Wind of change

The rise of renewables is one of the biggest changes in the global energy supply. Transmission capacity and networks play a central role in our future energy system, introducing also new and emerging risks.

Storms, floods, hurricanes, and drought – the effects of the changing climate have been clearly visible all around the world during the past few years. Just the past summer, with extreme heat, large forest fires, and flooding distressing Europe, the increase in uncertainty has been very tangible.

Not as the sole reason, but arguably as a significant factor, there is an identified need to address global warming. The Paris agreement, ratified by more than 175 countries to keep global warming below two degrees, is based on scientists agreeing that man-made carbon emissions should reach zero by the end of the century.

Quiet energy transition

With increasing pressure on the use of fossil fuels, the focus is concentrating more and more on renewable sources of energy.

In the past ten years, there have been significant advances in renewable energy, especially in solar and wind power. The rise of renewables is one of the biggest changes in the global energy supply, growing from 1% in 2006 to more than 3% today.¹ The question is, are they growing fast enough?

The International Energy ­Agency (IEA) predicts energy demand to increase on a global perspective by 30% between now and 2040, equivalent to another China and India. The IEA also predicts that renewables will account for 40% of power generation by 2040.¹

In Europe, and more specifically in the Nordic countries, there is a quiet energy transition taking place at this very moment. The Nordics are investing massive amounts in infrastructure to be able to increase the production and optimise the transportation of renewable energy.

Denmark, for example, is producing excess wind power for its own needs that could be transported to Norway, where they again can use the energy to power dams. The supply and demand must be brought together, meaning moving power over great distances and finding ways to do it efficiently.

Intriguing projects

Offshore windfarms spot the Baltic and North Seas, connected to transformers offshore and onshore through power cables placed on and in the seabed: subsea cables. When a power cable is big and long enough to connect between countries, it is called an interconnector.

A lot of intriguing projects in electrical power have been completed or planned in Northern Europe and in the Nordics, connecting countries with renewable energy. In the past twelve years alone, we have seen the construction of large interconnectors such as Estlink in 2006 and NordBalt in 2015. Nordlink, connecting Germany and Norway, is planned to begin operations in 2020, and there are plans to build an artificial island in the middle of the North Sea to service the increasing number of windfarms.

Costs are driving the transition

The energy transition is going fast, and one of the main drivers is cost. The price of wind power is coming close to the price of fossil fuel, now around five to seventeen eurocents per kilowatt hour. We are getting closer to the point at which government subsidies become unnecessary, and the predictions are that the price will be as much as halved in the next ten years. As it becomes a more and more profitable business, we are seeing a shift from traditional oil companies to the side of renewables.

Driven not only by climate change and profitability, but also by a political agenda, this is the field of the future. The possibilities increase as we learn more. In the future, we might be looking at a combination of different renewable sources: solar panels at sea, power from the waves and tidal water, with wind power on and offshore.

Whatever the combination will be, to move and make efficient use of the energy, a lot of infrastructure is needed. The scale and amount of investment is enormous; energy companies are moving away from fossils and investing billions in new infrastructure in renewables. The estimated investments are as much as fifteen billion euros before 2025.

The price of wind power is coming close to the price of fossil fuel.

Ahead in the Nordics

The Nordic area is looking into energy and renewables with an intense focus, being ahead of the rest of the world in technology and know-how.

Seeking strength in numbers, the Nordic countries have unique and long-standing co-operation in the energy field, with 2015 marking the centenary of the first subsea power cable between Denmark and Sweden.²
There is a vast number of different parties involved – governments, academia and research, energy companies, regulatory authorities, environmental and energy business organisations, electricity-market participants, the EU, and many different institutions.

The geopolitical landscape is in constant flux. Global trade and climate policies are under pressure, and nationalist tendencies are emerging in many countries, placing challenges on Nordic energy co-operation. On a political level, there is a strong will to form a more closely coupled European Energy Union.² This is a complex area, where cooperation across borders is the key to achieving efficient and competitive solutions.

Transmission capacity plays a central role in addressing the future challenges of the power system, as strong transmission networks are a prerequisite for cost-effective operation and a green power system.

The European power system is undergoing a fundamental change in how electricity is generated and used, as well as on a political and strategical level. The future energy system will look different from that of today, but it is not yet clear how.

Covering the Risks

"We underwrite risks that we understand". That is the philosophy that If lives by.
Proud of its highly competent and versatile risk management, there are continuedly new and unknown risks emerging all the time.

The speed of development and change has increased, as has the growing impact from natural catastrophes and climate change. But the driving force for If, when mapping new risks, is our clients and their needs. If wants to manage risks together with the client, and goes where new risks emerge and where the clients need risks covered.

"The energy transition is bringing new possibilities and risks, and we want to be on that journey with our clients", says If Senior Risk Engineer Mak Olieman.

"If has been insuring renewable energy such as solar and wind power for more than twenty years already, and the risks onshore are well known and covered. With a growing need to transport energy from sea to land and over long distances between countries, we also needed to learn about the risks at sea. Subsea cable technology is finally in a mature state, making it sensible to look into insuring these risks on a larger scale", Mak continues.

"The project was started based on client requests, but we were all driven by the strong belief that there is business in this area, for us and for our existing clients, as well as for new ones. We have many clients in the slowing traditional energy business, and we want to support them as they move into renewables."

"This was a very complex and multi-dimensional project. Studying the risks of subsea cables, one has to look into many possible factors, from the cable itself to the sea and to several possible external influences", says Account Executive and Project Manager Ester Hofman-Bang.

"There was a great amount of work and research done in general in this area, and we did a comprehensive literature study to learn and continue further."

"With subsea cables, we are operating at sea, still largely unexplored and unknown. We are learning more and more all the time, but as the sea still possesses many unknown characteristics to us, knowing other parts of the risks as thoroughly as possible is crucial," Ester continues.

The energy transition is bringing new possibilities and risks.

Mapping the risks

In conquering the new area and trying to answer the needs of the clients, If challenged its internal guidelines and created new tools to estimate and study the risk.

One of the tools used with subsea cables was Risk Mindmapping. Versatile, alive, and comprehensive, with the main focus on creating a dialogue with the client, this simple and straightforward tool has been an excellent fit for mapping such a complex risk.

"The tool brings structure to the process and makes something very complex easier to access and support, both internally and externally", says Ester enthusiastically.

Placing and burying a long and large power cable in the seabed, with an offshore windfarm at one end and highly complex technical and expensive substations offshore or onshore at the other, is a rather delicate and complicated process.

Looking into the claims history, we learned that one of the greatest risks comes from fishing, with nets and anchors catching the seabed cables in shallow waters. The sea itself, with its waves, tides, and currents, as well as the varying seabed formations, also poses a risk for the cables.

In addition, construction, transportation, and maintenance, as well as continuity planning, all play a part in the risk map for subsea cables. "Risk Mindmapping guides us to reflect on all the relevant aspects of the risk, for the benefit of both If and our clients, and to mitigate the risks", Ester concludes.

Assessing with Subseagator

"In addition to using Risk Mindmapping, we also developed another internal risk assessment tool called Subseagator – a specific tool for mapping subsea cable risks and the related infrastructure, making sure we ask all the right questions", Mak says.

Subseagator, similar to If's Navigator tool for other kinds of risks, is an evaluation tool to support underwriting and to be able to assess the quality of the risk better. "Our clients provide the information for the evaluation, and they want to do that, in order for us to be able to provide the best possible premium for the project," Mak continues.

"We do individual underwriting for these kinds of big projects, and to be able to give our clients the best possible price, we need open and transparent dialogue. It is complex for both the insurer and for the client, so we need to establish trust both ways," Mak concludes.

Head on to the challenge

"The energy transition is going forward fast, and we want to be a part of it. We don't shy away from the challenge – we are excited to dive in."

"Developing and building different tools, and increasing our knowledge in tight cooperation with our clients, is how we grasp complex risks on such constantly evolving and changing areas", says Mak.

"We also use our vast knowledge throughout the Nordic countries and Europe, and seek to work without national or business borders. With the subsea cable project, we had our highly skilled professionals from Denmark, Finland, Sweden, Norway, and the Netherlands working together. We had our different lines of business widely involved, gathering knowledge and utilising expertise from property, liability, marine cargo, construction, and claims and legal departments to work together on this", Ester says.

"With such a complex area like energy, we need the right resources and competencies - we need to use the full spectrum of our know-how." There is no doubt that there will be big developments and changes in the energy field, and If wants to be part of that development - together with our clients.

Article by
Ida Tuononen photo

Ida Tuononen

Communication Officer, Industrial, If

Contact Ida Tuononen

References

¹ Financial Times | Energy Report June 2018
² Nordic Council of Ministers, Jorma Ollila | Nordic Energy Co-operation: Strong today – stronger tomorrow
³ Statnett, Energinet, Svenska Kraftnät, Fingrid |Nordic Grid Development Plan 2017