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March 2020: Renewable Energy Risks

Construction and installation of renewable energy systems and power generation plants is becoming more common worldwide for both environmental and financial reasons. Obviously, renewable energy plays an important role in reducing greenhouse gas emissions. Using renewable energy can reduce the use of fossil fuels, which are major sources of carbon dioxide emissions worldwide. Financially, certain tax credits can be obtained by installing renewable energy systems and a further cost-savings may be achieved from future decreased use of electricity from electrical utilities. In some areas of the world, government mandated reductions to electrical utility usage can only be realized by installing renewable energy systems. In those cases, there is an additional financial incentive to avoid fines for being non-compliant.

Renewable energy sources generally include Solar Energy (captured by ground- or roof-mounted solar photovoltaic (PV) panels and converted to electricity), Water/Hydropower (hydroelectricity and ocean energy; flowing water used to generate electricity), Wind Energy (captured by wind turbines to generate electricity), Geothermal Energy (steam and hot water from inside the earth is used to power electrical generators) and Biomass Energy (organic material from plants and animals that can be burned as fuel or converted into biofuels).

The systems and equipment made to harness these renewable energy sources and generate electric power each has their own associated fire hazards and other property risks. As an example, please see our March 2017 article entitled “The Fire Hazard of Solar Photovoltaic Panels” for more details on some of the associated fire hazards with PV panel arrays. Design and construction of these systems need to be carefully planned while taking into consideration the risks these systems will present themselves as well as the fire and natural hazard exposures (windstorm, flood, hail, earthquake, lightning, wildfire, etc.) associated with the geographic location involved.

The renewable energy insurance market has seen an increase in frequency and severity in losses in recent years. There have been major losses involving wind farms and solar PV panel arrays caused by natural catastrophes including hailstorms and hurricanes. In some losses, poor workmanship seems to have been a contributing factor. Quality of workmanship may suffer in some cases due to developers and contractors rushing to get projects finished before the expiration of state tax credits or to meet Paris Agreement commitments. Another potential risk is the untested nature of some of the evolving technology.

As a result of the recent loss history, renewable energy insurance rates have hardened much like the rest of the insurance industry in 2019 and 2020.

The International Energy Agency recently predicted renewables will account for nearly half of total electricity generation by 2040; up from about 25 percent now worldwide. This means more construction projects and installations of these systems are coming.

NFPA, FM Global and other property insurance carriers have developed loss prevention standards and recommended practices for many of the inherent risks associated with renewable energy systems and equipment. Risk Logic engineers can use these standards to help ensure that your renewable energy systems and equipment are properly protected against damage from fire, wind, hail and other natural perils. Please contact us for additional information.

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