A Basic Guide to Wind Farm Insurance
Daniel Crockford and Alex Penberthy of Keystone Law, a London, UK-based law firm have created the following basic guide to Insuring wind farm projects and maintaining the required level of cover following the farm’s construction.
This can be a complex matter due to a number of factors, including the large range of parts and turbines available, their design and their geographical position.
The development of turbines is a relatively new and developing industry made up of a number of small technical businesses all designing and building various parts and associated equipment. From both an operational and insurance point of view this raises a number of risks in terms of ensuring that there are systems in place to co-ordinate these various players in the construction process to ensure there are no delays, and that all the equipment is compatible. In the long term consideration must be made as to whether there are suitable warranties in place for the various components and that the suppliers have the necessary expertise and supplies should a repair be necessary. This becomes a real issue where the original equipment manufacturer is no longer in business and when a repair is required.
Here are some suggestions as to the likely cover needed, although the list is not exhaustive and is only a guide.
This should cover both the construction and erection period of the project and then continue once the wind farm is fully operational. Damage has a knock on effect on financial losses as discussed below so you should ensure that the level of cover is wide enough to include all elements of the construction process, damage to the turbines and all associated equipment and buildings that are required for the construction and running of the farm.
The major risks that need to be considered are both human error, such as fires and accidents on site, and natural risks which form a large percentage of claims in this industry.
A specific risk to offshore farms is damage to subsea cables. It is estimated that only 7-10% of the total capital costs of an offshore wind farm relates to subsea cables yet 70-80% of insurance pay outs relate to damage to them. The damage is usually caused by external impact, say from an anchor or dragging of fishing nets, or by poor positioning or incorrect cable choice. Cable damage has a significant effect on financial loss because repair works often have a long turnaround due to the location of the cables and a lack of skilled professionals who are trained to undertake the repairs.
As alluded to above careful consideration of the cover needed for financial losses must be made. Cover is required from the outset of the project to ensure that you have protection for any start up delays. Such delays can be caused by poor planning between the various contractors required to construct the farms, construction accidents or damage and delay to parts being delivered.
Once the project is completed and the farm is operating any damage to the turbines will cause a loss of income so business interruption cover will be needed. These periods of time can be extensive where repair turnaround is long which means the sums insured have to be carefully considered.
In terms of delivery of parts all wind farms will need Goods in Transit cover as insurers will normally lump all transit insurance (whether by road, sea, air or rail) under a marine transit policy. You must ensure that the cover has the correct territorial limits and also covers any periods when the parts are in storage. The cover must dovetail the construction policy so there are no missing periods of time between delivery and the beginning of construction.
Offshore wind farms also need to consider the risks that are inherent with structures at sea, such as collisions with vessels, damage to cables and damage by waves and weather. Furthermore cover will be needed for any workboats and contractors that you require to maintain and repair the turbines.
Employer’s Liability to cover their workforce is a must and is a statutory requirement in most jurisdictions. Levels of cover need to be considered as your workforce will often be working in dangerous conditions such as at offshore or at height.
Because of the technical nature of the wind farms contractors and consultants will need professional liability cover. Although it is not the responsibility of the wind farm operator to provide professional indemnity insurance they should have systems in process to ensure that their contractors have cover in place for the relevant time and at an agreed level.
As with all large projects it is advisable to takes steps to minimise risks and delays. Planning at the start of the project is essential and this process should include all stakeholders in the project. I would suggest that this also includes your chosen insurers. Such planning should include coordinating contractors, considering the risks involved in delivering to sites with access issues (eg., at sea) and producing detailed but also relevant method statements and health and safety documentation. This should not be seen as merely a box ticking exercise.
Furthermore, with the best will in the world, incidents will happen. Realisation of this and having plans in place should reduce the need to rely on your insurance. As well as having clear emergency plans that all contractors and staff are aware of you should ensure that contractors have the right level of expertise, staffing levels and spare parts so that if an incident occurs repair are undertaken as quickly and efficiently as possible.
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