POWER March 2017 - 52

MANAGING RISK
When Catastrophe Strikes
Partnering with companies that have proven
track records should be high on the list of requirements
when developing a project. That
not only extends to insurance providers, but
also to original equipment manufacturers
(OEMs).
For example, many wind turbine OEMs
offer a two or three year equipment warranty.
The first line of recourse following a component
failure is to submit a warranty claim.
Catastrophic losses, such as gearbox failures
or up-tower fires, can often be measured in
terms of millions of dollars. Working with a
bankable OEM that has a record of standing
behind their product can save a lot of headaches.
Having
comprehensive insurance coverage
should be next on the list of important
project musts. Generally speaking, if a broker
offers three policies for an owner to choose
from and one is significantly cheaper than the
other two, that should raise a red flag. The
cheaper policy may be excluding something
that could leave the insured with a significant
loss on its hands.
" In the event that the manufacturer's warranty
does not respond, our policy steps out
to make sure that the insured is made whole, "
Walsh said. He also noted that even if the
manufacturer's warranty does pick up the
physical damage loss, there could still be lost
revenue resulting from business interruption.
" Our policy would step in and pay those out, "
he said.
Although many projects are planned with
20-year lifespans, history has shown that
wind turbines on average are not lasting that
long before having breakdowns (Figure 3),
such as blade issues or gearbox problems.
The costs to fix those failures can be quite
significant. Cranes are often required, which
adds to the expense.
If fleet-wide defects transpire, owners
will appreciate having a reputable OEM. The
reason: Most insurance policies have seriousloss
clauses and/or defect exclusions. What
that means is coverage tapers off at some
point.
" If you were to pick a manufacturer that
ultimately goes out of business and five years
down the line their equipment starts to fail
on a fleet-wide basis, there's going to be an
issue, " Walsh said. " Insurance will provide
coverage for the first set of losses, but after
that, the exclusions will start to step in. "
Solar Power Project Hazards
While wind is a necessity for successful wind
power projects, it can be a real hazard for solar
projects. Once installed, solar panels are
generally designed to withstand relatively
high winds, but it is nearly impossible to
52
4. " We're not in Kansas anymore. " The National Weather Service confirmed that a
weak tornado was to blame for damage to a solar farm located at Camp Ripley, a training facility
operated by the Minnesota National Guard. Courtesy: Staff Sgt. Anthony Housey
fully protect a site against natural disasters,
such as hurricanes and tornados (Figure 4).
Last year, Hurricane Matthew resulted in
multimillion-dollar losses to power projects,
and Superstorm Sandy, as noted previously,
was a particularly devastating storm.
It's not always the wind that causes the
most damage, however; storm surges can
be even more destructive. Salt water is very
corrosive and can create a lot of problems.
Walsh suggested that projects are particularly
vulnerable while under construction.
" They tend to perform better once they're
operational versus during the construction
phase when not everything may be tied down
or there's loose equipment on-site, " he said.
" Stuff can be picked up by high winds and
cause a fair amount of damage. "
Solar projects also seem to be more susceptible
to contractor errors and theft. Walsh
said that most of the projects GCube has underwritten
in the U.S. haven't experienced
huge losses, but the company's European
counterparts haven't been as lucky. Not only
are thieves stealing solar panels, but they're
also taking copper wiring from sites. " Site
security and the steps that are taken to mitigate
those types of losses are very important, "
he said.
Although solar projects don't have the
large up-tower problems and the associated
crane-type losses that wind projects
encounter, equipment does break down. A
couple of the more common failures are to
inverters and transformers, which can lead to
large financial losses. Some sites have been
designed with all power being offloaded
through a single-point transformer, so the
loss of one of those can take an entire site
down. GCube partners with a third-party engineering
service to look for that type of situwww.powermag.com
ation
and to develop a plan, when necessary,
to mitigate the risk.
Cyber Protection
As power plants have become more connected
with digital technology, the risk of cyberattacks
has increased. Insurance companies
have come to understand the risk, however,
and many have developed policies to protect
customers against losses caused by hackers.
FM Global is one that began offering cyber
policies as far back as 2001, and McAdams
said the company recently expanded its coverage.
FM
Global says its all-risk policy has no
cyber exclusions for physical loss or damage.
Rather, it covers common cyber loss events
including damage to data, programs, or software
created by viruses or malware; computer
network service interruption caused
by malicious cyber activity; and third-party
data services interruption-cloud outages-
leading to business interruption or property
damage.
" If [hackers] were to get into the control
systems, they could potentially do physical
damage to your generators and other property.
That's obviously a big piece of that exposure, "
McAdams said.
In the end, however, AGCS's Campos suggested
that the most important thing is to have
a good broker. Finding a trustworthy agent to
help assess the coverage that is needed and
customize an insurance solution to mitigate
the exposure is invaluable. Walsh agreed. He
said nearly all of GCube's clients work with
a broker who will evaluate the coverage for
them and make sure the policy is comprehensive
and appropriate. ■
-Aaron Larson is POWER's executive
editor.
POWER | March 2017

http://www.powermag.com

POWER March 2017

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