Resource risk is now the most pressing threat faced by onshore wind farm developers, owners and operators globally, surpassing mechanical and electrical breakdown as the number one potential source of financial losses. This is one of the core findings released by renewable energy underwriter GCube Underwriting (GCube) in its latest report, entitled Risky Business: Assessing Future Threats in Onshore Wind Development, Financing and Operations.
Across a number of established and developing wind energy markets worldwide, low wind speeds are negatively affecting the ability of assets to deliver the output forecast by resource analysts prior to construction. The inability to effectively transfer weather risk has led to numerous, high-profile examples of sub-par project performance, directly cited in the financial results of major utilities and portfolio owners, and manifested in damaging ratings downgrades. As the installed asset base grows, GCube predicts that resource risk will remain the most pressing concern for stakeholders in the wind energy sector for a number of years, driving uptake for revenue protection mechanisms such as Weather Risk Transfer (WRT) and Proxy Revenue Swaps (PRS). Indeed, these products will be an essential factor in accounting for an estimated US$ 56 billion shortfall in total asset values across the globe. Mechanical and electrical breakdown, meanwhile, remains a substantial threat, with the increasing size and capacity of new technologies, and more assets than ever before moving into the post-warranty phases throughout the mature markets of Europe and the US. Developers and asset owners must therefore maintain a strong focus on project maintenance and technical risk management procedure. Analysing the past five years of onshore wind mechanical breakdown claims, GCube has identified that the industry currently experiences 3,800 incidents of blade failure on average each year, each costing up to $1 million to resolve, 1,200 incidents of gearbox failure, each costing between $200,000 - $300,000, and approximately 50 turbine fires, with an average claims cost of $4.5 million. In addition, further afield, in remote regions of Asia, Africa and Latin America, lack of familiarity with unique logistical, political and natural catastrophe (NAT CAT) risks, alongside shortfalls in infrastructure and the availability of high-quality labour, commonly result in significant unforeseen losses during construction and operation. After resource risk and mechanical breakdown, GCube ranks political and regulatory risk, project development in remote locations and extreme weather & NAT CAT as the third, fourth and fifth most prominent threats to the performance and profitability of onshore wind energy assets worldwide. Mention is also given to the emerging threat of cyber attack, and the potential for increasing personnel turnover to inhibit knowledge transfer.