Robert Bates discusses the NATCAT event posing an increased risk to renewable energy assets
This year, record-breaking temperatures have triggered a significant rise in wildfires around the globe. The National Interagency Fire Centre (NIFC) has reported that, this year to date, the number of acres burned by wildfire in the U.S. is currently 160% higher than the 10-year average, whilst in parts of southern Europe firefighters continue to battle wildfires as temperatures soar above 45C/113F.
Characterised as unexpected, uncontrolled, and unpredictable large-scale blazes, wildfires occur when all three elements of the fire triangle – fuel, heat and oxygen – come together to trigger combustion. Statistics indicate that 84% of wildfires in the U.S. are caused by human activity, whether that be the result of sparks from mechanical or electrical equipment, poorly extinguished barbecues or cigarettes, or arson. Natural events such as lightning and spontaneous combustion can also lead to ignition.
Multiple studies demonstrate that climate change has increased the frequency of wildfires. As dry seasons lengthen year on year and cold, wet seasons shorten, more moisture is evaporated from the earth, drying out vegetation to produce the optimal fuel source. In addition, climate change has caused winter snowpacks to melt earlier, leaving forests and other terrain drier for longer periods of time. California’s wet season now begins at least 27 days later than in the 1960. A 2020 study in the Environmental Research Letters details how the spike in Californian wildfires coincided with a rise in unusually dry autumns, subsequently identifying climate change as a contributing factor in lengthening the period in which wildfires might ignite.
Wildfire has historically been categorised as a secondary peril: a high-frequency event resulting in low-to-medium severity losses. The ongoing escalation in the scale of wildfire losses, however, contradicts this characterisation. Swiss Re Institute’s annual sigma review shows that ‘secondary peril events’, including wildfire, caused 70% of the $81 billion of insured natural catastrophe losses in 2020. This has prompted modelers to review and revise catastrophe models by expanding into previously un-modelled areas, and to reconsider their use of the terms ‘primary’ and ‘secondary’ perils.
Wildfires pose a significant risk to renewable energy assets, especially ground mounted solar photovoltaic (PV) panels. Renewable energy insurer, GCube, reported in 2021 that wildfire caused approximately 50% of solar claims related to extreme weather and NATCAT. The report also estimates that wildfires have caused tens of millions of dollars’ worth of solar losses over the last decade.
With temperatures increasing throughout the world, this is now a global challenge. The July heatwave in the UK saw 20 firefighters called to a 20MW solar farm in Dorset where a fire at a 500ft by 300ft patch of dry vegetation had caught ablaze, damaging several of the site’s 81,400 solar PV panels.
Concerns for solar panels also include reduced efficiency, as particles from wildfire smoke cover the panels and reduce the panels’ capacity to absorb sunlight. As a result, electricity generation is drastically reduced. In the first two weeks of September 2020, during an intense spate of wildfires, the California Independent System Operator (CAISO)’s solar-powered electricity output was 13.4% lower than September 2019, despite significant year-on-year growth in the state’s installed capacity.
The growing frequency and severity of wildfires means insurers are increasingly averse to writing cover for solar assets in high-risk regions. Some underwriters impose strict sub-limits, or even exclude cover completely, but such measures do not appear to conform with California law – a state with high insolation and thus many potential insureds. Instead, others have applied higher deductibles, and / or imposed vegetation management warranties that give insurers sufficient comfort that the best possible risk management practices are being following. In any case, if the frequency of wildfire events continues to rise without a significant reduction in the exposure of solar assets to this peril, policy cover will grow increasingly restrictive.
Nonetheless, there are steps that solar farm owners can take to soften the blow of narrower and more expensive insurance. Proactive vegetation management on solar farms, whereby a wildfire’s source of fuel is removed or significantly reduced to prevent ignition and or spread, mitigates wildfire risk, and usually satisfies increasingly stringent requirements from insurers. Operations and maintenance (O&M) providers are responsible for the oversight of these measures, and ensuring that site vegetation does not grow to a hazardous extent.
While many solar farms rely on livestock to graze on vegetation and keep sites in order, an increasing number are looking to adopt data-driven strategies to reduce wildfire hazards. Such measures include leveraging artificial intelligence and the combined deployment of drone and satellite-based systems to monitor vegetation growth in real-time. Either way, unmanned solar farms are encouraged to schedule routine vegetation reviews to ensure that sites are well-maintained.
Organisations such as the Electric Power Research Institute (EPRI) are also lobbying energy providers to ensure the safe provision of power through mitigating strategies and technologies. These include methods that reduce equipment faults that may lead to ignition, as well as improved geospatial tools and grid sensors for both monitoring terrain and assets and detecting smoke and flames. Increasing wildfire risk means that insurers and insureds should discuss this peril and its mitigation when developing policies. An effective solution relies upon the combined efforts of not only asset owners and project developers, but also engineers and insurance professionals, to facilitate the fair, sustainable insurance of solar photovoltaic projects