Cyclones, heatwaves push up insurance cost for India’s wind power projects

The insurance cost of new and old wind turbines is growing annually in step with increasing incidence of cyclones and heatwaves,  Concerned wind energy project developers have started to seek parametric insurance coverage – also known as index-based insurance – for their wind projects.

“There are some new age averages that are coming up now. If power generation is low due to absence of adequate wind, let’s assume for change in climate or other factors, then you will have lost profit," said Sajja Praveen Chowdary, Director, Policybazaar for Business, an insurance portal.

“This type of thing is called a parametric insurance, where you've not ideally generated loss because of some disaster, but in the natural course of things or because of the way the weather and climate has been, and hence you've lost some profit which you could have generated or business that you could have generated."

“This is a new kind of coverage which I think some of these people are seeking and which insurers are also providing today. It will be provided in the future if the risk is there. However, it is not much right now. Insurers are ready to provide new age coverage and will go a step further in getting the parametric insurance coverage, if need be," Chowdary added.

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While recent cyclones in Gujarat have damaged wind power projects, there have also been cases of windmills catching fire in Rajasthan amid heatwaves. This comes in the backdrop of wind energy generation faltering due to low wind speeds and could throw a spanner in the works for one of the world’s largest wind energy programmes, along with affecting the ongoing deals and investments in this sector.

According to industry estimates, insurance premium is largely around 0.5% of the commercial value for new wind turbines and over 1% for old wind mills. Sector players say with the increase in climate events, damages and higher claims, premiums are set to increase going ahead.

Energy generation

Narayan Kumar, chief business office of INOX Wind, an Indian wind turbines manufacturer told Mint that along with insurance costs, operations and maintenance (O&M) costs also increase due to such disasters. 

"Cyclones do impact generation of wind power projects. Usually, the wind speed during peak wind season is between 8-11 metres per second. But during cyclones it goes up to 18-20 metres per second, which is more than the survival wind speed of most turbines. 

When the survival wind speed is reached, the turbine stops automatically or may also get damaged. Recently, damage was reported during the cyclones in Gujarat. Due to these events and the resultant damages O&M costs go up and insurance costs or premiums increase accordingly," he said.

According to meteorologists, cyclones have increased in the Bay of Bengal and Arabian Sea in the past few years with Gujarat, Andhra Pradesh, Karnataka, Maharashtra and Tamil Nadu being the most affected states. However, they have become more frequent and intense over the Bay of Bengal than over the Arabian Sea in the last two-three decades, which is likely to get worse in the future.

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“Usually, the Bay of Bengal is warmer than Arabian Sea and we have been witnessing 7 of 10 cyclones forming over the Bay of Bengal in the last 5-6 years. Bay of Bengal is more prone to cyclones because whenever any remnants of cyclones are formed in south China Sea and west Pacific Ocean travel as a low-pressure area or depression and intensify into cyclones up to Bay of Bengal," said Mahesh Palawat, vice president meteorology and climate change at private weather forecasting agency Skymet. “There has also been increase in intensity and frequency in cyclones over the Arabian Sea during the same period as sea surface temperature (SST) of Arabian Sea is rising gradually. Overall, cyclones will likely increase over both Seas because of increasing SSTs in coastal regions."

In a rare incident, a windmill in Rajasthan's Jaisalmer district caught fire this May due to intense heat wave with the temperatures soaring to 50 degree Celsius.

Noting that wind turbines have a cut out wind speed of around 20-22 metres per second and during cyclonic wind speed exceeding the cut out limits, wind turbines are stopped, Harish Pant, head, O&M at Hero Future Energies said that turbines are designed to withstand the cyclonic windspeed and hence no major damage occurs to the new turbines during the cyclones, however there is significant impact to the power production of the wind plants during cyclones.

He noted that the damages caused by the environmental disasters include breakdown of transmission and other power evacuation network, minor equipment failure during lightning, rains and cyclones along with instances of water logging in the windfarms which make it unsafe for the turbines to operate.

"Insurance claims are made by the developers under force majeure situations to claim their loss production due to such conditions and also to claim the cost of restoration of windfarms. With year-on-year increase in claims, the insurance premium is bound to increase," Pant added.

Speaking at an energy transition event organized by CII last month, Arul Shanmugasundaram, Executive Director, Ayana Renewable Power, said that wind speeds in key regions of India are gradually declining, which could have “significant implications" for the wind energy space.

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"Wind speed in India has shown relatively lower trend as compared to the wind speed recorded in the year 2018-19 and past. This is negatively impacting the generation of the power plants and ultimately the IRRs (internal rate of return) of the project. However, we are seeing an increase in the wind speed trend in the last two years and are hopeful to get back to expected wind speed numbers," Pant of Hero Future Energies said.

Kumar of INOX Wind, however noted that slowing down of wind or the speed of wind is dependent on various atmospheric weather phenomena including La Nina and El Nino.

Availability of land

He pointed out that another major concern for the sector is the availability of land and the increasing number of windmills and turbines in the same region without adequate inter-turbine distance."This caused increased wake effect and reduced ability of wind to recharge effectively. This in turn affects overall generation and consequently the returns. Project development and availability of right land, wind and grid resources are the key to boosting the effectiveness of wind power projects," Kumar said. The wave effect is the turbulence and reduced wind speed that occurs behind a wind turbine, which generally impacts the performance of nearby turbines in a wind farm.

These concerns come at a time when the government plans to achieve an installed wind power generation capacity of 140 GW by 2030, which is 28% of the targetted 500 GW non-fossil capacity by the end of the decade. As of 30 August, India had an installed wind power capacity of 47.19 GW.

In the last financial year (FY24), India generated 83 billion units of wind power, compared to 72 billion units in FY23. Data from the Central Electricity Authority showed at in the current financial year (April-August), India's wind power generation stood at 47.02 billion units, marginally lower than 48.77 billion units in the year-ago period.

Concerns have also been raised of climate change impacting on solar projects with dense fog lowering the power generation. In February, Mint reported that amid dense fog across north India in the winter season, solar power generation in the country witnessed an over 3% dip in January.

Prashant Mathur, CEO, Saatvik Solar noted that as solar radiation patterns shift, it’s crucial for module manufacturers to innovate and maximize efficiency.

Queries sent to union ministry of new and renewable energy remained unanswered till press time.

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In contrast, coverage and claims remain lower for wind and solar power projects than hydro ones. Mint earlier reported about cloudbursts, floods and landslides crippling some of India's largest hydropower projects in the last few years and jacking up insurance claims and premium payments.

Policybazaar’s Chowdhary said that as of now there is not much effect or risk in windmill power and solar compared to hydro in terms of extreme weather events due to climate change. 

“In the wind segment, there are losses from multiple things like the collapse of a wind turbine or fire generation due to overheating and hence claims can come in. Then there is loss related to business loss meaning a business continuity loss. When you have business continuity loss, it means you're not continuing the business because of that and hence there's a loss to your company. Claims can come in these segments," he explained.