Common Risks To Consider About Wind Turbines
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Regardless of the fact that there are common risks to consider about wind turbines and other green energy technologies Canadian commercial business is becoming greener and greener. A recent article by Dan Woynillowicz and Merran Smith in Canadian Business notes, “Canada is ahead of the curve, with a grid already drawing on significant amounts of renewable power thanks to a legacy of hydropower and recent growth from other sources, most notably wind and solar. The challenge is determining Canada’s niche to capitalize on the immense economic opportunity this transformation is creating in countries around the world.”1
Furthermore, a Risk Insights by Zywave points out, “as the shift to alternative sources of energy continues to be a topic of relevance, investments in wind energy have become increasingly prevalent. While the energy source receives a great deal of attention, it also entails a complicated combination of risks, both financial and commercial. If you are considering wind farms as a potential investment, take the following factors into account to ensure that you have an ample risk management plan for this complex and largely unexplored territory.”2
Other Common Risks To Consider About Wind Turbines
“Needless to say, wind turbines are a sizable investment with the potential for huge losses. To sufficiently protect your investment, you must identify the unique sets of risks you will face during every phase of the investment: contracting, construction and ongoing operations. You must first determine the feasibility of the project, weighing construction and technology, payment, operation, maintenance, financial, political and sponsorship risks against financial projections and potential revenue stream.
A practical plan of grid interconnection, dispatch, wheeling and sale of wind power requires a substantial amount of cooperation on both a small and large scale. Realistically estimating your risk when becoming involved in a wind project will allow you to mitigate it and successfully protect your investment.”3
Wind Turbines Risk Construction
“The unique risks faced for wind farms during their construction are generally assumed by the builder, and include the following:
- Cost overrun
- Start-up and testing problems
- Contract and payment defaults
- Hidden defects
- Force majeure (catastrophic event)
These risks can be mitigated using contractual agreements and associated guarantees, contingency funds, and lines of credit and insurance coverage.”4
Wind Turbines Risk Operation
“Upon beginning commercial operations, operators must analyze the myriad of possible exposures they face. In general, the greatest drivers of exposure facing wind farms are property and equipment breakdown. Contractual arrangements, contingency reserves, cash traps, insurance coverage and other risk compensation devices are used to mitigate risk…such as:
- Operating efficiency problems
- Routine operation and maintenance problems
- Major operation and maintenance problems
- Fall in market demand or pricing
- Input availability
- Force majeure (catastrophic events)
Considerable losses can be sustained when working with wind turbines—a total blade failure can lead to a claim ranging from $150,000 to $500,000, considering the cost of the crane, crew and materials. Depending on the size of the wind farm, a single event could have a large impact on your insurance deductible.”5
More Wind Energy Risk Considerations
“Dramatic growth in this sector suggests that wind projects can be profitable endeavours, but the general lack of experience by sponsors, operators and insurers creates an especially precarious position for an investor. Wind energy is an intermittent resource, and its output must be carefully coordinated so as not to disrupt surrounding grid function. Finally, wind projects are not competitive with least-cost alternatives in most markets, meaning some price-support mechanism is usually required.”6
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2-6 Adapted from Risk Insights © 2010, 2012-2013 Zywave, Inc. All rights reserved. This Risk Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.