Published on
21 June 2024
[This article was first published on ANRA.IT in Italian on 06 June 2024.]
In Italy, in 2023, 44% of net electricity production came from renewable energy sources (wind, solar, hydroelectric, biomass and geothermal), according to the latest data processed by Il Sole 24 Ore and published by Terna[1].
The figure is strongly linked to a rising trend of the construction of new plants for the production of green energy. More than 200 projects have already been approved for the five-year period 2025-2029 for the construction or expansion of new wind, solar or geothermal plants.
It is important to mention the valuable support given by the PNRR, for which a total of 23.78 billion euros are dedicated to Renewable Energy, Hydrogen, Grid and Sustainable Mobility[2]. The plan, in fact, in addition to support linked to the increase in RES electricity production plants (with a specific focus on agrivoltaics and innovative plants, especially offshore), aims to spread hydrogen and develop leadership in the industrial field linked to the RES supply chain.
This last issue, which is now hotly debated at European level, is of fundamental importance if we consider that, for example, 70% of the production of solar panels takes place in Asia, especially in China[3]. The dominance of these markets, in addition to the lack of geographical competitiveness, means that supply chain risks are becoming increasingly critical and difficult to manage.
Large transformers, risks on the rise
The increasing demand for electricity from RES presents companies and their insurers with multiple challenges, and perhaps none is more relevant than the production, transport and maintenance of transformers.
Transformers take electricity, turn it into a magnetic field, and then turn it back into electricity, allowing power to be transmitted over long distances with greater efficiency and less energy loss across the entire distribution network.
In a world where technology, and therefore the supply of electricity, is more important than ever, the role of transformers is critical, with a market share worth $22.83 billion in 2022 and an expected annual growth rate of 7.1% for the next six years.[4]
Such is their importance for most power generation projects, power plants or renewable energy grids, that transformers are listed as "Critical Items". If lost or damaged, they could cause unacceptable delays to a project: lead times for a transformer can range from six months to a year or more, and in 2023 we saw a further increase in the replacement time of these assets.
One reason for the changing demand is the shifting nature of our power grids. In many territories, these need to be designed or upgraded to the capacity necessary to handle modern power demands. This is especially evident in the United States, which is seeing the migration of power production away from California eastward towards Texas, a move likely influenced by varying environmental regulations across individual states.
This variance in policy is, perhaps less visibly, influencing power generation and distribution globally, with similar issues arising from the United Kingdom to Latin America. Major renewable energy projects are constructed far away from built-up areas, as a result the distance electricity needs to travel to end users has also increased.
This is the backdrop against which insurers and the shipping industry manage the risks of transporting equipment critical to construction and growing in size to meet the requirements for modern megaprojects. For such a project, a transformer can weigh over 300 metric tonnes and be the size of a small house.
These transformers, which can be fragile and vulnerable to shock, g-forces, and moisture, now need to be bigger to handle the volumes of electricity flowing through them, allowing energy to travel greater distances to its destination.
Those factors have increased the risk of damage to the transformer during a long and complicated journey, especially when cargo needs to be moved on multiple forms of transport. Road transport remains the most significant risk.
For example, we see transformers being moved from a production site in South Korea, shipped to Bristol, but then needing to move to Essex. All stages of the journey can pose transportation risks, and there are multiple crunch points when fragile cargo can be damaged during loading and unloading. It might even be necessary to dismantle elements of the transformer to meet local transport requirements.
We not only face growing logistical challenges because of the increased size of and demand for transformers, but shipping and port capacity is already at high levels of demand, meaning we must make sure insureds continue to be supported during the project planning stage.
The value of prevention
It is essential that insurance companies continue to adapt to changing risk scenarios and improve their offer of solutions for companies. A comprehensive approach to "risk engineering" becomes increasingly important, going beyond the objective of "loss control" to include a holistic view of the risks from start to finish.
Elements such as a careful assessment of the route (road, river, rail) that the most voluminous goods will have to face, the adequacy of the packaging, the experience and expertise of logistics operators (both land and sea), are just some of the many factors that help us to mitigate and reduce the risks related to the transport of Project Cargo.
We believe that this new paradigm must provide for a rapprochement between insurance companies, brokers and customers, and that it provides for the consolidation of long-term partnerships based on the common goal of the best possible risk management.
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[1] Rinnovabili, Italia record: nel 2023 sfiora il 44%. Ma l'Europa corre più veloce
[2] Piano Nazionale di Represa e Resilienza
[3] Piano Nazionale di Represa e Resilienza
[4] Power Transformer Market Size, Share & Trends Analysis Report
