Fires, winds, floods, and other unforeseen events can derail a project during construction or operations. Each time this occurs, there's confusion on how to work through the insurance and rebuilding process. Too often we don't pay attention to asset management until something breaks or burns down.
In episode 5 of the Energy Renewed podcast—hosted by Katie Janik, asset management advisor at ICF—we kick off a new Unforeseen Events miniseries. These events require diligence and outside-of-the-box thinking to bring renewable energy projects back to a certain level of power production.
In part 1, hear from Chris Pollack of the ICF technical advisory team, Sandy Calvert from insurance advisor Moore-McNeil, and Eric Daniels, founder and owner of Suncycle, as they discuss the commercial side of the process of getting a renewable energy project back online after an unforeseen event. Part 2 will focus on insurance pricing and trends and part 3 will focus on the technical aspects of rebuilding and repairing a project.
Full transcript below:
Katie: Welcome to Energy Renewed, a podcast by ICF, a meeting of the minds in renewable energy where people come together to discuss ideas and synergies to propel the industry forward. I'm Katie Janik from ICF, and the host of Energy Renewed. ICF provides technical advisory services to lenders, investors, and project owners for renewable energy technologies and processes. In this podcast series, we will consider varying viewpoints, ranging from policy topics to equipment components.
In this episode, we are discussing unforeseen events and what to do to get a project back online after an unforeseen event occurs. Throughout my career as NASA manager and consultant, I've seen all sorts of events that derail project, either during construction or operations, fires, wind, floods, and even pirates holding equipment for ransom. And each time an event occurs, there seems to be confusion around how to work through the insurance process or the resulting restructuring or rebuilding of a project. I always say, people don't pay attention to asset management until something blows up or burns down. I say that figuratively. But on this topic, it is literal. I view unforeseen events as an interesting topic because it requires diligence on process and documents and thinking outside the box to bring a project back to a certain level of power production.
To help inform us on considerations of what to do after an event occurs and during the process of getting a project back on-line, we have Chris Pollack from ICF Technical Advisory Team, Sandy Calvert from the insurance advisor Moore-McNeil, and Eric Daniels from Suncycle USA, company that handles remediation. ICF developed a three-part series to explore unforeseen events. This is part one focusing on the commercial side. Part two will focus on insurance pricing and trends. And part three will be a discussant on the technical aspects of rebuilding and repairing a project.
Introducing our experts
Chris: Hey, Katie. Thanks for the introduction. My name is Chris Pollack. I work here at ICF with Katie. I've been in the energy industry for about 12 years, and here at ICF for the past year or so. I have worked in several roles throughout my career. I've worked in design, consulting, development roles, and construction management roles at thermal energy facilities and renewable energy facilities, primarily on the generation side of the industry. And I've also been stationed out in the field for a significant portion of my career as well.
And this topic is actually very interesting to me, especially over the past couple of years, I've personally noticed increased focus in some of these unforeseen events. And it's interesting for me to think about the opportunities that these types of events present the industry going forward and different ways to think about them. So that is me in a nutshell.
Sandy: Hi, there. I'm Sandy Calvert. I'm a Senior VP at Moore-McNeil, a small insurance consultant that just got a little larger with the merger of Dance Renewable Risk and Moore-McNeil. We're a consulting firm that provides insurance consulting services to banks, lenders, and investors I started my career as a claims adjuster, so I spent a lot of time working with unforeseen events. I've had various roles in the insurance industry, including a stint at a contractor, a large retailer, and an independent power producer. So I've led the adjustment of many large ones.
Eric: Hi, everyone. I'm Eric Daniels. I've been in the solar industry for around 40 years now. And I'm currently the Managing Director of Suncycle USA, a company I founded in 2015. Suncycle USA is a sister company of Suncycle GmbH a company I helped establish in 2007 in Germany when I served as the CTO for BP Solar. I've been in module manufacturing system design, operation, and maintenance for during various parts of my career.
Suncycle specializes in field-based inspections. We do everything from factory to field, factory audits. We audit shipping, transit, handling, construction, operations. We do assessments of storm and fire damage. And to date, we've audited a little over two gigawatts of capacity in the United States, including thin-film and crystalline technologies, in sites ranging from two kilowatts through about 260 megawatts. So getting ever larger in the utility scale now. We have another company that we have recently established in India and also have now begun moving into South America. Thank you all for your time.
Defining unforeseen events
Katie: Well, thank you for being here. Perhaps let's start with what an unforeseen event is, and which insurance policies are relevant for these unforeseen events?
Sandy: So as an owner-operator or a contractor, when a loss occurs, what policies might you want to trigger? So a loss under an insurance contract or policy is an unintended unexpected event that creates physical damage. There are many kinds of policies that might be triggered when this happens, but most often it's a builder's risk policy if it's during construction, which is purchased by a contractor or an owner. If it's during operations, it's probably more likely an operational all-risk policy that's been purchased by an owner or an operator.
Here's one thing, though. If there's no physical damage and it's something that just doesn't work properly, it might be something under a contractor or a designer errors and omissions (E&O) policy, or it may not be covered by a policy at all. For instance, this most recent freezing event in Texas is likely not going to be an insured event because there was no actual physical damage. It was just the bunch of properties or assets that weren't working for a period of time, which might make a few people on this call a little sad. But it's not likely to be able to trigger an insurance policy. But all of these things have one thing in common. They're not intended and they're unexpected.
Katie: I think that's an interesting point because for asset managers out there, when an unforeseen event occurs, it's important to understand which policy-- as you go forward in the process of making decisions, which policy is relevant. I think that oftentimes, it's common to think that it's under the owner's policy. Or it could be under an operator own and provider's policy. Or it could be under someone else's policy. So I think that's an important point.
Chris: Sandy, if I could ask a question. In these policies, if you actually read through them, do they have specific definitions of what constitutes some of these events?
Sandy: I laugh a little bit because you're right. Who reads through their insurance policy, I mean, in your own homeowner's policy? They're complicated and sometimes convoluted. But yes, most of these policies—in fact, all of these policies—have definitions all the way through them. So the definitions are super important to understanding your coverage.
Eric: I would say it's also a bit more complicated than that. A lot of the physical damage at a project site may not necessarily be visible. So we return to specialized tools that we'll talk more about in episode 3. But things like electroluminescent imaging, which is a lot like taking an X-ray of a solar panel, UV fluorescence. There are lots of new techniques that we use to investigate and quantify, qualify damage or that results from unforeseen events at sites.
Chris: So specifically, talking about the energy industry, what would be some examples of, I guess, the kinds of events that you might see called out that would specifically be sort of eligible under some of these policies?
Sandy: Sure. They would be things like forces of nature that we always think about as being insured, things like earthquake, wind events—and wind events can include just high wind and not necessarily hurricane, but certainly named windstorms, too—floods, wildfires severe storms now, including hail and tornado, and now even ice or freezing can sometimes create damage to a site. For instance, we're probably all familiar with a rather large hail loss at a construction site in Texas because the full limit loss to its insurer, one that wasn't properly expected or even maybe there was no premium charge for such a hail event. This sort of impacted the insurance industry in a very negative way.
There could be things such as safety and injury that you might think about, where there's a worker on site that's injured. And that would be the workers compensation policies that would be triggered, or maybe even a general liability policy. There could be equipment failures and design defects that might trigger a property policy or a E&O policy. We'll be talking later about this, but there have been some specific issues with the equipment that has failed, particularly on wind projects. There could be an installation failure or maybe a design failure. Again, an E&O policy that could get triggered.
But in general, in order to trigger a property policy, you need physical damage. It can't be just something that doesn't work. I know I received a lot of phone calls from people concerning COVID. COVID is something that's heavily litigated in the court system right now, and there's a lot of political pressure on it. But in general, I would guess, most insurers never expected to pay anything for COVID or communicable disease, primarily because there's no physical damage caused by COVID.
Loss of that where something wasn't installed correctly or wasn't designed correctly may be covered by an E&O policy. E&O coverage is a first party coverage for the contractor or designer to cover up. Contractors and architects almost never want to use these policies and likely save them for catastrophic. We call them one-and-done policies. The design defects that result in damage is covered by property policies to an extent. So you have to be the policy.
I'd like to turn this over to Chris and Katie for comment. But before I do, I'd like to remind everyone that the policy is a contract between two parties. If you're the name that's first named on the policy, you're required to mitigate damages. That means, if there's a large hurricane for instance, you have to batten down the hatches. If there's an injury, you have to secure the seat. You have to do everything you can to avoid further loss. And that's required by the policy. You may then have to notify several parties, including your insurance partners because it requires that you notify the insurers within a specific timeframe. These things can usually be done through your broker.
Mitigation of damages
Katie: That's a lot to unpack. So let's unpack it a little bit. When you mentioned the mitigation of damages, it reminds me of vegetation management plans. Given the wildfires last year, investors and lenders are focusing on adherence to vegetation management plans. But so are insurers, right? The insurance providers want to have evidence that these vegetation management plans were adhere to, which puts the risk on owners and O&M providers to evidence when they mitigate that vegetation growth. And if we take that a step further, perhaps even step back, adherence to O&M plans generally reduces risk when an unforeseen event occurs.
And then on top of that, when you mentioned notification and understanding what's in your documents, so we first have mitigation, damage, which means that you need to advance or maintain records, and then the notification of the counterparties. Lenders, investors, off-takers, ensuring that you have an understanding of what was communicated to these parties and when it was communicated. Because some of these project documents, you have 24 to 48 hours after the event occurs to notify. And so this is something that asset managers have to be on top of when an unforeseen event occurs.
Chris: Yeah, and I would add there a couple of points that Sandy and Katie just brought up in terms of the mitigation. And another example of that, I think, would be about wildfires and vegetation management. And Sandy, you had mentioned hurricanes. So a lot of these utility scale solar projects have tracking capabilities so the panels can sort of adjust their tilt to face the sun at different points of the day to increase production.
But secondary use for that is that they can go into a position called stow, which effectively means they're sort of parallel to the ground. And when you think about hurricanes, the ability to put the panels in that position actually reduces the risk of wind damage. So I think that's a good point and I think it's an important point that project owners should think about. And additionally, project owners should look at their projects and identify different types of unforeseen events that may be most likely to have a chance of impacting them. For example, solar projects, of course, they have to be concerned with wind, hail, fire. But when you think about thermal projects and projects that utilize a lot of mechanical piping, you certainly may start thinking about freezing effects.
And certainly, just as an example, I was building a combined cycle project down in North Carolina earlier in my career. And there was some fire suppression piping that was associated with a transformer. In North Carolina, these projects are not built like they are in the north. They don't have quite the amount of insulation or freeze protection projects in the north do. And it turned out, and this was during construction, that there was a pipe that was supposed to have drained. It was used for fire suppression purposes, and they had tested it, so it filled up with water. And it was supposed to have drained.
And long story short, it never drained. And then it ended up getting cold out. And that pipe kind of came apart because the water inside had frozen. And then so that was sort of an issue that had to be-- luckily, it was a very inexpensive fix, but of course, those are the sort of things you may be thinking about in terms of unforeseen events and how they may affect projects of varying technologies.
Eric: If I could add to that, much of our business is involved with looking at fields that have had some sort of event take place or there's a performance issue. Not all performance loss has a visible sign of what may have caused the loss of performance, even though there are unforeseen events during the contract and construction phase or the construction phase primarily or perhaps later in life during operation and maintenance. Some of the events that occur in those periods may not lead to performance loss until three to five years later because often the internal damage of a solar module takes a while before it manifests a significant drop in power output depending on the damage type.
So as an example, we've been called the job sites, the canopy, for example, where a truck is inadvertently backed into the canopy. Visually, there doesn't appear to be much damage. And so the insurance claim may be a modest one because the bent metal and the parts that are obviously damaged visually are replaced. We subsequently find that the array is underperforming. And when we go to test, you can actually physically test the solar panels around the damaged area. And what we've often found is that that mechanical contact twisted the solar panels in the way that led to a lot of internal damage. And that wasn't discovered until sometime later.
Katie: So Eric, I think you also brought up a few points I want to focus on. One, I think we'll probably focus more on during the technical episode, which is what you're talking about what I call “invisible damage,” where damage that isn't readily apparent either through testing or is not readily visible until a few years later. But you also mentioned, understanding the extent of the damage. So once we have an understanding that unforeseen event has occurred, we understand which insurance policy will be relevant, and we also have taken note of mitigation plans, whether or not the plans in place for an unforeseen event or for an emergency have been adhered to.
What are the first steps when an unforeseen event occurs?
Katie: One that you mentioned, Eric, was understanding the extent of the damage. But what are some other considerations when an unforeseen event occurs that asset industry should take?
Eric: We often look at the any documents that are related to the site. Those sets of documents often include construction-related design documents, as-built drawings, the documentation also includes alarm messages, maintenance records, anything about the site as well as contracts that relate to the service providers, the installers, and their terms and conditions for either constructing, providing the components, or operating the site. And so we do a pretty thorough review to understand essentially the ownership of the different aspects of a project site and its operation. And then once understood, we will begin the process of investigation and that involves a pretty detailed review of the site with forensic and other inspection tools.
There's a misnomer in industry. It's not an expensive process per se because we can use statistical methods to audit portions of the field and from inference establish what we believe to be the health of the site. More important, we can, through such techniques, figure out what the contributing factors are to underperformance or unseen defects. And then lead the discussion toward mitigation, which includes assignment of responsibility for repair and remediation.
Chris: Just to tack on there in terms of the agreement reviews from an asset management perspective. So I think what Eric sort of was referring to is more on the sort of project side of the fence, but if you're looking at it from an asset management part of this fence, there's going to be a whole slew of contracts associated with the facility. And that might include the project's interconnection agreement, power purchase agreement, if there's debt or equity involved, could be agreements with lenders. So each of these agreements, if they're actually read, most of them have specific language in there that covers requirements that asset managers and/or project owners that are required of them when one of these events occur.
And I think probably one of the simplest ones would be an interconnection agreement with a transmission utility. So obviously, if there's a damage event that forces a portion of the project offline, notifications need to go out to the utility very, very quickly. And depending on the utility, depending on the exact interconnection agreement, the ongoing requirements related to the unforeseen event can evolve. You can be required to generate a plan for the remediation and delivery schedule. So each of these counter parties may have requirements of the project owner, asset manager that need to be adhered to. And so I think to lead off the process, it's very wise to go through all of the project agreements, both on the asset management and on the project side that Eric was referencing, and compile all of that information into a centralized spot where it can be easily referenced and tracked throughout the duration of the restoration.
Katie: And I'm going to emphasize your point, Chris, because I've been involved in unforeseen events where either clients or the company I'm working with, the project documents are not in one place or people are not able to get a hold of the project document that they need to review. And so just proactively, I call proactive risk management, but it's important to have all of the documents in an easily accessible central location.
It's also important to note that it's just not one review of the project documents. It's oftentimes several reviews of the project documents because a rebuild process or a repair is not linear. I mean, I think there's always an upward trajectory, but it kind of goes in a tangled web. And you have to keep circling back to the project documents to see if certain things are allowed. Or as decisions are made during the rebuild process a remediation process, you have to reference your project documents to ensure that you're not missing some consent or approval from a counter party that might be required.
What skill sets do you need on the team?
Katie: Sandy, just before the end, how about we go into the skill set of people on the team? So when you're working on an unforeseen event or an insurance claim or even as an insurance advisor, what types of skill sets do you typically see of people on the team?
Sandy: Sure, well, it's just been a loss. Particularly if it's a large loss, it's a long and drawn-out process. And in some cases, it can take a number of years, believe it or not. So having the right team with the right skill set and the right focus, and if you focus strategically, you can make a difference between receiving all the loss contingencies that you might expect or need or having a claim denied. So you need to think of the adjustment of a large loss like a project in and of itself. So you might need a project manager. You might need a technical or engineering lead. You might need an attorney, a remediation lead, and the asset manager. And if the loss is large enough, you might want to hire an outside insurance professional to help you compile the information. That means that you likely have to have a group of people that could be sidelined for a while even while you're continuing to maybe operate elsewhere, which is difficult for a lot of companies to undertake.
Katie: Great. Well, thank you so much for being here today. I think this topic is really interesting. And I'm looking forward to continuing for the other two episodes.
Chris: Likewise. Thank you, Katie.
Eric: Thank you, Katie.
Sandy: Thanks, Katie