Expert Risk Articles


Investments in renewable energies are booming in both developed and emerging countries. Tranporting power from Point A to Point B requires new and powerful technology to minimize any energy-loss. This is no easy task and one that is becoming more difficult as power plants are being built in increasingly remote locations.

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Industrialized and emerging countries are currently investing in renewable energies on a huge scale. For the most part, hydroelectric power plants, wind turbines and solar parks are springing up in remote regions. To get the electricity to the consumer, new transmission lines have to be built and existing grid systems extended. This carries considerable risk as transporting electricity is a high-tech undertaking.

The Xiluodu hydroelectric power plant dam on China’s Jinsha River is almost as high as the Eiffel Tower in Paris. The dam crest of the plant, which is set to go into operation in 2014, measures 278 meters. Xiluodu is part of a complex comprising five additional hydroelectric power plants on the Jinsha River, which together are set to provide the output of forty nuclear power plants when all construction works are completed.

Not just China, but other booming economies like India, Brazil and the Arab states are also currently expanding their power-generation capacities at dizzying speeds. In 2012, the emerging and developing countries invested a total of US$12 billion in wind turbines and solar parks alone, while such expenditure reached US$132 billion in industrialized countries, according to a survey taken by Bloomberg New Energy Finance.


Generation here, consumption there

However, it is not enough to just build new hydroelectric power plants, wind turbines and solar parks. The electricity also has to be transported to wherever it is required, since in the case of renewable energies electricity generation and consumption are usually spatially isolated from one another. Wind power plants spring up preferably in places where a strong breeze blows. Hydroelectric power plants emerge at deeply incised river channels or in mountain regions. Large-scale photovoltaic power plants crop up in sparsely populated, sunny regions. However, the centers of consumption, the urban centers and the industrial sites, are frequently located hundreds or even thousands of kilometers away. This poses huge challenges for the grid system operators. How is the electricity from the new hydroelectric power plants in China, India, Brazil, and other places supposed to get to consumers when the existing grids would be unable to cope with the additional thousands of gigawatt hours? How will the electricity that the wind turbines produce offshore get to the mainland?

The answer may be the “monster truck” of electricity transportation technologies: high-voltage direct current transmission, or HVDC. It enables large volumes of electricity to be transported highly efficiently across large distances. “Compared with conventional three-phase power technology, HVDC lines have the advantage that only a minute portion of the energy is lost, even when transporting electricity across thousands of miles,” Thorsten Lutz, Senior Underwriter Engineering Germany at Allianz Global Corporate & Specialty (AGCS), explains. Losses can be minimized by up to 50 percent with a HVDC line – a significant benefit in light of transfer capacities in the region of several gigawatts. The connections can be laid equally well as overhead transmission lines or as underground or undersea cables.


Under maximum voltage

HVDC is not a completely new technology. The first lines went into operation as early as just after the Second World War. However, HVDC is only now seeing a breakthrough with the current fast-rising demand for energy. “In this decade, HVDC lines with a total capacity of 250 gigawatts will probably be put out to tender. That is a tremendous boom, since only a total of 100 gigawatts were installed in the past 40 years,” says Tim Dawidowsky, CEO of the Business Unit Transmission Solutions at Siemens’ Energy division.

Apart from the big renewable energy projects, the reason for this is also the development of cross-border connections that can compensate for local fluctuations in energy production or consumption. As an example of this, Dawidowsky cites a HVDC transmission line that Siemens is currently building between France and Spain in collaboration with partners. In the manager’s conviction, “These lines will enable us to gradually clear the bottlenecks in Europe-wide power grids.” Siemens assumes that the global market volume for HVDC transmission lines will be at around .6 billion in 2017. That corresponds to a doubling of the figure from 2012.

In Europe, the expansion of HVDC is closely connected to plans to generate renewable energies, preferably at those locations that have favorable natural conditions, such as solar power plants in southern Europe and wind parks in northwestern Europe – “of course, these European feed-in regions have to be connected by high-performance cable systems so that the production areas can be interwoven well and the reserves are as low as possible at generation,” Michael Höckel, Professor of Energy Systems at the Bern University of Applied Sciences in Switzerland, explains. “The development of an overriding HVDC-based transportation network is indispensable for this international version of increased consumption of renewable energy in Europe.”

New ground offshore

HVDCs are high-tech – and the convertor substations are their linchpins. At the beginning of the line, they transform the voltage of the electricity from the upstream three-phase supply network upward to a voltage of up to 800 kilovolts (kV) and at the end of the line back down again to a lower alternating current voltage. These 800-kV transformers cost between .5 million and .10 million each; the 400-kV transformers around half that. They are also sensitive. “The transformers have to be handled like raw eggs. Even the smallest knock during transportation or assembly can lead to a total write-off,” Oliver Höck, Risk Consultant Engineer at AGCS, explains.

It is therefore no surprise that AGCS insurance and consultancy services are in high demand when new HVDC lines are being built. After all, the grid system operators need several dozen of these transformers immediately for larger projects. They are often installed in remote regions, a fact that does not necessarily make the logistics, which are already complex enough, any easier. After all, a transformer is the size of an overseas container and weighs as much as a small house. Transporting the transformer by truck requires great intuitiveness. “It’s as if you had to move a fully furnished house without the glasses falling out of the cupboard,” is how Höck describes the task. Add to this the political risks like rebellions or acts of sabotage, the risk of natural disasters, for example earthquakes, not to mention the technical risks involved in the assembly and installation.

Installing offshore convertor substations that connect offshore wind parks to the grid system entails even greater risks. Swells and adverse weather conditions frequently make assembly very difficult. In addition, there is a lack of experience in this area, as there have been hardly any wind parks far out at sea up to now. In light of this, insuring such projects is a real challenge too. Höck describes typical AGCS procedure: “When we insured the connection of an offshore wind park in the North Sea recently, we traveled with the transformer manufacturer’s engineers to a prototype in the U.S. and examined the plant thoroughly down to the last circuit board. Later, we were present with the customer during the entire assembly and installation process and contributed our expertise there.”

European countries are moving closer together

Apart from building new HVDC lines, in many places the grid system operators also have to extend the existing three-phase power grid system to integrate wind turbines, solar systems and other plants into the energy system. This applies particularly to Europe, where national three-phase power grid systems are hardly connected with one another. “New renewables (on- and offshore wind and solar photovoltaics) are fluctuating sources of energy. In order to provide greater stability in the grid system and to reduce total new renewable infrastructure needs within single countries, it makes great sense to expand grid inter-connectivity between and among European states,” explains Professor Miranda Schreurs, head of the Research Center for Environmental Policy at the Free University of Berlin.

Then, for example, on very windy days, electricity could be exported, instead of simply switching off the wind turbines when they threaten to overload the grid systems, she says. The EU has recognized the problem and has earmarked € 9 billion for use as loans or debt guarantees under its “Connecting Europe” program – both for HVDC lines, as well as for extending the three-phase power grid system.

Grids are becoming smart

A more tightly-knit network will not be enough on its own to integrate the renewable energies into the grid system. It also has to become smarter. That applies especially to the middle and lower grid system levels. Integrated measurement, control and communication instruments help to better balance the production and consumption of electricity and thus prevent blackouts. Voltage fluctuations and the number of millisecond outages can also be reduced in this way. Industry in particular can profit from this, as its sensitive production processes can be adversely affected by a deterioration in supply quality.

This type of smart grid enables industrial companies, for example, to help the grid system operators – for a commensurate fee – to stabilize energy supply. To do this, they grant them the right to switch off individual plants with high energy requirements remotely if the grids are at risk of being strained. This is a long-established model in California. Refrigerated warehouse operators, for example, run their cooling machines preferably at times when large amounts of power are being fed into the grid systems. This means they produce cold in reserve – the refrigerated warehouse acts as a kind of energy storage facility. If too little energy is available, they simply turn off the plants for a few hours. They are rewarded for this service with low energy prices or direct remuneration. This type of solution is considerably more cost-effective than extending the grid systems.