A roadmap for renewable energy risks
9 June 2009
The question is not whether renewable energy has a future, but whether CO2 targets can be met without it.
This was the view of experts speaking at last week's seminar 'Does renewable energy have a future in a world in recession?' jointly organised by Ascot Renewco and Lloyd’s.
The EU's 20-20-20 climate and energy package includes a 20% reduction in CO2 emissions and a 20% improvement in energy efficiency by 2020.
The UK has to comply with a 15% renewable energy target, which requires that 35% of electricity will be provided by renewable energy sources.
It currently provides less than 5%.
Wind energy
The focus of the seminar was on wind energy, both onshore and offshore, which will provide most of the renewable energy required for the 2020 target.
Other sources, such as tidal/wave power and biomass are still in the early stages of development, though the speakers pointed out that they will become increasingly important in later years.
Dispelling myths about wind power
Professor Leon Freris, Professor of Renewable Energy and co-founder of the Centre for Renewable Energy Systems Technology at Loughborough University, highlighted some of the common myths and preconceptions about wind power, not least that it was uneconomic and unreliable.
In reality, he said, the economics of wind power are competitive. He pointed out that 75-80% of total energy costs for wind power are upfront costs—it is capital intensive. The remaining 20-25% of costs are operation and maintenance. Crucially, there are no fuel or CO2 emission costs.
Professor Freris said that the apparent unreliability of wind power was less of an issue because of aggregation and the geographic dispersion of wind turbines.
While one turbine might see substantial variation in output, over the whole of the UK there is much less variability, he said.
He explained that integration of wind power into the power system would have an economic impact, but ultimately “future power systems will have to change in order to accommodate variable sources such as renewable energy.”
Need for renewable energy
Dr Ian Mays, CEO of Renewable Energy Systems (RES), one of the world’s leading international wind energy companies, explained why there is a clear need for renewable energy.
“Oil discovery peaked in the 1970s. We use three times as much oil as we are discovering,” he said.
He went on to explain that oil production will peak in the next decade, gas production will peak by 2030, and by 2050, 40% of coal reserves will have gone (and they will completely disappear by 2100).
And the present reserves of uranium will only last another 60 years (though he admitted that uranium exploration was at an early stage of development).
He listed the other renewable options such as hydro, geothermal, wave, solar, tidal and biomass, but onshore wind was the cheapest form of renewal energy.
Dr Mays conceded that, for the UK, land constraints would mean that offshore wind would need to be used extensively.
However, he said the two main constraints on wind energy were planning and grid connection.
On the latter point, he said change is urgently needed. “It is a centralised system, but renewable energy is a dispersed form of generation. It needs strategic planning to enable developers to connect to the grid.”
Risks and opportunities
But what of the risks and opportunities that renewable energy projects present for the insurance industry?
Charlie Field, head of operations at SeaRoc Group, the marine and engineering specialists engaged exclusively in marine renewables, said that the challenges were considerable, not least the marine environment.
“Harnessing nature’s power is, by definition, a dangerous operation,” said Field. He described it as an 'unforgiving process' and likened it to mounting a horse at full gallop.
He also hightlighted two further challenges: security, with wind farms being potential targets for terrorist attacks, and disaster recovery.
On the latter issue, he said insurers need to understand disaster recovery plans in the event of a catastrophic event such as major storm taking out a number of turbines.
He pointed to a number of areas where things could go wrong: design defects, installation damage, in-service damage, loss of profits, employee risks and third party liability.
And finally, he offered what he described as the four secrets of success when it comes to risk mitigation: Know, Check, Learn and Improve.
“You must know and understand the technology. You must check compliance and safety procedures. You must learn from mistakes and share best practice. And you must improve by implementing what you have learnt,” he said.
Future or renewable energy
As to the future of renwable energy, Dr Mays said that the recession would have some short term impacts such as a reduction in demand and prices, meaning that companies might be less keen on investing in renewable energy.
Liquidity could be a problem, as it is for many industries, and lower project values would mean less realisable projects.
But he did not think that any of these financial would have any major long term impact on the industry.
Dr Mays ended by summing up the three main requirements of the industry: “We need leadership—President Obama is trying in the US but we need stronger leadership in the UK. We need buy-in by the general population. And we need a roadmap to a sustainable future.”
Last updated on 09 Jun 2009
