While the climate case for renewables is undeniable and the economic case is becoming increasingly compelling, clean energy does present some threats to the environment that need to be navigated.
The potential benefits of renewable energy sources such as wind, solar, hydro, tidal and geothermal are widely known, including a reduction in greenhouse gas emissions, the diversification of energy supplies and a reduced dependency on fossil fuels.
The growth of these energy sources also has the potential to stimulate employment, through the creation of jobs in new ‘green’ technologies.
It is little surprise then that the renewable energy industry has been expanding at pace in recent years, as investors worldwide have started paying greater attention to this emerging sector.
Renewable energy produced in the European Union increased from 9.6% in 2004 to 19.7% in 2019, only 0.3% short of the 2020 target of 20%, according to the most recent data from Eurostat. Wind and hydro power accounted for two thirds of the total electricity generated from renewable sources (35% each), in 2019.
While wind power is a form of clean energy with a small environmental footprint, especially compared to energy produced from fossil fuels, there are a number of potential impacts.
Some of these are obvious. There are concerns over the noise produced by the turbine blades and visual impacts on the landscape. There is the potential threat of damage to local wildlife; birds and bats have been killed by flying into spinning turbine blades, for example. And onshore wind farms are often constructed in remote, environmentally sensitive locations, far from cities where the electricity is needed, requiring transmission lines to be built.
But some of the more significant risks are those that might be considered more traditional. Wind operations are complex, and the typical lifetime of a windfarm is designed to be about 20 years. Therefore, there are many risks associated with the construction and operation of wind farms, both onshore and offshore.
During the construction phase, the installation of turbines presents the risk of spillage of oils and other fuels used in the process. This can lead to potential alteration of surface and groundwater hydrology in sensitive environments.
Wind farms constructed offshore require connecting to the mainland, which presents a significant risk due to the volume of cables and pipes placed on the seabed that new connector cables will need to navigate and cross without causing rupture. Furthermore, the mobile tanks used in the construction process to transfer fuel onto construction platforms pose an additional threat.
Once up and running, just like other types of energy facility, wind farms are susceptible to malfunctions and component failures, as well as requiring regular mechanical operation and maintenance works.
Transformer leaks and spills of oil from turbines or from mobile tanks and equipment pose a possible pollution impact to land, water and wildlife populations. Wind farms can be exposed to extreme weather events and the risk of turbine blades catching on fire.
There is already an expensive history of utility companies being held accountable for damage resulting from wildfires. In 2019, US utility Pacific Gas and Electric Company reached a $13.5bn agreement to resolve individual claims relating to the 2017 and 2018 wildfires and the 2015 Butte fire.
This was additional to a $1bn settlement with cities, counties and other public entities and an $11bn agreement with insurance carriers related to 2017 and 2018 wildfires in California. Wind farm operators would do well to pay heed.
In addition, there are administrative procedures needed to approve wind farm developments. In Europe, national, regional and local governments must undertake strategic environmental assessments of all wind energy plans and programmes, to evaluate any potential adverse impacts on the environment.
Meanwhile, in the UK, any project works undertaken on the Crown Estate – a collection of lands and holdings belonging to the British monarch, which extends to 12 nautical miles from the UK coast – must evidence environmental liability protection of up to £25m for any works being carried out.
Risk managers can look to mitigate their risks by ensuring that they have a tested pollution incident response plan in the event of an incident. These will often be developed during the planning and application phase, but the critical aspect is that key personnel are trained on the plan and that the plan is tested to ensure robustness.
Insurance can complement the plans in place, providing the financial protection. For risk managers, it is essential to understand how the various insurance policies may react in an environmental incident and be comfortable with the coverage afforded and any risk that is not insured.
Outside of a specialist environmental liability policy, it is likely that significant gaps in coverage will exist as more traditional general liability or property policies will exclude or be restrictive on impacts from pollution.
Looking ahead, the sector will continue to go from strength to strength as the appetite of business to invest in wind energy increases and governments review the design of their energy markets to focus on how to improve the integration of renewables and to capture the most value. Wind operators will need to ensure that they keep an eye on the risks, as well as the opportunities.
Partner content contributed by Miriam Rubino, senior underwriter environmental liability, AIG Europe S.A. – Rappresentanza Generale per l’Italia
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