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WIND ENERGY Underwriting and Risk Management Considerations

March 29, 2011

Andrea Ezerins Assistant Vice President Corporate Underwriting The Hartford Steam Boiler Inspection & Insurance Company

Michael Roy Principal Engineer Emerging Technologies The Hartford Steam Boiler Inspection & Insurance Company

Michael Fusselbaugh Senior Vice President Renewable Energy The Hartford Steam Boiler Inspection & Insurance Company

Presenters Property Issues and Considerations

Agenda

Overview

Growth

End users

Manufacturers / Cost

Technology

Maintenance

Risk Drivers

Insurance Considerations

Wind Resources

Source: USDOE

Wind resource data developed by AWS Truewind, LLC for windNavigator®

Wind Energy by State

MICHAEL ROY Principal Engineer, Emerging Technologies

Wind Turbine Size

301 ft

Small Wind vs. Large Wind

Size = Output Small Wind is <100 kW Large Wind is >100 kW

How are wind turbines measured?

Small Wind Turbines End Users

Homes, farms, schools, communities, and small factories – generally in rural areas

Owned by facility – located on site

Supplements the electrical needs:

Homes & battery chargers (<15 kW)

Farms (15–30 kW)

Office buildings (30–50 kW)

Manufacturers, schools, municipalities (50–100 kW)

10,000

15,000

20,000

Small Wind Units Sold

Capacity Sold (kW) Sales of Units Sold ($U.S. x 10,000)

U.S. Small Wind Power Growth

U.S. is world’s largest market for small wind

9,800 small wind turbines sold in U.S. in 2009

Two thirds (2/3) were manufactured in U.S.

2,100 3,100 3,200 4,671 4,324 8,329 9,092

10,386 9,800

2,100 3,100 3,200 4,878 3,285 8,565 9,737

17,374 20,300

(not avail.) (not avail.) (not avail.)

$1,489 $990

$3,320 $4,197 $7,266 $8,240

2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: American Wind Energy Association (AWEA)

Year Units kW Sales $U.S.

Growth of U.S. Small Wind Market

10 * $U.S. x 10,000

What’s driving the growth?

Fossil fuel prices

Demand for sources of green energy is increasing

DOE: 5% to be renewable by 2020

29 states – Renewal Portfolio Standards

Production Tax Credit renewed through 2012

Investment Tax Credits = 30%

Zoning

Performance

Supply chain

National net metering policy

Permitting & regulations

Fossil fuel prices

Intermittent power generation

Energy storage as a solution?

Back-up power generation?

Barriers to Small Wind Growth

Grid Integration

Small wind turbines may be installed as stand-alone or connected to the utility grid, requiring approval of the utility. Technical & insurance requirements vary state by state, as do metering arrangements

Grid-Connected Systems

Source: USDOE

Hybrid Power System – Off-Grid

A hybrid system combines a wind system with a solar and/or diesel engine-generator and can provide reliable off-grid power around the clock.

Hybrid Power Systems

Source: USDOE

Combine multiple sources to deliver non-intermittent electric power

Wind Turbine Overview

Wind across blades

Pressure difference

Blades rotate

Turns generator

Produces electricity

How does a wind turbine work?

Small Wind Turbine Cost

Image 16031 Courtesy DOE/NREL

Cost varies by company, design type, size (height), and kW rating

Generally about $3–$5,000 per kW

If tall tower – add $30–40,000 for foundation

Residential pay back – 6 to 20 years – depends on $$ incentives

Estimate 20 year life span

The majority carry a 5 yr. warranty, Bergey Wind recently raised to 10 yr.

Small Wind Turbine Components

10 kW Wind Turbine

Source: © Bergey Windpower Source: © HSB

Advancements in Technology

High efficiency airfoils

Neodymium-iron-boron “super-magnet” generators

Pultruded Fiberglass Reinforced Plastic (FRP) blades

Graphite-filled injection molded plastic blades

Technology Evolution and Adaptations

Advancements in Technology Tilt-Down Tower Design

Tilt-up tower in the normal operating position

Tilt-up tower in the lowered position for maintenance or hurricanes

Power Curve & Capacity Factor

Power Curve for the Endurance S-250 – 5 kW Wind Turbine

Hub-Height Wind Speed

mph m/s

rid (W

Horizontal Axis Wind Turbine (HAWT):

Requires smooth wind

Requires a tail or yaw control

Small Wind Turbine Types

Vertical Axis Wind turbine (VAWT):

Functions in shifty wind

Functions in gusty wind

Quiet & bird friendly

Current limited capacity

Small Wind Turbine Examples

Bergley 10 kW BWC Excel America's best selling residential wind turbine (3-bladed)

Horizontal Axis Wind Turbine (HAWT)

Home Energy Ball 0.50 kW V100 residential turbine

Helix 1 kW D361 residential wind turbine

Vertical Axis Wind Turbine (VAWT)

Mariah 1.2 kW Windspire residential turbine

Towers, Turbulence & Durability

Short towers result in:

Reduced wind speeds, and less electricity

Compromised reliability – more wear and tear from turbulence

30’ Rule – rotor should be 30’ above any obstacles to get above turbulent wind shear

Wind Turbulence

Source: Home Power magazine

Turbulence slows and degrades the wind resource, both upwind and downwind of obstructions. Note the height (H) and distance of turbulence

behind an obstruction—an unsuitable area for a wind turbine.

2H 20H

Wind Direction 2H

Small Wind Turbine Maintenance

Follow OEM maintenance guidelines

Tilt down towers = easier maintenance

Periodic inspection & maintenance (owner vs. OEM certified contract):

Blade cracks

Dings & dents

Cleaning debris off the blades

Re-tightening all bolts

Lubrication/greasing/oiling

ANDREA EZERINS Assistant Vice President, Corporate Underwriting

Wind Turbine Risk Drivers

Rapid technology change

Turnover in manufacturers

Parts no longer available?

Weather

Property concerns

Site layout construction/repair issues

Operational risk

Wind Turbine Property Exposures

Weather

Icing/Hail

High Winds

Lightning

Earth Movement and Flood

Property Concerns

Vandalism

Tower Collapse

Wind Turbine Equipment Breakdown Exposures

Blade damage

Foreign object impact

Erosion of leading edge

Blade tip deflection hitting tower

Cracks and fatigue failure

Tower collapse – structural fatigue

Overspeed damage

Rotor / generator bearing failures

Gearbox – lubrication viscosity and cleanliness

Miscellaneous electrical apparatus: slip rings, brushes, inverter, controls

Image Source: Photo by J.D. Redinger

3.5 kW

Image 16177 Courtesy DOE/NREL

16 13 5

Lightning Breakdown Wind Damage Unknown

Cause of Loss, Percent

12 5 4

12 16 20 24 28

Gearbox Blade Generator MEA Transformer

Cause by Component, Percent

Wind Turbine – Loss Experience

Keys to Reducing Exposure

Experienced installers

Established manufacturers

No experimental, prototype

New equipment under warranty

Some sort of service agreement, regular inspection

Turbine is visible and accessible

Properly designed for climate (temperature, lightning, wind)

How Do You Identify Risks with Renewable Energy Exposures?

Homeowners

Commercial Package

Farmowners

Do you generate power for your own use or to sell to others?

How Do You Identify Risks with Renewable Energy?

Manufacturer & model Size (kW output) # of units Age

(retrofit date?)

Warranty Service &

maintenance agreement

Monitoring agreement

Loss history (serial loss

issues) Tower height TIV & value

per unit

Business Income & Extra Expense Annual power

production Value

per unit

Insurance & Underwriting Considerations

Coverage in the Marketplace

Customized Renewable Energy Forms

All risk forms

Renewable experts

Designed to address exposures associated with larger renewable risks

Standard Commercial Property

Non customized, standard forms

Most address smaller renewable exposures that are ancillary to a commercial risk

Players in the Renewable Market

Dedicated Team/Product Approach

Travelers

The Hartford

Chartis

New companies every day

Many brokers including Marsh, Willis and Holmes Murphy

Loss Example

More Information

Andrea Ezerins Andrea_Ezerins@hsb.com 860.722.5308

Michael Roy Michael_Roy@hsb.com 860.722.5055

Contact your Munich Re Client Manager or HSB Client Company Manager for additional information.

THANK YOU FOR ATTENDING.

© Copyright 2011 Munich Reinsurance America, Inc. All rights reserved. "Munich Re" and the Munich Re logo are internationally protected registered trademarks. The Hartford Steam Boiler name is a mark owned by The Hartford Steam Boiler Inspection and Insurance Company. The material in this presentation is provided for your information only, and is not permitted to be further distributed without the express written permission of Munich Reinsurance America, Inc., Munich Re or Hartford Steam Boiler. This material is not intended to be legal, underwriting, financial, or any other type of professional advice. Examples given are for illustrative purposes only. Each reader should consult an attorney and other appropriate advisors to determine the applicability of any particular contract language to the reader's specific circumstances.

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