The world faces significant disruption across all sectors as a result of Covid-19 and the renewable energy industry is no exception. As more countries enact restrictions on travel, the shipment of goods, and provision of services, the renewable energy industry are having to adapt to business interruption in construction and operations.
However, while investment into the industry has slowed in the short-term, the fundamentals remain the same – renewables are a stable asset-class offering investors long term returns. If the industry can identify and manage the additional risks placed on businesses from the pandemic and resulting emergency measures now, it stands a good chance of weathering current and future economic uncertainty.
The primary concern for nations with coronavirus outbreaks is to stem the spread of disease, which has led many to enact a state of lockdown. While many European states have declared workers in the power generation sector, including renewables, “essential” and so able to continue on-site work, the disease can still keep many of these workers at home. The resulting pool of available contractors and engineers is therefore much smaller in the event of a technical issue or failure, and could ultimately lead to extensive delays in project development or on-site repair and replacement of damaged equipment.
Across the globe, solar and wind equipment factories have been shut down either voluntarily or by government order. Those that remain open face criticism from unions for unnecessarily exposing employees to potential infection and could open themselves up to future litigation over employee and general liability.
In the medium term, the associated supply chain disruption from factory closures may persist for months. For example, while Chinese manufacturing has started up again from strict closures in February, a backlog of orders has already built up. As such, many regions will no longer be able to locally source equipment or materials, and sourcing parts from further afield can not only be more expensive, but may take much longer to transport, extending business interruption.
In a further complication, the timing of the pandemic has put additional pressure on the industry. Inspection and repair for wind projects tends to be undertaken during the spring and summer. If operations and maintenance teams remain unavailable, or limited, this will likely lead to damages being missed in the short-term, and the greater risk of these damages progressing into severe losses. Project owners will need to consider new contingency schedules in the event that operations are limited throughout the season, particularly as weather window constraints may prevent on-site work from being completed later in the year.
With the impact of Covid-19 already felt through the postponement of major projects and closure of factories, the renewables industry must take action to demonstrate resilience not just for itself but also for stakeholders in finance, investment and underwriting.
Crucially, this action needs to be taken now, giving business the opportunity to properly assess their business continuity in the face of lockdown and social distancing measures.
Most companies will already have a disaster recovery plan – revisiting it to ensure that the company is prepared for changes in working practices as emergency measures are enacted has been vital to prevent short-term disruption.
In the insurance industry we are working with developers and project owners to ensure that the challenges outlined are effectively managed, in order to continue resolving claims in a cost-effective, timely manner. Renewals will take into account the impact of coronavirus on clients, and what the business is doing to manage current disruption and new emerging risks. However, there are steps insured businesses can take to ensure they are in the best position to demonstrate resilience in the face of the pandemic.
Developers and project owners can document in detail the steps that are currently taken to limit risk of infection, and how these steps may impact availability of personnel both in-house and from contractors, for example. They may also need to revisit any agreements with OEMs for repair and replacement options, and how a factory shutdown may impact time or cost of replacing damaged property.
If construction is shut down for an extended period of time, developers will have to inform their insurer or broker, who will work with them to carry out a site-specific risk assessment to determine what additional measures are required to safely secure the project and its contents. In particular, developers must ensure precautions around safe storage of equipment and materials, to prevent losses as a result of fire, flooding, or theft.
Above all, when working with insurance partners, openness and honesty around project timelines, and how Covid-19 emergency measures will impact these timelines, is crucial for ensuring that potential delays in start-up are identified and mitigated.
The costs of this crisis will be great – in personal, professional and commercial spheres – but, as an industry, renewable energy has faced challenges since its inception. It’s up to us all to manage this crisis with the same spirit and resolve.
· Jatin Sharma is president of GCube, which provides insurance services for utility-scale renewable energy projects