Embracing the bright yet challenging future on renewable energy

Taiwan’s Renewable Energy Development Plan targets 20% of its power to be generated from renewable energy by 2025. Mr Patrice Nigon of Swiss Re discusses how they are supporting these endeavours to develop clean energy.

Source: Asia Insurance Review June 2017
Country Profile - Taiwan

Taiwan’s Renewable Energy Development Plan targets 20% of its power to be generated
from renewable energy by 2025. Mr Patrice Nigon of Swiss Re discusses how they are supporting these endeavours to develop clean energy.

Highlights

  • The challenges of renewable energy are volatility, technology and storage;
  • Taiwan has plans to develop offshore wind farms, with a target of reaching 3 GW (equivalent to 3 nuclear units) by 2025; and
  • In Taiwan, offshore wind farms will be exposed to typhoons and so the turbines as well as their structure and foundations need to be specifically designed.

When we hear phrases like: "The world is changing!" we tend to think about the impact of internet and the digital world. Cloud computing, artificial intelligence, ecommerce and peer-to-peer service offerings come to mind. Few of us think about energy. In reality however, the transformation taking place in the energy sector is as important as the ripening of the internet.

For the last 200 years, the world has relied on fossil fuel. Coal, oil and natural gas have been the drivers of economic development. Though different crises have shaken the established order, the tremors only had an impact on the oil price.

Some countries have become energy independent to gear their development efforts towards coal or nuclear power generation. Yet, the devastating environmental effects of burning coal and nuclear tragedies over the past 40 years have pushed some governments to privilege the development of renewable energy over other sources. Germany, for example, chose green energy some years back and in 2016, 34% of its electricity was generated with a renewable energy mix.

We are seeing similar developments in Asia, in particular Taiwan, where a Renewable Energy Development Plan targets 20% power generation from renewable energy by 2025.

The challenges of renewable energy 

Volatility

The first challenge of this energy source is volatility. Financial institutions need to ensure that the actual energy produced by renewable energy farms will enable them to repay their initial investment to the banks and deliver the expected profit to investors, both project viability constituents.

But unlike thermal power, which delivers the same amount of energy as long as the fuel is available, renewable energy is unpredictable by nature, and more so in the wake of climate change.

A solar or wind farm relies on solar irradiation or wind resources to produce energy. Both are eminently changeable and can put operators under immense pressure. To protect developers against loss of income and help them meet their financial targets, Swiss Re has developed dedicated index-triggered insurance products to indemnify plant owners for revenue loss sustained in case of insufficient solar irradiation or wind resource volatility during a given year.

Technology

The second challenge is linked to technology. For the same amount of power output, solar panel prices have been divided by five in the last 10 years, and wind turbine sizes have increased three times during the same time period.

These fast-evolving sciences contain the inherent risk of technical failure. The amortisation period of a photovoltaic power plant is long and solar panel manufacturers need to convince their customers about the long-term reliability of their products.

Swiss Re has developed warranties to support manufacturers in case of failure or degradation of solar panel performance. This complex cover was developed in Taiwan by a pool of internationally renowned experts, labs and universities. Batteries of tests have been elaborated to select the panels that qualify for this warranty.

Storage

Finally, there is the additional challenge of storing the energy. In most cases, periods of full renewable energy production do not match those of high electricity demand. Hence, electricity needs to be stored when there is an excess and reinjected in the network when demand exceeds production.

Electric batteries, crucial for the economic performance of renewable energy plants, are still under development and could benefit from financial protections in case their lifetime is shorter  than  planned or their performance deteriorates faster than anticipated. We are evaluating solutions for this.

The specific case of offshore wind farms in Taiwan

In Taiwan, the development of offshore wind farms is high on the agenda with a target of reaching 3 GW (equivalent to 3 nuclear units) by 2025.

Thirty six offshore wind farm locations have been identified, electricity offtake tariffs have been fixed and financial requirements for developers have been established. The two already installed turbines are part of a subsidised programme to trigger interest in developing a strong offshore wind industry.

Bridge the experience gap

Th experience of building and operating offshore wind farms remains primarily in Europe with around 13 GW installed. Exposures are quite different in Asia. While Northern Europe is battered by storms in the winter, Asia – and particularly Taiwan – is subject to typhoons, with gales exceeding 200 knots.

To cope with these extreme weather conditions, the turbines as well as their structure and foundations need to be specifically designed. The repeated impact of high waves creates fatigue stress on the structures and, as seen in Europe, foundation problems result in important claims. This calls for special attention to these elements when underwriting either the construction or the operational phase.

Earthquake soil liquefaction could also present a challenge and needs to be assessed thoroughly. The experience in this field is limited and insurers underwriting these risks must examine how these elements have been considered in the design.

Finally, the actual project management presents another test. New energy plants congregate companies, which have never worked together before and are not used to each other's methodologies. There are a myriad of cultural differences and ways of approaching the structuring and realisation of projects.

Recent incidents in Asia, like floating turbines sinking or capsizing, cranes mounted on barges with insufficient stability, blades falling in the water during erection and survey boats sinking, could have been avoided with a joint risk management approach. Here the industry could benefit greatly from Europe's experience.

Collaborating with local insurers At Swiss Re, we work in collaboration with our clients, the local insurance companies. Other than analysing the opportunities and challenges of off-shore wind farm projects, we want to share the insurance considerations and implications of these complex risks. We also want to actively emphasise the importance of using experienced marine warranty surveyors and the Offshore Code of Practice to manage and mitigate third party surveillance risk.

Implementing healthy risk management practices is essential to reducing risk exposures and ensuring project quality. Marine Warranty Surveyors will help (re)insurers and other stakeholders bridge the "experience gap" that exists between Asia and Europe.

The world is changing. The role of the insurers confronted to the new energy challenges will be determinant. By acquiring knowledge, sharing experience and collaboration, we are confident that the insurance industry will be able to contribute to a more sustainable planet.

Solar and Offshore Wind
Taiwan's renewable generation development goals

Any questions?