Risks in renewables report: Onshore wind

Players in the field

Investment in renewable energy has been increasing yearly over the past five years, and according to the IEA, outpacing other power sectors such as fossil and nuclear. This exponential growth is expected to continue and expand to other regions of the world. Onshore wind is one of the sectors that is growing rapidly within renewables, and expanding for the first time into countries located in the Middle East, Africa and Asia.

Although this is encouraging news, it also means that more and more projects are being built by new and unknown entrants into the renewables market.

For the moment, our experience with these new entrants has been mostly positive, but a common trend has been developing.

Market conditions

A significant number of these projects are using Chinese wind turbine models mainly because of a very attractive price per MW. Chinese manufacturers are poised to capture a significant portion of this developing non-US-EU sector, leaving European manufacturers to compete over an increasingly crowded onshore market.

We have already described the effects this competition has had on product quality, but this will also increase financial pressure on established European manufacturers and is only a matter of time before some are pushed out entirely. The combination of new project developers, increased market share competition and a growing onshore wind sector will undoubtedly reshape what was once considered an established sector.

Projections

We are also yet to see how these new developers and manufacturers will perform over the long run, and thus, we remain cautious.

Adaptability

Climate related events have shown an incremental trend in onshore wind insurance in the past decade. Not as an obvious behaviour where the next year is worse than the previous year, but more of a change in historically expected weather patterns or event intensity in specific regions of the world.

This phenomenon is challenging the reliability of existing modelling tools used in the insurance and renewables sectors, further complicating the wind turbine selection process during project development and the way insurers can price the risk. For operational wind turbines, we see an even greater dilemma in that they were correctly built in accordance with weather patterns that have notably changed midway through its operational life.

Project locations & Survivability

Another less obvious weakness is the survivability of the local energy grid under these more extreme weather events that have never affected that specific area of the world. One example of this happened in South America where a very strong windstorm affected a region, with no historical records of such an event, disabling the grid and leaving a windfarm unable to defend itself against high wind loads. The fact that the wind turbines were classed for wind speeds much lower than those seen during the event, exacerbated the damage to many blades which had to be replaced.

Unfortunately, this uncertainty has no end in site and no way of predicting how fast it will progress over time. For already existing wind farms there is little that can be done. For future projects we see an increasingly difficult task of ensuring that the wind farm can adapt to and survive weather related events across its expected operational life, now even more so as the sector expands into regions affected by weather events that are already considered extreme.