by: Sam Dolan
It is an all-out sprint on who will be the first to achieve carbon net zero in the energy industry. Companies are jockeying with their bets on the appropriate renewable source and delivery systems. Most of this technology is not new, but what we are seeing is large-scale commitments to hydrogen production capabilities worldwide.
And what is the bet on making hydrogen green and sustainable? Wind. Hydrogen electrolysis has been around since the 1800s. It is not a new process. But the process of generation was, until recently, not green. Most, if not all, of that electricity was generated from non-green sources, or downstream material was originally produced from carbon sourced energy. That is now changing with the surge of growth in large-scale wind farms. The world should applaud itself for a 53% growth rate reported in the Global Wind Energy Council’s Global Wind Energy 2021 report on wind installation. It is still a long way off from the 2050 global net-zero goal, but it is a step in the right direction.
But what does this mean for insurers and the role they are going to play for their customers? It is going to require an evaluation of risk and potential post-loss recovery. Failure rates are increasing as demand surges. Substandard components and subpar workmanship are the leading causes of losses in the wind energy sector.
Instead of thinking of the industry in terms of “wind” or “wells,” the industry shift should be viewed as just a new package for the same product. The process, for the most part, is identical to traditional oil and gas production. A wind turbine is basically just a well. The similarities between wind and traditional energy production run from inception through bringing to market. The method of generation is different, but the processes should be considered the same by insurers. That is the way to approach the growing demand.
And like wells, wind turbines will fail. On average, over 40% of wind turbine downtime is from component failure. For offshore turbines, the average failure rate is 8.3 failures per year, with one major repair on average per year. The rising onshore installations will give that figure a run for its money. Foundation issues, cable failures, gearbox failures, nacelle breaches and human error make up the majority of the issues. Although these averages will go down as technology improves in this sector, losses will increase domestically as the new U.S. focus shifts the priority to wind. Every turbine will come with its potential host of problems: ranging from injured workers to material and design failures of critical components. All of which could be recoverable under a subrogation formula.