GCube warns that competition on costs and tighter build schedules have created a new, higher “normal” loss expectancy for renewable energy projects.

In response, insurers and asset owners must reset their benchmark for renewable energy risks, in line with this higher ‘normal’ loss expectancy, according to GCube Insurance, a provider of renewable energy insurance services worldwide.

At GCube’s 15th Advisory Council last month, which gathered the leading asset owners and risk managers in the U.S. renewable energy market, concerns were raised about the impact of cost pressures on the integrity of assets and on sustainable insurance pricing. In particular, accelerated build times have led to a hitherto unforeseen amount of material damage incurred during construction.

As construction firms have come under pressure to build projects more efficiently and in shorter timeframes, less experienced personnel are being used to handle increasingly complex equipment — resulting in a higher frequency and severity of claims.

Simultaneously, two key factors have led to higher costs arising from component failure. Firstly, increased complexity means that components are harder to replace in isolation. In wind energy, with newer blades, any component damage may mean replacing the entire blade, which raises O&M costs.Secondly, uncertified models still exhibit design issues that can lead to equipment failure. While this issue may be resolved over time, continued technical innovation in the sector means that both wind and solar projects remain vulnerable to mechanical and electrical breakdown.

The recent focus on cost-cutting and efficiency has also led to diminished OEM warranty strength. In light of increased losses and amid financial pressure, the scope and quality of OEM guarantees has been reduced, meaning that asset owners may end up without sufficient OEM support when equipment fails.

“The renewables market has started to outgrow subsidies and with that comes a whole new level of competition,” said Jatin Sharma, President of GCube Insurance. “This pressure often has unforeseen results: apart from anything, increased M&A activity means you might end up with a project with a loss history that isn’t factored into calculations.”

As GCube highlighted earlier this month, these issues are exacerbated by extreme weather risk, with events such as wildfires, hurricanes and tornadoes now occurring out of season and rising to 15% of all claims in 2018. Indeed, for 2019 GCube predicts high levels of extreme weather losses, including continued wildfire claims in California, tornado damage in the South East and the trail of devastation left by another potentially active hurricane season.

The Advisory Council meeting invited a dialogue between insurers and insureds as a way to tackle these issues collectively. Insurers must adjust their loss expectancy to match the changing nature of risk; in turn, project owners must communicate their needs and project-specific features to their insurance partner.

“We cannot overstate the benefits of open discussion between insurers, asset owners and investors. There are concerns within renewables that as the industry has matured, the insurance market has not kept up,” said Sharma. “Frankly, if we want to protect our future renewables growth, we collectively need to accept that it’s not the same industry as it was five years ago. Increased price competition and a rush to acquire developer pipelines mean that some areas of the industry pose a much higher risk than before – and some aspects are more routine. It’s time to adjust our expectation of ‘normal’ risk.”

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As extreme weather breaks with existing seasonal patterns, GCube advises project owners to safeguard projects with insurance on a case-by-case basis.

Insurers, including Swiss Re and Munich Re, have reported that 2018 saw the fourth-highest natural catastrophe losses of all time. In renewables, GCube highlights that extreme weather losses jumped to 15% of all claims, which was almost double that of previous years.

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GCube responds to market demands for an insurance solution to protect against the growing threat of cyberattacks on renewable energy infrastructure. Learn more here.

This new offering has been unveiled at the GCube Advisory Council meeting this week in Austin, Texas, a unique biannual initiative that brings together senior insurance and risk management executives from across the North American renewable energy sector.

“In the renewables market, the benefits of ‘big data’ and interconnectivity in driving operational efficiency are well-established – but there is an underlying risk that this increasing digitalization makes the industry a more obvious target for cyber crime,” said Fraser McLachlan, Chief Executive Officer, GCube Insurance.

The United States, in particular, is taking measures to bolster the cybersecurity of its grid, faced with persistent attacks targeting communications and control systems at major utilities and energy firms. To date, the bulk of these cyber and ransomware attacks have been focused on conventional generation infrastructure, but, with renewables supplying an increasing proportion of electricity to domestic grids worldwide, clean energy projects are becoming an equally prominent target.

“Thus far, the wind and solar markets have avoided a major incident, but research efforts by cyber security experts show just how easy it could be for hackers to bypass IT security mechanisms and gain control of, or otherwise influence, the operation of a wind or solar facility,” added McLachlan.

GCube’s Cyber Risk product – the first of its kind in the sector – is designed to cover the specific cyber exposures of renewable energy asset owners, faced with this growing threat. Unlike more conventional cyber insurance products in the market, which focus on data breaches relating to personal information, this new product covers owners and operators in any circumstance where the ability to generate power – and the associated revenue – is impacted by a cyberattack on proprietary or third-party IT or OT (Operational Technology) systems.

In practice, this means it provides cover for loss of revenue – and incidental expenses – incurred in a range of circumstances, including non-damage events, digital asset destruction, including loss of use or theft of import SCADA (Supervisory Control and Data Acquisition) data, reputational harm and cyber extortion.

Cover can also be extended to include a cyberattack on assets not actually owned by the insured, such as damage to a third-party substation or transmission infrastructure that prevents the export of power.

“While energy firms commonly take out policies to mitigate the commercial risk of a customer or employee data breach – and the physical integrity of assets is covered by conventional insurance – what has been lacking in the market to date is a means of compensation for when a cyberattack prevents a renewable energy project from operating as it should,” said McLachlan.

“We’ve worked closely with our insured clients in the United States and around the world to develop a Cyber Risk offering that meets the specific needs of renewable energy asset owners and operators.”

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