In the past couple of years, renewable energy incentives have been announced by governments in Pakistan, the Philippines and Vietnam. Saudi Arabia and the Ukraine are targeting big growth of wind power, while turbine deals and power purchase agreements are being signed in Latin American countries such as Venezuela, Nicaragua and Peru.
While this diversification can only be a good thing for the wind industry, it does introduce new challenges. These include obtaining adequate insurance for both equipment and people and developing new ways of working to ensure that logistical difficulties are overcome to minimise insurance claims.
One area of risk where this is most apparent is business interruption. If an onshore turbine develops a fault in Europe, roads and other infrastructure are usually robust enough to ensure access to the site within a day or two, explains Niels Kragelund, general manager of renewable energy at insurance firm RSA. However, some sites in newer markets can take months to access. Much depends on local infrastructure, where the spare parts are being sent from, and weather conditions. "A route in Mexico, for example, may have 1,500 kilometres of absolutely terrible roads to get a crane along and maybe that crane can only travel at 15 kilometres per hour," he says.
The longer the parts take to arrive, the higher the risk of business interruption and the higher the insurance premium. In some cases, RSA will restrict the eligibility of business interruption payment to start on the date when workers and equipment have arrived on site. "When those elements are on site, the cover will start because, in effect, we have neutralised the 2,500 kilometres travelling in heavy snow or whatever it is. There are areas you cannot access at all in winter, it might take six months," says Kragelund.
French conglomerate Alstom has experience providing technology for wind projects in Brazil, the Middle East, Morocco, South Africa and Ethiopia and can also draw on years of experience in developing countries from its other energy and transport divisions.
Alexis de Beaumont, Alstom's vice-president of product management for wind, says careful planning of logistics is key in developing countries, especially when transporting equipment over multiple borders. He does not see insurance as more of a problem in emerging markets than in traditional ones, as long as a company commits sufficient resources to a new country, finds knowledgeable companies to work with locally and visits each project to understand the issues, rather than making assumptions. "We do a lot of work internally to plan things and make sure we can perform in these markets," he says.
Developers of projects in new markets need to take care when choosing local partners. Insurance firms will look at how much experience a contractor has in wind-farm construction and how good their equipment is. "You need to find contractors of a certain size, not small," says Kragelund. "The economic situation of the contractor should also be checked - a Mickey-Mouse company is no good because maybe it cannot fulfil the contract."
Warren Diogo, an underwriter at Ascot Underwriting supports the view that the quality of a local contractor is one of the main considerations in determining premiums for projects in emerging markets. "We need to be comfortable that appropriate due diligence has been undertaken in selecting suitable, qualified and experienced contractors or suppliers and that adequate quality controls are in place," he says.
Natural disasters are also a big risk for insurers. While this is true in all markets, many of the newest markets are located in areas particularly prone to flooding, hurricanes, earthquakes and landslides.
Spanish manufacturer Gamesa, which is supplying turbines in new markets including Mexico, Honduras and Venezuela, has had experience with this. "The destructive potential of natural phenomena is bigger than in developed countries due to the limited infrastructure, both (in terms of) communications and roadways, which makes it more difficult to convey information to our staff deployed in affected areas. In such an environment, it can be very challenging to evacuate personnel," a Gamesa spokeswoman explains.
The company monitors alerts for natural phenomena and this has helped reduce risk to its employees. Last year, Gamesa used this strategy to gain advance notice of a storm in the Caribbean and evacuated all its staff at a project there, she says.
One company that has adapted itself specifically to deal with conditions in emerging markets is Vergnet. The French manufacturer has supplied turbines to projects in African countries such as Kenya, Ethiopia and Nigeria and on islands in the Caribbean and the Pacific; as well as Madagascar, Reunion, Mauritius and the Seychelles in the Indian Ocean. The company's two-bladed turbines are specially adapted to areas at risk of hurricanes and can be lowered to the ground when a storm is on the way. They are also simple to assemble without heavy cranes, which means less need to transport heavy equipment to construction sites.
Leopold Faye, area sales manager for Vergnet, says that its turbines have been in operation for several years and their performance in hurricanes is proven. "Many insurance companies that operate in cyclonic regions have attested that they consider our turbine to be adapted to the situation."
Another major consideration in emerging markets is the risk to personnel from political unrest, including kidnapping and violent protests. The risks to energy contractors in markets such as North Africa was highlighted by the attack on a BP oil field in Algeria in January, in which foreign workers were kidnapped and several killed by Islamic militants.
Not all wind insurers cover political risk as it is a specialist area. Others will restrict cover in certain locations. "There are places we try to avoid at the moment, let's say North Africa, where there is an unstable situation," RSA's Kragelund says. "It would be foolish for any investor to invest in anything until the whole political situation is much more stable, otherwise you can end up in serious problems."
The cost of security will rise along with the perceived risk of an area. Inigo Sabater Eizaguirre, Vestas' vice-president for public affairs in Europe, Middle East and Africa, says the cost of securing a construction site can range from a very small amount to run a security study and put in place some security measures, to double-digit percentages of the total project cost.
"It can get very expensive. In some parts of Africa you may have to clear the area of landmines. That can cost $3-10 per square metre," says Sabater Eizaguirre. If you need a security force protecting you in an area that is close to an Al Quaeda location it would cost a fortune over the lifetime of a project, he adds. "But in some cases it might still make economic sense. It may turn out that security is one of the main costs of the project."
Despite these challenges, the wind industry is confident that the wind market will continue to spread globally as developing countries strive to improve their energy supply and security. Many of these countries are dependent on fossil fuels, therefore increasing wind-energy generation will help reduce the costs of importing oil and gas.
Even if a country is rich in fossil fuels, global commodity prices mean that it would make more money from exporting these supplies than burning them at home. "Wind just makes sense," Eizaguirre says.