Renewable Energy Practice

Marsh InsIghts:Green enerGy newsseptember 2013 risk manaGement proGrams must evolve with renewable enerGy industry

As demand for renewable energy projects continues to increase, organizations that manufacture, distribute, supply, or finance renewable energy resources will need more comprehensive risk management solutions for the exposures they face.

As the renewable energy industry in the

United States continues to grow, many

producers are beginning to see lower

renewable energy costs. Renewable energy

is becoming more cost efficient in the solar

and wind sectors as the cost of raw materials

declines and industry stakeholders are

able to quantify the previously unknown

economic benefit of renewable projects.

LoweR CoStS FUeL GRowth

the expanding infrastructure in renewable

energy can be attributed to many cost

reduction trends, including:

• the price of polysilicon, the key

ingredient in solar cells, has dropped 64%

since December 2010 (Bloomberg).

• over the past year, the average cost of

residential photovoltaic (PV) systems has

declined 15.8% and non-residential PV

system costs fell 15.6% (Solar energy

Industries Association).

• the price of operating and maintaining

wind projects has fallen 38% over the

past four years (American Council on

Renewable energy (ACoRe)).

• turbine prices and capital costs continue

to decline as technology has made

turbines more efficient and low interest

rates have kept capital costs low.

• the cost of electricity from wind power

is expected to decline 12% over the next

five years.

these trends have led to an increase in

renewable power capacity. In the wind

sector, construction activity during 2012

exceeded any prior year’s construction

with 13,131 megawatts of wind power

constructed, a 28% increase in wind

capacity. In the first quarter of 2013, PV

installations generated 723 megawatts in

new solar capacity, a 33% percent increase

over the first quarter of 2012. the increased

capacity is a direct result of favorable project

economics. Although these increases

highlight the growing marketplace, they

carry with them inherent risks.

Contents

Risk Management Programs Must evolve with Renewable energy Industry .......... 1

Understanding the Inherent Risks of Battery Storage .................................... 2

how to Maintain wind-Farm Reliability ........................... 3

2 • Green Energy News September 2013

How GrowtH AffEctS riSk MANAGEMENt

the competitive landscape has resulted in diminishing project cost.

For example, there is an abundance of solar panel manufacturers

worldwide, general construction contractors are expanding their

business into solar, and production tax credits prevail in wind.

As reduced project costs enable developers to invest in renewable

infrastructure, industry stakeholders need to understand how this

growth will affect their risk management needs and their total cost

of risk, which includes the cost of insurance premiums, loss control,

projected retained losses, and claims administration expenses.

As the dynamic continues and there is significant interest in

renewable project development, insurance capacity is expected

to be plentiful with increased rate stability. Although insurers still

believe there is some degree of the unknown in this space, we are

seeing a new commitment as the insurance community forms new

renewable industry practices.

while insurers try to fully understand these changes, it is even more

necessary for firms to consult with their brokers and risk advisors

to ensure they can take advantage of the renewable project cost

reductions from a risk management perspective.

DIMItRIoS PARIkoSdimitrios.parikos@marsh.com212-345-3842

rENEE BErtHoldrenee.berthold@marsh.com212-345-6437

MArtiN lEicHtmartin.leicht@marsh.com212-345-0197

SoURCeS

Drajem, Mark. wingfield, Brian. U.S., EU Said to be in Talks with

China to End Solar Spat. Bloomberg. May 20, 2013.

energy Fact Check. American Council on Renewable energy. May

28, 2013. http://www.acore.org/news/3410-energy-facts-solar-

energy-s-massive-price-drop

U.S. Solar Market Insight Q1 2013. Solar energy Industries Association.

understandinG the inherent risks of battery storaGe Improved efficiency and performance of renewable energy technologies continues to develop at a rapid pace. the cost competitiveness of renewable energy is changing the power generation landscape as rates for production continue to decline and renewables account for more electric power to the US grid. Battery storage is a critical component in renewable growth to support supply demands and offset coal plant retirements.

Battery storage can expand the horizon for the renewable sector

as it allows stakeholders to maximize the use of their renewable

resources by offering flexibility through an abundant selection of

storage technology. In addition, the technology allows for power

producers to store energy for later use. Ultimately this technology

can expand the opportunities for the renewable energy industry.

From a risk transfer standpoint, the insurance market is in the

early stages of understanding the inherent risks of battery storage.

Despite uncertainty and a major battery storage related loss last

year, insurers still believe in the opportunities this technology

brings to the marketplace. Although insurers have confidence

in battery storage’s role in the industry, it appears that they are

advocating stricter loss control requirements with insureds.

Firms with battery storage facilities should:

• Understand and implement adequate loss control procedures

and techniques.

• ensure adequate fire protection within the facility.

• Confirm that local fire departments have a clear understanding of

their battery storage facilities (Meaney).

Marsh • 3

• ensure that staff is properly trained and adequately

understands how the battery storage process works.

• Analyze the battery storage system and understand

the factors that could make the system fail (Cioni).

Risk managers of wind farms should:

• Understand the wind regime, as wind speeds are

always changing and the local energy capabilities

vary across the US and could affect battery storage

systems (Cioni).

• Use natural catastrophe modeling to expand their

understanding of potential catastrophic, high

severity losses. CAt modeling can also help in

contingency planning and reduce the likelihood and

severity of battery storage related losses.

As the renewable energy market continues to evolve,

battery storage technology has the capability to expedite

this evolution by reducing the reliance on other sources of

energy. As a pillar for growth in the industry, it is important

for producers to evaluate their risk appetites so they can

effectively manage their inherent risks from both a loss

control and risk transfer standpoint.

DIMItRIoS PARIkoSdimitrios.parikos@marsh.com212-345-3842

rENEE BErtHoldrenee.berthold@marsh.com212-345-6437

MArtiN lEicHtmartin.leicht@marsh.com212-345-0197

SoURCeS

Bayar, tildy. Batteries for Energy Storage: New

Developments Promise Grid Flexibility and Stability.

Renewable energy world. August 30, 2011

Cioni, Chris. Understanding the Practicalities of Battery

Energy Storage. GCube Renewable energy Insight.

May 9, 2013.

Meaney, Joe. GCube Advisory Council Protecting Battery

Storage Projects. AeS. March 6, 2013.

how to maintain wind-farm reliability As American electric utilities increasingly turn to wind energy, we will likely see 120,000 turbines by 2030. Many new firms and technicians will begin working on operation and maintenance of wind turbines to ensure they continue to produce clean, reliable, affordable electric power. to keep up with the demand, property risk and asset managers need to be aware that turbine components require monitoring, control, reporting, routine maintenance, and testing to adequately manage their risk.

there are several standards, recommended

practices, best practices, etc. to supplement original

equipment manufacturer (oeM) guidelines that offer

excellent supporting information for effective wind

farm operations and maintenance. operations and

maintenance personnel as well as risk insurers use

several sources to develop and execute reliability

engineering strategies, including:

• Institute of electrical and electronic engineers (Ieee).

• international Electrical testing Association (NEtA).

• Society for Maintenance and Reliability Professionals

(SMRP).

• American Gear Manufacturer’s Association (AGMA).

4 • Green Energy News September 2013

coStS ANd coNtrolliNG loSS ExpoSurE

the average onshore wind turbine cost is $US 2 million per

megawatt (Mw) of capacity. US commercial wind predominately

comprises on-shore installations in the 1.5 Mw to 2.0 Mw class.

coMpoNENt % rEplAcEMENt coSt

tower 26

Blades 22

Gearbox 13

Power converter 5

Generator 4

wind industry practice shows that for onshore wind turbines,

75% of faults cause 5% of downtime, and 25% of faults cause 95%

of downtime. the majority of those 25% of faults are due to the

failures of electrical and electronic components of wind turbines.

therefore, the reliability and availability of wind turbine electrical

and electronic components are critical to minimize life-cycle energy

cost and benefit project financials. Annual maintenance costs are

typically 1.5% to 2% of the replacement cost of the turbine.

According to the International Machinery Insurance Association, a

15-year loss history on insurance claims is outlined below. Some

major components and failure modes are identified:

tyPe oF CLAIM CoSt oF CLAIMS

Mechanical 40%

Lightening 25%

Fire 9%

Storm 2%

Liability .2%

Business Loss 24%

• Gearbox: the majority of the wind turbine gearbox problems

that cause outages are due to bearing spall and/or gear pitting.

Annual oil sampling of gearbox oil and bearing grease can be

employed. Installing an oil debris sensor in the gearbox lube oil

system makes detecting bearing and gear damage at the early

stage easier and serves as a warning that additional borescope

inspections are necessary. Borescopes are commonly used to

document the condition of gear teeth and bearings within the

gearbox and should be used to inspect all gearboxes.

• Blades: there are common failure modes and four consistent

areas where cracks may occur: the root, leading edge, trailing

edge, and tip. these can be monitored by checking blade

conditions, through inspection programs, and through visual

inspections, which should be done at least annually.

• Generator: electrical and mechanical components subject

to failure may include bearings, rotor winding, stator, core

insulation, slip ring, or commutator, to name a few. Root causes

are various and include poor design, improper installation,

inadequate maintenance, overload, over speed, excessive

temperature, or excessive dielectric stress. electrical current,

flux, and power monitoring techniques have been well developed

and are now successfully used to monitor wind turbine

generators.

• Substation Transformers: Using dissolved gas analysis to check

the breakdown of the insulation system is the most cost-effective

way to monitor transformer health. Various concentrations

of gases such as acetylene, methane, and ethane will indicate

fault[s]. Analyzing the gases is effective for identifying the root

causes of problems and enables technicians to take corrective

actions before catastrophic failure.

• Cables: electric cable systems can fail for a number of reasons.

Low-voltage (less than 1kV ) cable systems, commonly fail at the

connectors due to overheating. one of the most effective tests for

low-voltage cable systems is the infrared assessment. A common

practice is to minimize the number of underground joints and use

above-ground junction boxes. the junction boxes are a common

failure point and can be monitored using an infrared (IR) camera.

In addition, junction boxes are perfect points for fault indicators

and predictive off-line insulation testing.

coNditioN MoNitoriNG ANd tEStiNG

All machines will deteriorate over time and fail. It is just a question

of when and to what degree the failure impacts operations and/or

project financials. Condition monitoring of wind turbines should

be comprehensive and include drive trains, electrical, and power

electronic components.

Monitoring systems can play a vital role in highly reliable

maintenance forecasting, which is essential for improving turbine

reliability and availability. A supervisory control and data acquisition

(SCADA) system can be used to monitor systems and provide

data for all the parameters measured within the nacelle. the unit’s

Marsh • 5

operational variables, operating parameters, and safety protection

are connected to this system, enabling the operator to dial in via

modem and connect to the system for remote operation.

the following items can be routinely subject to condition

monitoring and testing:

Temperature Monitoring: temperature is and age-old indicator

of equipment health and can be used to diagnose component wear

prior to unexpected failure.

Vibration Monitoring: Sensors are mounted on a turbine’s main

shaft bearings, generator, and gearbox. A gearbox with a planetary

first stage and parallel shaft second and third stages, requires a

minimum of four accelerometers.

Oil & Grease Analysis: oil analysis is effective for measuring

gearbox health and provides evidence of moisture, viscosity

breakdown, or presence of metallic particles in the lubricate that

will cause bearing or gear wear. Proper grease sampling methods

are crucial for comparing samples from one turbine to another or

for trending samples from the same turbine.

Generator: electrical testing of the generator will detect problems

in the winding insulation. the condition of generator cable

terminations may also be inspected and signs of previous arcing

identified during testing.

Electronic controllers: Monitor voltage and frequency of AC

current in the grid. Any changes outside set variables will allow the

turbine to trip offline by functioning of protective electrical devices

for over/under current and over/under voltage.

ENd-of-wArrANty iNSpEctioNS

A typical wind turbine warranty covers the first two to five years

of the turbine’s 20-year useful design life. Final inspection reports

should be planned in advance to address issues well before the

warranty expires. A visual inspection of the complete turbine is

recommended to document safety issues, the general turbine

condition, and component failures. A common checklist should be

developed with input from the operations and maintenance staff.

Checklists provided by the oeM for regular maintenance can be a

useful start.

HEctor rAyMoNdhector.p.raymond@marsh.com617-385-0352

rEfErENcES

[1] P.J. tavner, offshore wind turbines: Reliability, Availability & Maintenance, iEt press, 2012, iSBN: 978-1-84919-229-3.

[2] wenxian yang, P.J. tavner, C. Crabtree, y. Fen, y. Qiu, wind turbine conditionmonitoring: technical and commercial challenges, wind energy, 2012, DoI: 10.1002/we.1508.

[3] P.J. tavner, L. Ran, J. Penman and h. Sedding, Condition monitoring of rotatingelectrical machines, Iet, Stevenage, 2008

[4] IMIA-wGP5 Insurance of wind turbines

[5] http://www.windpowerengineering.com/

[6] http://www.eere.energy.gov/

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