Turbine fires present significant financial and reputational risks to the wind industry. Manufacturers, project owners, and operators have all taken major steps to reduce fire risk, but to date, most wind turbine fires are covered under insurance policies. However, as renewable energy insurers tighten terms and conditions and increase premiums and rates, the wind industry may have to cover more of the cost if a turbine is destroyed by fire.
What is the cost of a wind turbine fire?
In 2015, the average wind turbine fire resulted in a loss of $4.5m. As wind turbines have grown larger in both generating capacity and overall size, average losses are now estimated at $7-8m – nearly doubling in six years.
But equally as harmful – particularly in the long-term – is the deep-seated damage that a turbine fire can do to the reputation of a manufacturer or project owner within the marketplace. Not only will current projects be put under greater scrutiny, but new projects could also face opposition from local communities.
What are the biggest risks for wind turbine insurers at the moment?
- Natural catastrophes, including wildfires
- Aging assets
- Supply chain squeeze
- Lost production due to weather
Many of these risks can cause or exacerbate a wind turbine fire. For example, older turbines that have been poorly maintained over the past two decades are more likely to produce sparks than turbines that have just been installed. Extreme heatwaves can not only spark wildfires around a project, increasing the risk of fire damage, but can also increase the likelihood that a spark will flare into a full wind turbine fire.
Why is the insurance market hardening?
A hard market is when premiums and rates increase, and terms and conditions become tighter for the insured. Typically, insurance markets harden in response to severe losses over a number of years – indicating that risk is not being correctly accounted for under soft market conditions.
In 2020, insurance rates for wind and solar rose by 20-30% in a single year. Since then, the market has only continued to harden, making insurance more expensive for wind farm owners and operators.
However, new insurers and capital continues to enter the market, some offering lower terms without necessarily covering the same risks. In order to stay competitive, many insurers will start to look for ways to offer lower rates or more favorable terms for insureds who have taken steps to fully manage risk.
What steps are insurers increasingly taking?
According to Alan Tucker, managing director of Renewable Energy Loss Adjusters in our Reducing Fire Risks report, loss adjusters regularly consider how and when maintenance was last done and how a fire was dealt with.
Insurance experts are also calling for a more standardized approach to fire protection systems. According to our report, insurers could drive this process forward by offering credits on premiums to manufacturers, owners, and suppliers that have fire suppression systems built into their equipment or depending on the use of non-combustible lubricants and materials.
For more information on how insurers are responding to increased risk in the wind industry, read our report Reducing Fire Risk.