What risks do BigWind’s insurance providers carry?

As wind turbines are beginning to age, the picture is not as rosy as promised when they were new.  Reports coming in from around the world, but more importantly from the insurance industry, show premature failures. In the case of Traverse City Michigan, the local utility has decided that after 18 years, their “turbine remains a deficit investment of $688,453. This lack of economic feasibility, coupled with the absolute inability to replace or repair the defective yaw motors, failed hoist and failed RCC unit, led to staff’s recommendation to decommission the turbine.”  (http://www.traverseticker.com/story/traverse-city-s-wind-turbine-headed-for-historyWe think back to the fall of 2007 when the Champaign County Farm Bureau took a group to the Twin Groves farm in Illinois.   Reports of smiling leaseholders having their pictures taken standing under the giant structures were widespread. How are things going today at Twin Groves?  Photos from windaction.org reveal (http://www.windaction.org/posts/39533-wind-turbine-oil-leaks#.Ut5vKSwo7IU) a leaky mess of oil which appears to be coming from the gear box that holds about 85 gallons of synthetic oil. 

More important, the insurance industry is now taking the wind industry to task as claims for equipment failure are exceeding premiums collected.  GCube is the industry’s leading insurer.   In last month’s publication, GCube warns that “To an increasing extent, we’ve seen that a number of plants do not follow proper maintenance practices.”  And “In the last two years we have seen an unprecedented rise in the magnitude of insured loss events.”    We encourage you to read the entire article below.

 The wind industry continuously trumpets advances in technology.  What we see is that the advances leave older models in peril.  We have no reason not  to believe that today’s latest model won’t likewise be tomorrow’s leaking, broken liability. Speak up to your legislators NOW. No one wants to live amongst a turbine cemetary!…

Although the PTC is a welcome force for industry growth, GCube shares the concern that, until the wind industry is able to build in a more consistent manner, the probability of unnecessary claims events is higher than it needs to be.What’s more, this inconsistent growth pattern and subsequent strain on resources hinders proper planning and maintenance work at existing wind farms. As construction on large numbers of new projects gets underway, operators may find it difficult to procure the required equipment and labor to repair a turbine at an existing site.With a growing focus on getting new projects up and running, amplified demand for parts may lead operators to move their inventories between wind farms, meaning that, in the event of unexpected damage, the necessary spares are not immediately available.  When a repair takes an extended period of time to complete, or expedited component services are requested, the number of days the insurer will be paying for business interruption increases. This artificially inflates insurance costs that might not have existed otherwise in a more consistent development environment.And the unstable market has also contributed to a broader, more concerning shift in the way maintenance is conducted in the industry.Many companies have come and gone amidst these volatile conditions. During extended quiet periods, some component manufacturers have gone out of business, leaving operators with the challenge of finding obsolete stock. When the market picks up again, finding experienced labor and manufacturing plant capacity has become an increasing concern.In this climate, and to reduce downtime as far as possible, ensuring a thorough understanding of equipment and a supply of readily available components should be a primary concern. Insurance underwriters will always favor a preventative and proactive approach to maintenance as well as an effective loss control program.To an increasing extent, we’ve seen that a number of plants do not follow proper maintenance practices. They have adopted long-term operations and maintenance contracts that come into effect once manufacturer warranties end. But these programs often fail to look beyond the turbines and gearboxes and ensure the proper maintenance and contingency planning crucial for the balance of the plant. Should a substation transformer fail, the entire project will come to a standstill.It is no secret that, for many years, operators within the industry have favored a reactive maintenance approach. With renewable insurance claims on the rise, this approach is of significant concern to underwriters and capital providers.Wind turbines are exposed to a range of adverse weather conditions and complex site conditions that create significant mechanical stress. Although a turbine may have a 20-year life expectancy, the reality is that we continue to see premature component failures.Numerous studies have proven the benefit of extending the life of turbines through proper maintenance. In order for equipment to meet expectations, the industry needs to adopt a proactive, preventative approach and deal with potential problems before they arise. By acting in advance, overall downtime can be reduced, along with maintenance costs, labor overtime and the necessary inventory of spare parts. Simultaneously, operators will see a boost to the life of the turbines and the cost effectiveness of the project as a whole.Insurance is designed for catastrophic failure, and yet claims based on mechanical consequential breakdown are steadily increasing. As the number of industry suppliers falls and the available manufacturing capacity shrinks, lead times for repairs grow. In this environment insurance providers may look to reward those operators with proactive preventative maintenance programs in place with lower deductibles, while raising rates for those with exclusively reactive plans.From an underwriting perspective, the instability of the market has necessitated a reevaluation of acceptable risk in the industry.

via Planning for the Future: Proactive & Preventive Maintenance | GCube Insurance Services.