07 Dec 2022
Hardening Renewables Insurance Market Could Shift to No Downtime Coverage as Risk Profiles Get Tougher to Navigate – Firetrace
Increased hardening of the renewable energy insurance market could prompt a shift towards insurers covering asset damage but not lost revenue as a result of business interruption (BI) due to asset downtime. This is as the industry looks to rebalance underestimated renewable energy risk portfolios. According to Firetrace International (Firetrace), a leading provider of fire suppression technology to the global wind and solar industry, this means owner operators could soon be liable for lost revenue costs as a result of downtime after a fire event.
Insurance premiums for renewables projects, which had already been rising throughout 2021, are predicted to be up by 15% by the end of this year. Despite these increases, insurers have still been under-pricing renewable products and have to raise premiums or reduce coverage as a result, subjecting owner operators to more risk. This is at a time when owner operators are already facing large deductibles, particularly in solar, chiefly as a result of unprecedented natural catastrophe (Nat Cat) claims.
Price hikes are also a result of protracted supply chain delays as they continue to put pressure on the insurance market, having a large impact on renewable BI claims. GCube, the leading underwriter for renewable energy projects, reported a 10% increase in downtime from 2019 levels, which contributed to a 38% increase in BI claims since 2016 in its Market Report earlier this year.
Owners and operators cannot control Nat Cat events and have limited ability to mitigate supply chain issues. However, they can minimize other controllable catastrophic risks, such as fire — reducing the risk portfolio of their assets overall to bring premiums down. In addition, while damage to a wind turbine, which can be as much as $9 million, may be covered by insurance, if loss of revenue as a result of downtime is not, owner operators will be exposed to significant costs. Average downtime as a result of a wind turbine fire is between 12-18 months, with a typical wind turbine generating as much as $2,000/day in revenue, this gives a potential loss of up to over $1 million per affected turbine.
And the above calculations do not consider increased premium costs as a result of a fire claim, which are reflected across all assets in a portfolio, not just the asset impacted.
Similar figures for solar assets are unavailable due to under-reporting and a lack of data on solar fire incidents, as reported in Firetrace’s ‘Hidden Danger: why solar farm fire risk could be greater than you think,’ published earlier this year. However, solar assets have been hit particularly hard by Nat Cat events and supply chain issues, making loss of revenue due to downtime a major concern.
“Every insurer is realising that their risk portfolio across solar, wind and battery has been underestimated and that puts us in an unprecedented period of premium cost escalation,” says Ross Paznokas, Global Business Development Manager – Clean Energy, Firetrace.
“While we cannot control Nat Cat or supply chain challenges, we can reduce other catastrophic loss risks. Preventing catastrophic loss of an asset, and associated loss of revenue, as a result of fire, is a simple and affordable step– in fact suppression technology can be retrofitted into assets within a month and costs far less to install across an entire fleet than the increase in premiums after a fire claim.”
Firetrace has already worked with businesses in manufacturing and machining, who have been dropped by insurance companies for not having sufficient risk-protection in place. As a result, Firetrace has partnered with major US-based insurance broker, Consolidated Insurance and Risk Management, in this part of its business, creating the Precision Protection Program that unlocks a discount on insurance premiums if Firetrace technology is installed on site. Appetite for a similar mechanic in the renewables industry is growing.
“We cannot rely on OEMs to design out fire risk by including fire suppression technology at the manufacturing stage as they are battling with decreasing margins and financial losses, but it is in their interest to encourage retrofitting of this technology, especially those that are known to be more incendiary than others,” continues Ross.
“However, insurers can move the needle and help reduce their own risks by mandating for risk-reduction technology. Municipalities can include requirements in planning and development stages to protect the local area from the risk of spreading fire. And, by investing a fraction of a renewables project budget, developers and owner operators can put in measures to decrease their premiums and reduce potential exposure to up to over a $1 million in lost revenue costs for every turbine experiencing downtime as a result of fire.”
Firetrace suppression technology is the only proven, bankable solution on the market that protects businesses, assets, and people from the risk of fire, preventing additional damage, such as water damage, caused by alternative systems.
Firetrace | https://www.firetrace.com/