted by Euler Hermes, Brazil’s overall increasing protectionism, excessive bureaucracy, high labor costs and a complex and punitive tax system greatly hinders the national business environment and hurts the country’s overall competitiveness.  Yes, there is opportunity, but developers must understand what the dangers are in these less stable countries.

DEVELOPING COUNTRIES: WHAT ARE THE RISKS AND WHAT ABOUT MY INSURANCE?

Companies and Investors looking to pursue renewable energy projects in developing countries should be mindful of the following risks and realize there is an opportunity to transfer a good deal of that risk to the insurance companies:

GEO-POLITICAL RISK

Risk of regime changes during your Power Purchase Agreement (PPA) term, changing laws, or expropriation of projects.

  • Political Risk Insurance – Coverage includes Expropriation/Political Violence/Currency Inconvertibility. Policy is written transaction-by-transaction to address the risks arising from political events where insured does business.  Often up to 15-year policy term.
LEGAL RISK

Risk of lack of predictability and transparency during a business transaction due to absence of general rule of law. Bribes to judges and political officials may be the norm.

  • Review you Insurance Policy’s Coverage Territory – Review the terms of your contracts and add wording which allows you to bring suits/claims back to the United States.
  • Established Well Oiled Legal Team – In-House counsel should oversee the company’s legal risk management on a day to day and be involved when assessing the risks associated with a potential foreign investment.
KIDNAP AND RANSOM

The risk to your employees due to the inherent dangers of doing business in developing countries.

  • Kidnap and Ransom Insurance – Provides coverage for payment, repatriation, extortion, and security. Coverage can be purchased internationally.
TERRORISM

The risk to your assets and people due to terrorist activities or political violence.

  • Terrorism Insurance – Provides property and liability coverage for terrorist attacks, including: nuclear, biological, chemical, and radiological. Sabotage coverage included.

HOW DO I KNOW IF I AM COVERED?

The risks outlined above are just a few of the risks that are incumbent upon developers to understand when considering investment in renewable energy projects overseas.  There is no question that governments both in 1st world and developing countries are providing incentives like never before to go green.  However, companies looking to benefit from this energy renaissance should be mindful of the risks.  If you are uncertain about how your policy will respond, your coverage, or are not comfortable with your overall insurance program, you may want to consult with a renewable energy insurance specialist.

WHO TURNED OFF THE LIGHTS?

HOW CYBER ATTACKS HAVE FORCED ENERGY COMPANIES & GOVERNMENTS TO MANAGE NEW RISK

It was a cold day December 23, 2015 in Kiev and it got a lot colder when hackers attacked the energy grid in western Ukraine.  After shutting down substations, the hackers proceeded to jam the power company’s customer service phone lines to delay the outage from being reported.  Ukrainian officials were eventually able to get the lights back, but it required them to manually reset circuit breakers at each station.

This internationally recognized incident brings light to a growing concern among energy companies and governments alike.  As the energy sector has become quick to embrace new internet-connected Industrial Control Systems (ICS), the ability for hackers to exploit and attack energy infrastructure is no longer science fiction, but rather a very concerning reality.

Here is the good.  ICS technologies have been at the heart of reducing costs, improving efficiency, and streamlining operations.  With razor thin margins in renewable energy particularly, companies are constantly battling operation costs in an effort to make clean energy affordable an attractive to both the commercial and residential consumer.  New technology based control systems have helped this effort.

The bad?  Reuters reports that in the U.S. alone, over 40% of attacks on infrastructure are now aimed at its energy grid and that the total global spend to defend against these types of attacks is expected to balloon $1.87B by 2018.  The same technologies that have helped modernize energy production and deployment are unfortunately experiencing a nasty financial byproduct that doesn’t look to be going away anytime soon.  With the expectation of consistent energy incumbent upon these energy companies, their reputation for supplying reliable is now in jeopardy.  A growing global population that is increasingly dependent upon energy supply will not be all too willing to forgive and forget a company that allows the lights to go out.  In business, recovering from a tarnished brand can be a significant challenge.

Is reputation the only risk from these attacks?  The answer, a resounding no.  The cost can go well beyond a company’s reputation.  It’s conceivable that a hacker could overload certain systems, causing a violent explosion.  Most energy companies turning to their insurance company to recover these types of losses would be shocked to learn that they have NO COVERAGE for damage caused by a cyber-attack.

SO, WHAT DO YOU NEED TO KNOW ABOUT YOUR INSURANCE POLICY AND ITS CYBER LIABILITY COVERAGE GAP?

Since the financial impact is so hard to measure as a result of cyber-attacks, many insurers have been unable or unwilling to provide a compelling premium for their insured to pay in order to transfer the risk.  Instead, they have added a clause to their policy form (such as the Institute Cyber Attack Exclusion Clause CL380 in the UK) excluding property damage, bodily injury and loss of business income from software, virus or other malicious computer code.

For those companies that see “cyber liability” itemized on their insurance policy forms, read the fine print.  While many of the cyber liability insurance policies that exist today cover minor things such as data loss or downtime caused by IT issues, major events like explosions at multiple facilities triggered remotely by hackers are excluded.

Yes, there are pitfalls within many of these insurance policies and clearly the threat of cyber-attacks is real.  However, despite these challenges, technology must continue advancing to keep our energy infrastructure moving forward.  The electronic interconnectedness of our energy systems is a major advancement towards the universal sustainability of clean energy.

In response to these challenges, energy companies engaged in the use of advanced software and technology to operate their systems should simultaneously be looking to partner with insurance brokers and carriers specializing in Energy Risk Management.  These brokers and their team of underwriters are trained to identified gaps in your coverage and have access to unique insurance solutions that will respond.  Today, several carriers now exist who can offer coverage for gaps in cyber liability exclusions.  If you are not confident in your incumbent insurance program or sense there may be deficiencies, then it may be time to work with someone who can help.

FINDING THE BALANCE: GROWTH VS RISK

CONGRESS GREEN LIGHTS RENEWABLE ENERGY TAX CREDITS: $73 BILLION EXPECTED TO SURGE INTO THE INDUSTRY BUT WITH IT COMES RISK

In early December, 2015, Congress made an impact decision to extend valuable tax credits to the Renewable Energy Industry, with arguably the most significant benefit tied to Wind (Production Tax Credit) and Solar (Investment Tax Credit). Bloomberg New Energy Finance, projects the net result of these tax credits to be 37 gigawatts of new wind and solar capacity.  This would translate to a 56 % boost to the industry over five years, quantified by a $73 billion surge in new investment and enabling as many as 8 million more households to access clean, renewable, affordable energy.   Instant reaction to the news could be seen in the value of stocks aligned to the market.  SolarCity (SCTY), TerraForm Power (TERP), and SunEdison (SUNE) were just a few to jump in valuation almost overnight.  They have since come back down to earth, but the extension of these credits fill a void of uncertainty and doubt that had sidelined a great deal of capital, until now.  However, there are concerns already voiced by industry executives that rapid growth will reduce the quality and performance of assets as pressure is applied to manufacture quickly and cheaply.

Will pressures to expedite production lead to poor quality in manufacturing?  What are the shortfalls in your equipment warranties?  How can investors and developers guarantee plant production?

THE ISSUE:

Fortified Scaling & Consistent Asset Performance.  How do you do it?  What are the costs and what are the internal and external tools a rapidly growing industry can use to scale while being economically risk adverse?  Risk cannot be avoided, but avoid the house of cards and instead build a strong business that is proactive in mitigating risk. Companies would do well to identify the areas that most impact the production, longevity, design and serviceability of their equipment.  Here are steps to strengthen your business and manage the risks to your assets.

THE ISSUE:

Identify

What are your exposures. They could be physical, such as soiling or spectral shifts in sunlight.  Weather and physical risks were touched upon in the first article of this series titled, “Location! Location! Location!”.  With your equipment, your risk is also contractual.  Shortfalls exist in many Original Equipment Manufacturers (OEM) warranties.  Beyond gaps in the contract are also the longevity and solvency questions surrounding the company that provided the warranty in the first place!

Analyze

Conduct both a Qualitative (The What) and Quantitative (The How Much) analysis of the exposures. Analysis of your OEM warranties may uncover that they exclude defects caused by failing to properly maintain the product, limit liability for damages and include disclaimers for implied warranties.  A warranty from a foreign manufacturer also may be difficult to enforce if that company’s provisions are governed by laws and regulations of their home country.  What would be the impact to your business if these shortfalls came to fruition.  How much would your bottom line be effected?

Control

Take conscious action to avoid/prevent/reduce/segregate and transfer risk. While there are insurance products to address the gaps in your warranties, there is an added financial cost to having that be your ONLY control strategy.  Avoid buying warranties from companies with poor financial strength to begin with.  Prevent the need to file claims by investing in your Operations & Maintenance teams, be it internal or 3rd  Consider segregating risk by working with different warranty providers and not just the same one for all your assets.

Finance

Should a loss occur, consider your financial options. With thin margins in the renewable energy industry, will it be more favorable to use internal funds or externally acquired funds to pay the loss.  Setting up reserves for anticipated losses in a year based on your analysis of loss history can help you budget for the unexpected.

Administration

Implement a desired risk management plan, then monitor its results. Establish a warranty and insurance policy management system.  Your risk management program should involve members of your risk management team: legal, finance, insurance, and HR (due to risk to employees).  Your plan’s goal is to address and monitor the exposures you identify in Step 1.

SO, HOW CAN INSURANCE HELP?

On February 24, 2016 The American Council on Renewable Energy (ACORE) hosted a timely seminar on effective renewable energy asset management.  Executives from First Solar, Solarrus Corp, and Envision Energy each eluded to various areas of risk to the assets and production of their plants. Many agreed that quality of manufacturing is a big area of concern.

Innovative warranty programs and insurance products are working to fill the gaps on warranty coverage to reduce the risks associated with equipment quality.  These specialty programs transfer the fiscal responsibility for the warranties from the manufacturer to the insurance company, but only when warranty claims are valid.  These insurance solutions go beyond traditional warranty coverage to pay for costs associated with testing, de-installation, shipping and re-installation of covered equipment.  While there is a cost to insurance, long-term viability of your project is dependent upon asset preservation and limiting loss.

To satisfy lender and investor requirements a sound risk management program which includes insurance and specialized protection is critical.  If you are uncertain about how your warranties will respond, your coverage, or are not comfortable with your overall insurance program, you may want to consult with a renewable energy insurance specialist.

LOCATION! LOCATION! LOCATION!

MITIGATING WEATHER RISKS AND THEIR IMPACT ON RENEWABLE ENERGY ASSETS USING THE 5 STEPS TO THE RISK MANAGEMENT PROCESS

Strong tornadoes are a common sight in the southern and central High Plains of the United States. But not in November.

On November 16, 2014, a trio of EF3 tornadoes tore through parts of the Texas panhandle and far southwest Kansas, part of a multi-day outbreak of an estimated 53 tornadoes from the Plains to the Southeast through November 18, according to severe weather expert, Dr. Greg Forbes.  Were the developers of wind farms and other renewable energy projects in the region aware of the risk of tornadoes?  How did they prepare for the prospect of such loss?  Were they aware of the difference between their wind/hail insurance deductible vs. their normal property deductible or did they find out the hard way?

THE ISSUE: Severe Weather.
The following article by Stephen Morris (power and energy underwriting manager at HSB Engineering Insurance Ltd.) provides a high level overview of various exposures impacting your renewable energy installations.  Wind is number one on his list and comes as no surprise.  But there are many others as well.   You know the exposures; how do you address them?

APPLICATION OF THE 5 STEPS TO THE RISK MANAGEMENT PROCESS:

  • Identify – What are your exposures. Clearly you cannot control the weather, but you can be cognizant of it.  Tornadoes, Rains, Hail?  What are you potentially up against in the geographical area(s) you develop.
  • Analyze – Conduct both a Qualitative (The What) and Quantitative (The How Much) analysis of the exposures. Analysis of historical data regarding regional weather patterns is good.  Consult with weather experts to learn more about the region.  See if your insurance carrier can provide you with loss data on the region as well.  Look to understand frequency (the “how often”) and severity (the “how much”).
  • Control – Take conscious action to avoid/prevent/reduce/segregate and transfer risk. The obvious method of transferring is moving the risk to your insurance carrier.  But there is a cost to that and…wouldn’t it be nice to never have to file the claim to begin with?  Regular checks should be conducted on the foundations, tower, and blades of wind turbines.  Look to shore up weaknesses in the structure and be sure to check your ‘fail-safe’ control (included in dual axis photovoltaic plants and ground mounted installations) in the event of high winds.   If there are known weather issues in the area, but the pros outweigh the cons to develop there, you can segregate the risk by diversifying the locations your assets are deployed.
  • Finance – Should a loss occur, consider your financial options. Will it be more favorable to use internal funds or externally acquired funds to pay the loss.  Setting up reserves for anticipated losses in a year based on your analysis of loss history can help you budget for the unexpected.
  • Administration – Implement a desired risk management plan, then monitor its results. Your risk management plan should involve members of your risk management team: legal, finance, insurance, and HR (due to risk to employees).  Your plan’s goal is to address the exposures you identify in Step 1.

SO, WHAT ABOUT THE WEATHER AND MY INSURANCE?

With regards to weather, know that your policy likely has a separate deductible for wind and hail claims!  This deductible is likely different than your normal property deductible.  If you know you are developing in a region known for severe weather, consider “buying up” to a more cost effective deductible.  Check your policy, the wind/hail deductible will be one of the following:

  • The same as your property deductible (although not likely)
  • A higher flat dollar amount than your normal property deductible
  • A percentage of your property coverage. EX: $10MM property coverage x 2% wind/hail deductible = $200,000 deductible
  • A percentage applied against the total value of the single loss.

If you are uncertain about how your policy will respond, your coverage, or are not comfortable with your overall insurance program, you may want to consult with a renewable energy insurance specialist.