Germany's major wind turbine insurers are taking a tough new line with wind plant operators to make up for what they claim to be a flood of losses. Premiums for old turbines are doubling, while the insurers are proposing contracts which demand not only rigorous annual inspection of components, but also compulsory replacement of specified major parts every five years-regardless of whether they show signs of wear and tear or not.
The demands of some insurers are so "inappropriate" that the turbine operators committee within the federal wind association Bundesverband Windenergie (BWE) says it can only presume they have lost interest in the wind business and are seeking to pull out. Compulsory replacement of parts could require EUR 30,000 to be committed to reserves per turbine per year, according to Harald Guth of insurance broker Versicherungsbüro für Umweltprojekte in Quickborn. It is a sum large enough to bankrupt smaller wind plant operators. "The insurers are overreacting to machine failures that have happened in the past," says the association's Gerhard Jessen.
But according to the insurance industry, it is running at a loss. "Insurers are getting out of wind energy insurance because of inadequate premiums and the rising level of turbine damage to be covered," says Guth. By the end of 2002, insurance claims by wind turbine owners will be exceeding premiums by an average 200%, he says. His view is confirmed by Torsten Schultheis of large Hamburg-based independent broker company the Funk Group. "Only four large insurance companies are still willing to do significant business with the wind sector. Two years ago there were ten to fifteen companies involved," he says.
The big four still remaining are Allianz, Axa, Gothaer and R+V, who appear to have got together to hammer out a new set of conditions for wind industry business. "They are basically saying they must either move into the black within two years or stop insuring wind turbines," says Schultheis. The old system of broad "framework contracts" hammered out between insurance companies and turbine manufacturers on behalf of customers is also petering out. "Many framework contracts have ceased to exist," says Stephan Koth of insurance broker Capital Concept in Husum.
"The conditions have to be changed," stresses Peter Bollmann, wind expert at Allianz, one of the big four. By doubling premiums the insurers only bring them to their level ten years ago, he says. Other changes include raising the number of days that are self-insured by the operator after a turbine breakdown (the "deductible") to between seven and 14 days, from the current two days, and erasing customer concessions that have been added to standard contracts in the past.
It is not these changes, however, that wind developers and turbine operators are concerned about. "Insurance costs have risen by about twenty per cent over the last one to two years, but this is not dramatic. Insurance comprises only about ten per cent of the total annual costs of running a wind station," says Cerstin Lange of wind developer Energiekontor. Rival developer Umweltkontor takes a similar view, also pointing out that it is not immediately affected by the changes. All its current projects are covered by existing framework contracts in which the old conditions are still valid, according to the company's Nadine Smukal.
What does concern the industry-and prompted the fierce warnings from BWE-is the introduction of a proposed maintenance clause which Bollmann says is "common practice" in the energy sector for steam and gas turbines. Wind turbine manufacturers have not made it clear what regular overhaul their products require in addition to normal maintenance, says Bollmann. "So the insurers are having to do it."
every five years
According Guth, insurers are discussing terms that could require operators to replace the generator, gear and rotor bearings after every 40,000 hours of service or, at the latest, every five years regardless of their condition. Some insurers may insist that rotor blades are put in order every five years following annual visual checks on blades and their lightning protection. They may also require that bearings and shafts of the gearbox, the stator and armature winding of the generators are repaired when necessary rather than ignored until a major breakdown occurs.
From outside Germany, wind insurance expert Fraser McLachlan of the Miller Insurance Group in London is sceptical about the practicalities of implementing such a maintenance clause. "It's unbelievable-impractical from both a cost and logistics point of view. You can't apply the same logic to decentralised wind energy as to the conventional power sector," he says. "This will drive operators to seek insurance outside the German market, to people like ourselves," he adds.
The Miller Group insures several thousand wind turbines globally, particularly in America, but has chosen to keep out of the cut-throat German market. "Of all the European countries, Germany is by far the cheapest insurance-wise. It's very competitive. Too competitive," says McLachlan.
Such has been the wind industry reaction to the tough maintenance clause proposal, however, that brokers are now suggesting possible alternatives. "Perhaps obligatory annual checks can head off the five-year component replacement requirement," suggests Koth. "We hope to bring matters back into perspective," says BWE's Jessen.
