The transition away from the fossil fuel towards more renewable sources of power generation is a central piece in the UK’s strategy to achieve its net zero commitments. But increasing the percentage of renewable energy in the electricity grid – particularly wind and solar –brings its own set of challenges.

The switch from conventional power generation to renewable energy will have a dramatic impact on the amount of mechanical inertia in our electricity grid. Here we look at the importance of this inertia, the potential losses the renewable energy sector may experience without it, and ways to address these challenges in the future.

Inertia within the electricity grid

Different methods of electricity generation have different built-in characteristics. Conventional power stations rely on large rotating turbines to generate electricity. And in a similar way that a car will continue moving forward if you take your foot off the accelerator, or a bicycle will keep rolling if you stop peddling, these rotating turbines store kinetic energy.

In contrast, solar PV systems don’t rely on rotating turbines and wind turbines don’t connect directly to the grid. This lack of a direct connection is important when it comes to creating stability and avoiding potential losses. Here’s why.

The critical function played by inertia

Electricity grids operate at a specific frequency, typically 50 or 60 Hz, depending on the region. This frequency must be maintained within a narrow range to ensure the grid remains stable and electrical devices connected to it can function properly.

Inertia is important because it provides a buffer against abrupt changes in frequency, caused by sudden changes in power demand. The kinetic energy stored in the rotating mass of generators helps to absorb these fluctuations and to maintain a constant frequency.

For example, if a large power plant suddenly goes offline, the in-built inertia in the system will reduce the rate at which the frequency drops, giving grid operators time to respond and either bring additional generation online or shed load to stabilise the frequency. Similarly, if there’s a sudden increase in power demand, the inertia will help to prevent the frequency from rising too quickly.

Inertia challenges created by renewable energy

The transition towards renewable energy, particularly wind and solar, introduces significant challenges to grid stability. Unlike conventional generators, most renewable sources don’t provide the same level of mechanical inertia.

Wind turbines, especially those that operate with variable-speed technology, utilise power electronics that decouple mechanical energy from electrical output. This results in minimal or, in some cases, no contribution to the system's inertia. Furthermore, as the electricity grid gets more of its power from renewable sources, the associated drop in its inertia can lead to greater frequency fluctuations.

In a renewable-heavy system, a spike in demand or a sudden loss of power generation can cause abrupt frequency drops, which increase the risk of system instability, blackouts and potentially damage to electrical equipment.

One of the challenges associated with the transition to renewable energy is ensuring the grid can manage swift changes in frequency deviation. Without the inertia provided by large rotating turbines, grid operators need to rely more on fast-acting resources such as battery storage or demand response mechanisms to stabilise the system.

And on top of this issue, they also have to deal with the variable output from renewable sources, which complicates energy output forecasting and adds to the challenge of matching supply with demand.

Loss scenario: Contingent business interruption loss

In some instances, the reduced inertia in the grid can have significant consequences for renewable energy operators.

Let’s consider a hypothetical offshore wind farm that generates a substantial amount of electricity and is integrated with the local grid.

It’s a key player in meeting regional energy demand and has contracts with various utility companies to supply renewable energy. However, the sudden loss of a nearby conventional power station leads to significant changes in grid dynamics. This plant had been providing critical inertia to the grid, helping to stabilise frequency fluctuations. But its loss means the grid’s inertia significantly decreases, leading to rapid frequency swings that jeopardise its overall stability.

In response, grid operators decide that the offshore wind farm, which is generating at full capacity, poses a risk to grid stability. The fluctuations in frequency make it difficult for the wind farm’s turbines to operate safely, as they rely on stable grid conditions to function effectively. Consequently, the operators instruct the offshore wind farm to curtail output, and ultimately, to shut down to protect both the wind farm infrastructure and the grid.

The shutdown triggers a cascade of financial repercussions for the wind farm due to contingent business interruption losses. These are detailed below:

• Lost revenue: the wind farm is unable to generate electricity, resulting in significant lost revenue from power sales to utility companies. This revenue loss directly impacts the financial viability of the wind farm operator.

• Contractual penalties: the wind farm may have contractual obligations to supply a certain amount of power. Failure to meet these obligations can lead to penalties and damage claims from utility companies or power purchasers, further exacerbating the financial losses.

• Operational costs: while the wind farm is shut down, operational costs such as maintenance and personnel salaries continue to accumulate, straining the company’s finances even more.

• Insurance implications: the business interruption loss may lead to claims on insurance policies. However, the specifics of the insurance coverage — whether it includes contingent business interruption due to grid instability — will play a crucial role in determining the possible recovery of lost income.

Mitigation and recovery strategies

Going forward, renewable energy operators must assess the growing exposure they have to such losses given the changing dynamics associated with built-in inertia in the grid.

To mitigate the impact of such a scenario, the wind farm could consider strategies such as:

• Enhanced grid coordination: strengthening the communication and coordination with grid operators will empower the wind farm to respond more effectively to grid conditions and potentially avoid shutdowns.

• Investment in technology: implementing advanced control systems that provide synthetic inertia can help stabilise the grid and allow the wind farm to operate more reliably during periods of reduced conventional power generation.

• Diversification of revenue streams: exploring ancillary services, such as frequency response or demand response programmes, can create additional revenue opportunities that can help cushion the impact of future disruptions.

• Insurance review: regularly reviewing and updating insurance policies to ensure adequate cover is in place for business interruption losses will help safeguard against the financial impacts from unexpected events.

The climate change crisis has put a huge focus on the exposures created by more extreme weather incidents and less predictable weather patterns. But as we implement changes to mitigate these risks and transition towards renewable energy sources, there are other associated exposures with which to deal.

The insurance market is likely to see more of these types of losses in the years ahead, which will put a focus on both the risk mitigation strategies that renewable energy operators have implemented and the cover they have in place.