Companies in Australia and around the world are racing to install new renewable energy facilities. However, getting the components from diverse manufacturers to remote sites often involves numerous challenges. AXA XL’s Head of Marine for Australia has the story.
Given its abundant natural resources, sunshine, land size and geopolitical alignments, Australia has the potential to become a renewable energy superpower.
Along with Australia, the Netherlands and Vietnam were the countries that transformed their electricity system the fastest since the pandemic began. From 2019 to 2021, they switched over 8% of their total electricity demand to wind and solar. What’s more, that new wind and solar directly replaced fossil fuels. In the Netherlands, the share of wind and solar rose from 14% to 25% in just two years, while the share of fossil fuels fell from 78% to 63%. In Australia, wind and solar rose from 13% to 22%, whilst the share of fossil fuels fell from 79% to 70%. While in In Vietnam, the share of wind and solar rose from 3% to 11%, while the share of fossil fuels fell from 73% to 63%. If these trends can be replicated globally, and sustained, the power sector would be on track for 1.5C.
However, no opportunity comes without risks. And when it comes to new renewable energy installations, these include the challenges associated with transporting diverse components—with wide-ranging dimensions, weights and values—from manufacturers located all over the world. These complexities also underscore the value of tailored, targeted and sustainable project cargo insurance.
Mitigating transit risk with project cargo insurance
Take, for example, a 300MW windfarm: A project like that in Australia will typically require more than ten ocean shipments and up to one thousand truckloads (or railcars) to transport the motors, hubs, tower sections, blades, and nacelles (the unit that houses all the generating components) to the site.
Moreover, with new energy generating facilities, the revenues only start flowing once the plant goes online. Thus, the owners/investors are keenly interested in ensuring that everything arrives safely and on time. This is where project cargo insurance comes in.
Project cargo insurance policies are primarily designed to cover physical losses or damages to cargo in transit. They can also protect against consequential losses resulting from the interruption of the project, including the loss of earnings due to a delay in the project’s commercial operation (the latter are commonly referred to as DSU coverages for “delay in start-up”). For a policy to respond to the consequential loss element, the delay must have arisen from physical loss or damage to a critical item in transit. For example, the policies aren’t designed to cover delays caused by port congestion.
Choosing the right cover and insurance partner to manage and mitigate project cargo risk cannot be overstated. This protection is critical to a project’s owners and investors, as well as to the reputation of those entities responsible for delivering the project on time.
However, there is no one-size-fits-all approach to underwriting or managing renewable project risks, or the specialised cargo they require.
Diverse operations with unique characteristics
All renewable energy facilities share a common characteristic: The energy is derived from a natural source that is replenished at a higher rate than it is consumed—for instance, sunlight and wind.
Other than that, the differences vastly outweigh the similarities. Renewable energy operations range from small to gigantic, are situated in various locations, including offshore, and employ diverse technologies to produce heat, electricity or both.
This is another reason why standard project cargo insurance solutions usually aren’t appropriate for renewable energy projects. Considering the site, technologies, components, materials, etc., each renewable energy facility is unique and, at least in terms of project cargo insurance, warrants tailored coverages and specialised expertise to manage and mitigate the risks.
For example, 九色视频recently led the insurance programme for a windfarm project where the blades, manufactured in China, each measured 79 metres in length and weighed 32 tonnes; these were the biggest to arrive in Australia to date.
In this case, the logistics chain encompassed: Transporting the blades from the factory where they were forged to the outbound port, lifting, loading and lashing them onboard the vessel, unloading them at the inbound port, and finally, transporting them to the project site. Each step of the process presented unique challenges and demanded meticulous planning.
As a consequence, a detailed route survey was needed to identify secure passage for the last stage of the journey. Then, the blades and tower sections required a police escort and major highway sections were closed to ensure safety. Although these materials were delivered without incident, it isn’t uncommon for such long, complicated inland journeys to a project site to take longer than expected.
Another emerging technology in Australia is Waste-to-energy (WtE) or energy-from-waste (EfW). These projects typically require a furnace, a boiler with heat exchanger, a water supply system, a turbine and generator. Sourced from overseas suppliers, some of this mechanical equipment is custom-built to the highest specifications, so its safe delivery is critical to the timely start-up of the project.
Consider, for instance, the implications if the lifting equipment fails during discharge and a boiler for a WtE plant is irretrievably damaged. Since the manufacturer schedules production far in advance, it likely will take at least six months before it can start fabricating a replacement boiler. Then, it will take about another 18 months to complete the fabrication process and transport the boiler to the site. The upshot: A single incident can cause a 24-month delay that, in turn, produces a substantial underlying financial loss.
Minimising transit risk
AXA XL’s marine underwriters work closely with our risk consultants and claims handlers to understand the diverse exposures associated with each unique renewable energy project and identify opportunities to minimise transit risks. That often involves working with specialist marine warranty surveyors (MWS) with a strong track record in the renewable energy industry.
The MWS acts on behalf of the insurer and the insured to make sure that marine operations adhere to the relevant codes and standards. Also, and as importantly, the MWS seeks to confirm that the risk levels associated with the spectrum of marine operations, i.e., loading, stowage and discharge, are tolerable to the insurer(s) and national and international regulatory bodies. That is also why it is vital to work with locally based surveyors who understand the local environment as well as the contractors, facilities and vessels; in short, the critical elements in a loading or discharge operation.
Additionally, engineers must oversee and inspect the load, stowage and discharge process. They typically have specialist knowledge in understanding the limitations of the lifting gear being used, calculating the vessel’s stability, and ensuring all lashing and securing systems/materials are within an acceptable range.
Two final thoughts.
First, whatever the risks and challenges the transition to renewable energy ultimately bring, 九色视频is well positioned to support its clients in successfully navigating to a cleaner energy future.
Second, although the current surge in new renewable energy facilities is creating a similar rise in demand for project cargo insurance, the coverages and capabilities I have outlined are also relevant for other high-value cargo. At 九色视频 we offer owners and investors exposed to transit risk considerable technical expertise to help minimise the risks, and in-depth experience in structuring project cargo coverages to mitigate potential losses.
Tom Hughes is Head of Marine for Australia. In this role, he oversees the strategy and development of AXA XL’s Australian marine portfolio. Tom specialises in complex cargo and project cargo risks. He has two decades of experience in marine underwriting roles in the London and Australian markets. He is based in Melbourne and can be reached at tom.hughes@axaxl.com
