Raising the temperature on renewable energy

Jan Pagan, specialist risk control engineer at Markel, explains how extreme temperatures could affect the renewable energy sector and what insurers should assess when it comes to insuring new and existing energy projects.

Extreme summer temperatures are becoming a regular occurrence globally. In impacted regions, including Europe, temperatures are shattering records due to heat waves and domes. Records show that a heat wave has occurred every year since 2000, consistently breaking previous records and lasting for more than a week and occasionally even longer.

In 2023, new high temperatures were reported in Thailand, China, Europe and the US. With conditions likely to worsen, determining when this trend will peak is challenging because we are venturing outside historical reference points, which makes modelling climate events difficult. It is time to address the elephant in the room: we need to strengthen our renewable energy infrastructure, which is often built in locations that have extreme climates, to make it more resilient to temperature shocks and to ensure it can operate year-round.

Ambient temperatures and wind turbines

To ensure their effectiveness and durability, wind turbines must operate within certain ambient temperatures. They can operate at full power in temperatures ranging between 30 and 35oC. They are de-rated to safeguard temperature-sensitive components if temperatures reach that level. They will shut down when the temperature is between 40 and 45oC to keep the nacelle's interior temperature below 55oC and prevent irreparable damage to these components. These temperature ranges will no longer be applicable if any of those components have an oil leak; instead, lower limits with an elevated risk of fire should be taken into consideration.

Any equipment that operates in temperatures close to or above their design limits will suffer some sort of degradation, which will gradually shorten its operational life. Sensors are installed in wind turbines to limit the amount of time they operate at these high temperatures and lessen the severity of the damage. However, the operational life of some components may be cut short because of these heat episodes growing more frequent and intense with each iteration.

The substation and transmission lines are also affected by such temperatures, and it might be necessary to de-rate the transformer to protect it and the electrical infrastructure. The cause of most transformer failures can be traced to a breakdown in the insulation system, which can occur when it finds itself operating at extreme temperatures. If not properly monitored, it could go unnoticed and potentially suffer a failure before the transformer’s next scheduled overhaul.

Battery energy storage systems (BESS)

BESS are also prone to high temperatures. Nothing, unless intentional, affects a battery’s life more than heat. There is a risk of the batteries becoming irreversibly damaged if the surrounding temperature reaches 45oC, thus charging and discharging should stop. To avoid this, BESS include inbuilt cooling systems to help maintain stable operating temperatures. However, we must ask ourselves if such systems are capable of handling prolonged periods of extremely high temperatures. During heatwaves, energy from BESS will undoubtedly be in high demand to stabilise the grid. Therefore, BESS will be producing a lot of heat during these times, and this is when they will be most vulnerable to damage.

It is important to emphasise that these energy systems are connected to the electrical grid, which will be equally stressed during extreme temperature periods. Energy demand will increase significantly across the network, and it could be overwhelmed. This is especially true in countries where such abnormally high temperatures have incentivised the uptake of air conditioning equipment as a solution, including the UK. Failures (e.g. electrical fires) across the entire distribution network may occur at the same time or in quick succession during these extreme heat events. To make things more challenging, there will also be a heightened risk of wildfires ignited by electrical failures, as seen in the past.

Key considerations for energy projects

The energy sector needs to take the effects of extreme heat events into consideration when looking at existing and new projects. For existing projects, developers/operators should consider the following:

For new projects, developers/operators should make sure that:

The above considerations are actions that developers/owners are expected to incorporate into their projects by default. These simple steps will make sure that the risk remains insurable, and that the insurance policy is able to provide wider coverage than otherwise possible if no mitigating actions were taken by the insured.

That said, for extreme heat risks that cannot be satisfactorily mitigated or priced at a mutually acceptable level, insurance policies will need to clearly define the boundaries of the cover provided. Manufacturers’ warranties are often limited to picking up the cost of repair or replacement and will not extend to the consequential business interruption costs (which can be significant, particularly when the relevant supply chains remain under pressure). Therefore, underwriters will likely need to use sub-limits and/or increased deductibles, together with carefully drafted defects and serial defects clauses, to manage this exposure.