Wind Industry Risk Management

Partly due to its rapid growth, the wind industry lacks maturity in several areas. Managing risks is imperative for all stakeholders and enables continued rapid development of the wind industry.

“Managing risks is imperative for all stakeholders, and there is a general industry need for qualified and independent assessment of the actual risk exposure during the design, project development, installation and operational phases of a wind energy asset”

Power production from wind energy is today an established and widely implemented technology. However, partly due to the rapid growth of the industry, it is also suffering from a lack of maturity in several areas. Large wind farm projects require large up-front financial investments, and typically involve use of technology solutions with limited operational experience and high uncertainty associated with the return on investment. Technical and commercial decisions made during the development stage have large financial implications affecting multiple stakeholders. As project sizes increase, the consequences of possible sub-optimal early-stage decisions increase, thus increasing risk exposure.

Managing risks is imperative for all stakeholders, and there is a general industry need for qualified and independent assessment of the actual risk exposure during the design, project development, installation and operational phases of a wind energy asset.* Different risk management methodologies are employed today; Technical Due Diligence, Project Risk Management and Project Certification. Albeit different, each methodology can improve understanding and mitigate risks in the areas of energy production, structural integrity, operating costs, construction costs and schedule, transmission and interconnection, regulatory, market and other risks of interest to stakeholders.

Choosing the Right Opportunities
Accurately assessing the future wind energy development potential across a given utility service territory, state, province or other large geographic region allows selection of optimal wind farm locations. A wide range of analysis techniques is used and in many cases multiple studies of the same region provide widely differing answers. DNV has developed advanced screening tools that can be used with other available tools and analysis techniques to develop higher confidence, lower risk, assessments of the wind energy capacity that can be installed in a region and help rank potential development sites.

Understanding the probability distribution of project energy estimates is a key to determining the amount of financial risk involved in a project, and also to making qualified and optimal decisions for grid integration. The energy production of a single project can vary widely on a year-to-year basis due to the variability of the specific wind resource at the site. Combining individual projects into a portfolio can significantly reduce the financial uncertainty, as well as the total variability of energy production in a physically connected system. However, the degree to which this tightening occurs depends on a variety of factors, including the relative size of the projects, the degree to which the project wind resources are correlated, and whether all projects use the same type of turbine. When these factors are understood and properly analysed for the locations in question, the portfolio effect can serve as an efficient risk mitigating tool.

Consistent risk management is increasingly recognised as a key element in good corporate governance. Consequently, DNV has developed a multi-user WEB application, EasyRisk Manager, to register, track, and follow-up on all risks, actions and incidents that could influence business performance. DNV has implemented EasyRisk Manager as a decision-support tool for multiple international players within the energy sector, addressing the operational performance of entire companies, parts of organisations, individual projects, and groups of projects.

Return on Investments
Operational data continue to indicate that the performance of many projects differs significantly from pre-construction energy estimates. More accurate estimates enable better decisions for financing as well as transmission interconnection and operating and maintenance strategies. The most common reasons for these differences are inadequate on-site wind resource measurements and erroneous estimation of the losses that will occur on a project. An adequate wind measurement program will characterize the influence of the terrain and vegetation on the site winds, information that is essential for accurately modelling the wind. DNV has developed techniques for estimating the turbine performance under given atmospheric conditions, resulting in increased accuracy and reduced uncertainty in turbine performance. Another loss factor that frequently contributes to overestimating project performance is an assumption that the percentage energy loss due to turbine downtime will be the same as the downtime percentage. Data from many projects show that this is frequently not the case and project-specific estimates are needed to reduce uncertainty in energy estimates and associated project risks.

Well defined Operations & Management (O&M) strategies for wind farms are critical to ensure the financial viability for an investment. DNV has developed industry standard dedicated life-cycle performance simulation software (MAROS / TAROS) for modelling the effect of different maintenance strategies on the revenue, availability, accessibility, and cost of a project. The approach could be incorporated both at the feasibility and design stages to identify the Net Present Value for different technical solutions and forecasts for predicted revenue generation, and during the operational stage to adjust the O&M strategies for maximising the total revenue generation and ensure that contractual agreements for energy delivery are met. The impact of the O&M strategies on financial performance becomes even larger for offshore wind farms, due to both the higher costs involved and limited accessibility caused by weather restrictions.

DNV – Supporting the Development of a Sustainable Energy Future
Business strength in the energy industry has many dimensions including how you identify opportunities, balance risk and returns, manage these risks in the face of growing complexity, push technology boundaries safely and cost-efficiently, step up to increasing environmental requirements and expectations, address climate change, and operate in a truly global arena.

These complex challenges involve a variety of uncertainties and risks; ranging from societal to commercial and technical issues. Understanding and managing risk is a prerequisite for being able to make decisions and the decision basis and risk picture need to be transparent and well understood by all stakeholders.

DNV's expertise in risk management methodologies and tools is combined with deep technical skills related to wind resources and turbine technology as well as expert insight in operation and management of wind farms. DNV combines this knowledge and experience into an array of professional services designed to safely improve the performance of your business.

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DNV's understanding of technology and risk management expertise has been used to assess, evaluate and manage the risks involved in numerous high-profile projects around the world. As a knowledge-based company, our prime assets are the creativity, knowledge and expertise of our 9,000 employees from 98 nations.

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