When Tony Abbott described climate change science as “absolute crap” in 2010, it didn’t bode well for the future of renewables in Australia.
“Because of the politics at the moment, investors have been scared off,” HDI-Gerling’s Engineering Underwriting Manager, Rolfe Heyke, says. While Canada and the EU continue to increasingly invest in renewables, pushing their shares of domestic electricity generation to 60 and 30% respectively, Australia’s share still flounders at around 13%.
With the Renewable Energy Target (RET) passed early this year, the industry regained some certainty. “It’s going to mean a lot of investment and jobs,” the Clean Energy Council’s Policy Manager, Alicia Webb, says. “We’re going to have to double the amount of renewable energy generation in Australia to meet the target by 2020.”
And activity is already picking up. Australia’s largest single solar plant, AGL’s 155MW Nyngan – Broken Hill project, will fully come online by the end of this year, generating power for the equivalent of 50,000 average NSW homes. Since 2014, five major wind farm projects have been completed, producing a total of 379.5 MW of electricity.
During construction, insurance products for renewable projects differ little from those used for other major engineering projects. “You have your construction and erection policy, maybe with a second policy for delay in start-up, a liability policy, probably a transport policy for the blades if it’s a wind farm, and then you’d have your ISR [industrial special risks]”, Allianz Engineering Regional Manager Ronan Gallagher says.
You have your construction and erection policy, maybe with a second policy for delay in start-up, a liability policy, probably a transport policy for the blades if it’s a wind farm, and then you’d have your ISR.
For smaller projects with a total insured sum up to around $50 million, Gallagher says brokers will typically have a standard multiline policy that offers all of these policies in one product.
Australia’s wind and solar projects are typically on a smaller scale than conventional power plants, and so have smaller insured sums that offer some space for multiline-style products. For example, the Nyngan solar project – Australia’s largest – cost $290 million, compared to $4.3 billion for Queensland’s now shelved ZeroGen coal fired power station, which would have been one of Australia’s smallest at 530MW.
Out in the weather
Once operational, wind and solar don’t pose the same major catastrophic risks as, say, nuclear or conventional fossil fuels, Webb says. “The key risks are just general machinery degradation. If there were harsh climactic conditions, they could be damaged.”
Because of their exposure to the elements, the main risks for wind and solar plants are natural perils: high winds, flooding, hail. “We’ve had a very small solar farm in north-west Australia lose one third of their panels due to a cyclone,” Heyke says. With solar farms often built where land is cheapest, flooding and poor ground conditions can also be a risk.
Building for the future
While natural perils are one of the main risks for wind farms, Gallagher says manufacturing risk is also an important consideration. “Just about everything you are putting together on site is manufactured, apart from maybe the foundation,” he says. “You want someone who understands the torsional forces involved, someone with a demonstrated ability to supply this kind of equipment.” Defect cover is vital, but Gallagher says there can be issues if a project is using an unfamiliar or unknown supplier.
Renewable energy production in Australia may be lagging, but Gallagher says Australian insurers have both the risk appetite and the capability to handle renewable energy projects. “There is no particular feature of wind or solar energy that requires some specialist knowledge that’s not available in Australia,” he says.
“Most have a good understanding of this risk, for wind energy in particular.” Still, Gallagher says it’s a very small market in Australia. With the EU further ahead in the renewables game, European insurers are able to draw on more experience, and with specialist underwriters such as GCube based in the UK, larger projects tend to go to European firms.
With the RET now locked in, Australia can finally expect to see some growth in renewable energy projects. The legislation was written to specifically favour the cheapest renewable energy option available, and in Australia that’s wind and solar. “In the short-term, five-year timeframe, wind or solar will remain the most viable technologies to meet the renewable energies target, Webb says.
Australia’s hydro capacity has already largely been built, and while some exploratory geothermal wells have been dug, the technology still struggles to compete with wind and solar on a cost basis. Heyke agrees: “Wind farms and solar are the only ones with anything new coming along, but the only way they will be implemented is if the financial and tax regime is supportive.”