The increasing occurrence of extreme climate events like cyclones and heatwaves is driving up insurance costs for India’s wind energy sector, both for new and existing wind turbines. These rising risks have led wind energy project developers to seek innovative insurance solutions to mitigate potential financial losses.
The insurance premiums for wind turbines are escalating yearly due to the growing frequency of climate-related events. Concerned developers are increasingly turning to parametric insurance, also known as index-based insurance, for their wind energy projects. This type of insurance provides coverage for losses linked to specific weather conditions, such as insufficient wind, which can result in lost profits.
Sajja Praveen Chowdary, Director at Policybazaar for Business, explains, “If power generation falls short due to inadequate wind – possibly because of climate change or other factors – you can experience lost profits. Parametric insurance addresses this, covering not just damage from disasters but losses arising from natural conditions or weather trends that affect wind energy generation.” Chowdary also noted that insurers are now offering this new type of coverage and are prepared to expand it further in response to growing risks.
Recent cyclones in Gujarat have already damaged wind power projects, while heatwaves in Rajasthan have caused windmills to catch fire. These events, combined with reduced wind speeds, pose significant challenges to India’s wind energy goals, potentially impacting ongoing investments and deals in the sector.
Industry estimates indicate that insurance premiums for wind turbines range from around 0.5% of the commercial value for new installations to over 1% for older turbines. With the rise in climate events and the resulting damages, these premiums are expected to increase.
Narayan Kumar, Chief Business Officer at INOX Wind, an Indian wind turbine manufacturer, highlighted that along with insurance costs, the operations and maintenance (O&M) expenses are also rising due to disasters. He added, “Cyclones significantly impact wind power generation. Typically, wind speeds during peak season range from 8 to 11 meters per second, but during cyclones, this can surge to 18 to 20 meters per second – well above the survival wind speed of most turbines.”
