The Great Energy Transition: Strategies to Help Ensure Renewable Capacity Buildout Success

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Logo: Travelers. Text: The Great Energy Transition: Strategies to Help Ensure Renewable Capacity Buildout Success. A woman faces us against a gray background with a red Travelers umbrella logo in the upper left.

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EILEEN KAUFFMAN: Welcome to today's webinar, managing risk through the great energy transition, strategies to help ensure renewable capacity build out success. I'm Eileen Kauffman, I'm the vice president and national practice lead for renewable energy at Travelers. And I'll be your moderator today.

On behalf of Travelers, I'd like to thank you for taking the time to join us for this very important and timely discussion. Before we jump into the webinar, I do want to just add in the disclaimer that the information in this webinar is intended to be informational and does not affect a change or policies issued by Travelers. And with that, let's get rolling into the topic.

Over the next several decades, there will be unprecedented growth and profound transition in the energy sector. The global transition from high carbon to low carbon energy signifies a pivotal generational shift in energy sources. Technical advancements, alongside economic incentives, have bolstered this transition. Governments, industries, and individuals are investing in renewable energy.

Renewables are set to contribute 80% of the new generation capacity to 2030 under current policy settings, with solar alone accounting for more than half of this expansion. Today, we'll discuss offshore and onshore wind, solar, and battery energy storage, as well as hydrogen, SMRs, and alternative energy storage technologies, aside from lithium ion. They are different from each other, from a volatile perspective, risk exposure, and what is phased in on these projects.

Travelers is an industry leader with more than 170 years in the insurance business. We also have more than 30 years of expertise in protecting energy companies and deep proficiency in the renewable energy industry. Our phenomenal relationships with our agents and insured partners, such as Dominion Energy, one of today's esteemed panelists, have been game changers in the renewable energy space. Together, we continually work to stay on top of the challenges and define the exposures and ensure ability of these emerging assets.

To traverse this great renewable capacity buildout successfully, we must deeply understand the challenges that may encountered and have insights and tools to manage the potential risk. That is what we'll be discussing today with our panelists. So without further ado, I'll introduce you to the Travelers and industry panelists who are sharing their expertise today.

First, we have Tom Cooper, head of renewable energy with Travelers Lloyd's of London Syndicate 5000, which provides worldwide coverage for many risks involved in the development, construction, and operations of renewable energy assets. Tom has been with Travelers for over a decade and part of the renewables space since Travelers first set its dedicated specialist practice in London in 2015. He oversees a market leading team of underwriters with expertise across a mixed portfolio encompassing onshore wind, offshore wind, solar, and battery energy storage.

Next, we have Katelynn Spacher, a risk control specialist at Travelers. Katelynn has over 10 years of experience working in construction, safety, and risk management. While in the field, she worked with contractors of varying sizes, trades, and market specializations. More recently, she manages different projects and works closely with members of the Travelers risk control specialty teams focused on renewable energy.

And last but not least, we are honored and excited to have a special guest, Chris Patterson, a risk manager with Dominion Energy and a Travelers client partner for over 20 years. Chris has worked for Dominion for over 18 years in a variety of roles, spending the past five years in risk management.

He currently leads a team of six analysts who are responsible for managing the company's insurance programs and who also play an essential role in helping negotiate contractual terms and conditions for Dominion's various business segments. But before we get into it, we just want to remind our audience that because there is so much great material to get through with our panelists today, we are not going to take live questions.

So if you have a question or comment, please put it in the chat, and we'll do our best to answer it. Now, let's dig in. Let's start with you, Tom. There are two major pieces of legislative driving this build out here in the US, the Investment Reduction Act and the Infrastructure Investment and Jobs Act. Can you give us a sense of the size of these subsidies and incentives coming from them?

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Tom faces us against a background filled with wind turbines on rolling green hills, with the Travelers logo in the upper right corner.

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TOM COOPER: Thanks, Eileen. As a topic, these unprecedented pieces of US legislation which seek to heavily incentivize and stimulate domestic growth in the sector have obviously received a lot of airtime, and it's certainly a dominant theme of discussion within the energy space. So many on the call will be familiar.

But just as a brief reminder, there's the Bipartisan Infrastructure Law and the Infrastructure Investment and Jobs Act. This provides over $100 billion in total energy funding. We've got the Inflation Reduction Act. So that's a $378 billion package into the US economy, $94 billion of which is in total energy funding and $235 billion in total tax energy incentives.

We then have key themes that we're covering within there. So emissions reduction is $159 billion. Renewables, $121 billion. And electric, 120 billion. October 2023 also saw the Biden-Harris administration announce the IIJA funded $3.46 billion worth of investment into electrical grid resilience and reliability. So this is better protection against extreme weather events, increased flexibility, reliability and efficiency, and targeting 58 projects across 44 states, leveraging $8 billion worth in federal and private investments.

So sounding a bit blase with those numbers, but these are really serious amounts which will have a commensurate impact in terms of the build out. And when we think about the build out, there are a multitude of key macro factors and primary drivers to consider when we look to contextualize the scope and the scale of these momentous initiatives. But if we were just to pick out a few of the most compelling ones, I'd say number one being energy independence.

We're entering into a progressively more deglobalized world, one with a less integrated global picture. Geopolitical instability is on the rise, especially emanating from the conflicts in Ukraine and the Middle east, meaning that energy independence is becoming much more of a strategic imperative.

Number two, we've got the business case for renewables. Previously, a subsidy-dependent class of energy production, now very much cost competitive and in many cases, with little to no reliance on subsidies. So if we take a period from 2010 to 2022 and look at how the global weighted average levelized cost of energy for offshore wind, onshore wind, and solar generation respectively have performed versus the cheapest available fossil fuel fired option, we see offshore wind previously 258% higher in 2010, but only 17% more so by 2022.

Onshore wind, 95% higher in 2010, but now 52% lower by 2022. And that has continued to come down. And most obviously, solar PV, which went from 710% higher in 2010 to a levelized cost of energy, which by 2022 was 29% lower than the cheapest fossil production. And I think we can expect these price reductions to continue, albeit in a little more gradual manner, as we see ongoing technology improvements, greater economies of scale, and reduced financing costs as well.

A third theme would be the undeniable driver of economic growth and job creation that renewable energy represents. So 2023 saw $2.3 trillion of global clean energy investment. And you take a look at worldwide job numbers, it's growing from 7.3 million in 2012 to 13.7 million in 2022.

The fourth point, I think, we'd like to highlight here would be the evolving economy and the changing nature of demand. So as the webinar alludes to, the energy transition is very much about a holistic mix of power generation and deployment through both hydrocarbons and electrons and of course, all of the ancillary technologies that facilitates it.

And we are starting to see a tangible movement in terms of electricity demand. Hitherto it's been broadly flat for about 15 years with 2021 being at about 3,800 terawatt hours. But now, we see the exponential growth in things like demand for data center capacity, the computing requirements associated with the growth of AI, cryptocurrency mining, where there's also reshoring of semiconductor manufacturing coming back to the US, as well as the well-publicized growth of the EV network.

So we see a very different picture from an electricity demand point of view. In fact, the IEA report published in January predicts energy consumption in the first three of those activities I've mentioned to pretty much double by 2026. So when we think about the change in demand, things like grid capacity and resilience is going to be critical to facilitating the buildout.

So of course, across all of these themes, there are nuances, most notably along geographic lines. So, for example, what may be true in Europe is likely to differ in the Middle East, is likely to differ in Australasia. Key differences in regional characteristics, local policy, local entity strategy, and ultimately, a combination of these things will determine the speed and extent of progress of the buildout.

And if we take a US view, what may be true in one state is often very different in another. And the chosen strategy of each US state and the nature and the profile of the entities operating within those states will have a huge bearing on the future direction within the space. So it's probably a opportune moment to bring Chris in and get a viewpoint from Dominion as a regulated utility operating in Virginia and the surrounding states. Chris.

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Chris faces us against a background of an ocean with wind turbines off shore. There is a Dominion Energy, Powering Your Every Day, logo in the upper right corner.

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CHRIS PATTERSON: Yeah, thanks, Tom. And you're definitely spot on. As you mentioned, Dominion Energy service territory is largely in the Virginia and the Carolinas. And with Virginia being home to the largest data center market in the world, finding ways to serve that load growth while maintaining our commitment to clean, carbon-free energy is a huge focus for our company over the next 15 to 20 years.

And while I realize that the focus of today's presentation is about the transition to renewables, I'd be remiss if I didn't make it clear that renewables alone cannot keep our lights on. In fact, our most recent IRPs reflect an all of the above approach. So that's aggressively building renewables while still ensuring the reliability of our system. And what that means is continued investment in transmission and distribution networks, as well as looking at dispatchable generation to support the intermittent nature of renewable forms of generation.

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Eileen returns with the gray background and red Travelers umbrella in the upper left.

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EILEEN KAUFFMAN: So we have all this backing pouring in. But how does that translate into how much renewable energy capacity will be built out over the next coming years? And where will we see this capacity being built out? Will it be spread out evenly over the country or concentrated in certain areas? Tom, what's your take on this?

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Tom returns with the turbines in the green hills and the Travelers logo in the upper right.

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TOM COOPER: First and foremost, important that ambition and expectation is paired with quite a healthy dose of realism as to what is actually deliverable and over what timeline. We've already witnessed the high profile cancellations of 6 gigawatts of planned offshore capacity along the Eastern seaboard. And together, that accounts for about 20% of the Biden administration's offshore wind target, which was expected to be delivered by 2030. And a key issue that was encountered by all of them was the high inflationary environment and how that impacted the economic model of those projects.

But, yeah, when we think about where the growth will be, there are several factors that determine and including but not limited to, first and foremost, grid capacity. Chris has just touched on that. We've talked about the changing nature of electricity demand already. And over the past decade, we've seen a series of mounting challenges to grids within the US.

We've got more variable generation, decommissioning of coal, extreme weather events, generally, pressure on companies to pursue more of a net zero agenda. And now, obviously, the new challenge that the prospect of significant demand side growth. We've also got inadequate grid capacity versus the demand, and that's already leading to very long interconnection queues with the opportunity cost in foregone revenues associated with that.

Simultaneously, regulators are also becoming increasingly concerned about the impact of grid investments on customer bills. So really, it's a fine balancing act between managing the relationships with customers, between regulators, and ensuring that we do have grid reliability and resilience. Again, briefly touched on state-driven policy is a big one.

Clearly, we're talking about a very big continent, a very big country within a continent. The natural resource potential in any given state will be a big determinant of the energy mix and uptake of renewables therein. Some jurisdictions obviously lend themselves very well to particular occupancies. So those with heavy load centers and ample coastline may prioritize offshore. Many others are heavily leaning into solar at BESS, which the IEA sees making up 81% of US new electrical generating capacity in 2024.

And hand in hand with natural resource is obviously natural peril exposure. Big topic in the market, big driver of losses from an underwriting perspective. Increasingly we see these considerations feeding into site selection, design, engineering criteria and obviously, the costs that go with that.

Trade policy is a highly salient theme at the moment, and one which can have really tangible impacts on both the CapEx and the levelized cost of energy of development and buildout. In the US, we see a big constraint on Chinese imports. And this is a debate that's certainly raging around BESS at the moment, where, similar to the SPV space, the majority of that value chain is dominated by Chinese OEMs.

And really, the question being-- and I think it'll be a decisive one for developers-- to what extent do, for example, Chinese cells being integrated into BESS equipment which is otherwise assembled in the US, qualify for local domestic content status, which is a determining factor of IRA subsidy eligibility. So that's an interesting one.

Financing, I think, is another key one. There's a longer term horizon and transferability of the tax credits associated with the latest tranche under the IRA. So that may start broadening the appeal to a wider investor community. And in the fullness of time, it could lead to a more active involvement, for example, of the bond market. So let's see and watch that space.

And I think the final one, the elephant in the room, we've got upcoming elections in the US. How might a change of administration and political direction sway some of the commitments that have already been made? Or is it assumed that the economic case is so compelling that it's likely that we'll stay the course? So I'd say these are some of the factors that we'd consider.

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Eileen returns with the gray background and red Travelers umbrella in the upper left.

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EILEEN KAUFFMAN: Thanks, Tom. So let's focus on offshore wind for a bit. Chris, Dominion Energy recently developed the first offshore wind project in US federal waters. A 12-megawatt pilot project off the Coast of Virginia that went COD in early 2021 and currently underway is your CVOW, a 2.6 gigawatt with a 176 turbine commercial project that is expected to be operational by late 2026.

Your insights and firsthand experiences managing risk on these projects are invaluable to understand some of the potential challenges encountered on these builds. Let's start looking at some of the key steps involved in getting these projects up and running. What does it involve? What does it really take, particularly when thinking about how to predict and prepare for any hiccups that could delay start up or progress along the way?

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Chris returns with the turbines in the ocean and Dominion Energy logo in the upper right.

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CHRIS PATTERSON: Yeah. Thanks, Eileen. So going back to Tom's previous comments about local policy and regional characteristics, I want to start by taking just a quick minute to highlight the Virginia Clean Economy Act of 2020, which really underpins a lot of the shift taking place in Virginia.

So at its core, the act requires that Dominion develop significant zero carbon resources by 2036, namely 5 gigawatts of offshore wind, 16 gigawatts of solar, and almost 3 gigawatts of battery storage. Another key thing to distinguish is that all of our renewable projects in Virginia, which include CVOW, are being constructed under a regulated ratepayer model with no third-party financing nor PPA considerations which can often lead to restrictive insurance requirements.

Now back to your original question about key steps, our journey first started over 10 years ago when we secured rights via auction for close to 115,000 acre lease area off the Coast of Virginia. From there, we took a pragmatic approach, first building the 12-megawatt project that you mentioned that consists of two 6-megawatt turbines.

Now, we dubbed that project the CVOW Pilot Project because we were able to learn numerous lessons in advance of our larger commercial project, things that we honestly had no prior experience with as a traditional onshore US utility. These things range from testing the federal permitting process with BOEM and some of the other regulatory bodies to various safety and environmental considerations and obviously the design, installation, and supply chain challenges that come with bringing offshore wind to the US.

Now moving to some of the key steps involved in pre-construction, I'll highlight just a few that you all see mentioned on the screen.

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There are sites, seabed studies that need to be performed in our case for over 176 piling locations. We've also had to conduct unexploded ordnance studies, which include addressing any UXOs in the path of our project. In addition, we've had to work with local fishermen and mariners to coordinate exclusion zones and communicate construction timelines.

As well for our project, there are also several transatlantic fiber cables that we have to cross which have necessitated crossing agreements with those owners. And certainly, one of the largest components is the procurement effort in terms of selecting partners. Now, while our pilot project was a traditional turnkey project, our senior leadership realized that we could achieve significant cost savings if we segmented the various packages on a commercial project with major suppliers and contractors directly. So that's exactly what we've done.

We've partnered with reputable, industry-leading European companies, the major ones being Siemens Gamesa, who's providing the WTGs and components, CS Wind, and Semco Maritime for our transition pieces and offshore substations, EEW for our monopiles, and DEME Offshore and Prysmian as our main TI contractor and cable provider.

Now, Katelynn, I know in previous chats that you also feel contractor selection is a key consideration for developers. Can you provide some additional details here?

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Katelynn appears against the same gray background as Eileen, with the red Travelers umbrella in the upper left.

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KATELYNN SPACHER: Yeah. Thank you, Chris. And you're absolutely right. The number of contractors and materials that are involved in these offshore wind projects is so massive and complex. And that's why contractor selection really is a key ingredient to a successful project.

If you don't have the right players at the table, it becomes really challenging to execute on a project and get the work done. And this is especially true when we look at the offshore wind world because it's such a niche market and it has such highly specialized work.

So that's why Travelers recommends implementing a formal contract or pre-qualification program aimed at assessing a contractor's previous work experience, safety track record, quality control measures, and safety management programs. So when you're pre-qualifying a contractor, here are a couple examples of things that you might want to ask about.

So you want to ask about their previous experience with offshore wind projects. Are they of a comparable size, scope, et cetera? What is their level of experience with the methods and the equipment that are going to be used for this project that you're starting up? You could also ask for a list of jobs completed that can give you some really good insight into their previous experience.

It's also great to ask about any hurdles or lessons learned that they've gained from previous jobs. This is an interesting question to ask because it can actually help you identify things that you may need to plan for on your own project. But it can also give you a lens into the company's culture, commitment to continuous improvement, as well as possible strengths or weaknesses.

In addition to that, you'll want to ask about specific project safety plans or strategies. And then lastly, you want to ask how they will in turn pre-qualify any contractors that they bring on board. So it's great that you're kind of guarding the front door in terms of who you hire or select, but you want to make sure that that's happening downstream as well with any second tier contractors to you. So those are just some high level things that we're looking at. Thank you for asking, Chris.

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Chris returns with the turbines in the ocean and Dominion Energy logo in the upper right.

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CHRIS PATTERSON: Yeah, absolutely. And certainly all valid points. Another planning consideration I wanted to point out is that for a project, the size and scale of ours, materials can't feasibly be delivered straight to the offshore lease area. So we spend a lot of time identifying a suitable laydown yard up front.

Now, what you see on the screen is what's called the Portsmouth Marine Terminal, which is where we are currently leasing 72 acres of land.

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What's unique about this location is that it's accessible without having to navigate any bridges or major ship traffic, is in deep water, yet it's also inland and elevated so as to protect the major components from major storms and any ensuing flooding.

And now really to bring it all together, I've included a timeline that you see here.

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I'm not going to walk through all the various items, but I thought it's important to show that while the construction timeline itself is no small feat, spanning almost three years, the entire effort will actually approach close to six years from the time some of the first permits were filed and those contractor negotiations began until we expect to declare commercial operations, hopefully in late 2026.

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Eileen returns with the gray background and red Travelers umbrella in the upper left.

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EILEEN KAUFFMAN: Thanks, Chris. When you think about some of the challenges that could arise that you had to anticipate or that you and your team have experienced and dealt with firsthand on these build outs.

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Chris returns with the turbines in the ocean and Dominion Energy logo in the upper right.

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CHRIS PATTERSON: Yeah, another good question. So the first thing I'd like to touch on is that in conjunction with our procurement process being segmented, we felt the placement of the construction all risk policy was best left to us as the developer to take out. Now for those who haven't had the pleasure of placing an offshore wind CAR policy, it honestly deserves its own webinar. But I'll do my best to summarize it here today.

So we first approached the potential lead markets a full year in advance of binding and from there worked with our brokers as well as a third-party modeler on developing an expected maximum loss study, as well as a bespoke NatCap model, which essentially looks at the hurricane patterns off the Coast of Virginia in the lease area in conjunction with the design criteria around the blades and foundations.

Now, the results of these two analyses helped drive us towards the ultimate all risk and windstorm limits that we elected for the project. Another related item to the CAR policy is the incorporation of marine warranty surveyor. And for those that don't know, the MWS largely serves as the eyes and ears of the insurers when it comes to movements. And what I mean by that is it could be from land to vessel, from vessel to land, or from vessel to installation. And what the MWS is really tasked with is looking at the underlying policies and procedures related to those movements, things such as crane usage or suitability of vessels being incorporated.

Two other things I'll quickly mention is with respect to the CAR policy, the interplay with the contractors. Now, as I'm sure many of you strive to do in your contracts, we had to make sure that the risk of loss transitioned cleanly from one contractor to the next while they have care, custody, and control of a particular work package. And we also successfully negotiated for the contractors to maintain warranty risk, as we did not want to put that on the CAR insurers through three coverage.

Now, looking at this through a loss control lens, Katelynn, I imagine working offshore and on vessels presents some unique challenges in itself.

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Katelynn returns with the gray background and red Travelers umbrella in the upper left.

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KATELYNN SPACHER: Yeah. Thanks, Chris. It's really important to think about vessels here, but keep in mind that vessel usage, responsibility, and loss prevention strategies are really going to vary from project to project. It's going to depend on factors like charter agreements, type of vessels used, et cetera.

But that said, there are some general things that you should keep in mind when it comes to vessels on offshore wind projects. So the first being copies of the inspection and maintenance reports. These can really help ensure that the vessel that you are using to do your work can actually get you to do the work safely, effectively, and in a timely manner.

The next thing I want to touch on involves the jackup rigs. These are common in the offshore wind world. If a contractor has never used a jackup unit in the work area or doesn't follow through with a proper safety procedures, there can be stability issues which can lead to serious injuries, property damage, or even project delays.

Starting with the planning phase, having a firm understanding of the seabed conditions can really help you prevent any of those stability issues I mentioned before. Another important control is proper start up via preloading. This is a procedure that's done in phases to help ensure that the legs of the unit are firmly in place before starting work, and it helps mitigate stability concerns.

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Chris returns with the turbines in the ocean and Dominion Energy logo in the upper right.

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CHRIS PATTERSON: Thanks, Katelynn. And piggybacking off of those vessel safety comments, that's a good segue back to some other challenges that we've dealt with firsthand. Some of you may have seen in the news that Dominion's also currently constructing the first Jones Act compliant wind turbine installation vessel in Texas.

Now, the Jones Act is a very important piece of legislation when it comes to offshore wind build out in the US, as it basically dictates that cargo leaving a US port destined for another US location, i.e. An offshore wind site, must travel on a US-flagged and crewed vessel. And the absence of having a US WTIV the alternative is that you have to barge the key components, be it blades, cells, towers to the project site, then transfer them to a European WTIV, which are also in high demand, and perform installation from there.

So by providing our own vessel, it will save costs for us. But equally as important, it removes that extra equipment handling activity or exposure as you see it that way from the project. Another mitigant here on the slide that I'll quickly mention is that we have elected to go with a self-sustaining turbine package which essentially provides 48 hours of backup power in the event that a turbine ever loses power.

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Now, what this does, it will allow them to pitch and yaw and protect themselves from high winds.

Shifting to the environment, which is certainly a topic that gets a lot of attention in the news, there are other considerations we've had to make. A big one I'll comment on is the seasonality impact to our project, whereby subsea work is required to take place outside of the North Atlantic right whale migration season. And what this does is effectively limit us to six months out of the year for piling work.

So what that means is this year, we're going to roughly install half of our monopiles from May until October, continue into transition pieces being installed in the winter, and then we'll reconvene on the monopile installation work next year along the same time frame. And along with that, we're also enacting a double big bubble curtain during the pile driving season to further reduce noise impacts on marine wildlife in the area.

Katelynn, on the threat of environment and weather, are there other things you'd like to point out here?

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Katelynn returns with the gray background and red Travelers umbrella in the upper left.

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KATELYNN SPACHER: Yeah. Thanks, Chris. So when it comes to weather, it's a significant challenge. And there are some essential controls that you can implement that can help keep your project on track. The first, it comes down to researching and thoroughly understanding your project's region and the weather patterns. This means knowing the types of weather systems that your region may experience and when.

You want to look into the historic weather pattern data and try to forecast what may occur during the course of your project, especially during those periods where key activities are taking place. Proactive planning is another huge piece of this. This starts with the research, as I just mentioned, just so you know what you're up against exactly

But pre-planning involves developing plans on what will occur in the event of an emergency. The more specific the plan, the better. You want to be sure to revisit the plan periodically, particularly in the run up to hurricane season or other kind of storm season and update, redistribute, and train personnel as needed.

Part of planning also includes identifying where vessels will go in the event of a storm. It's important to know the location of banks, shallow areas, and other potential obstacles near the work site. The last piece I want to touch on involves continuous monitoring. So this is one of the most crucial steps and should be part of your preparedness plan.

Assign a small team to monitor weather on a continuous basis. Identify a mechanism for communicating any weather-related updates or changes. Again, these are just high level overviews, but they're all really important items to consider.

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Eileen returns with the gray background and red Travelers umbrella in the upper left.

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EILEEN KAUFFMAN: Thanks, Katelynn, for those valuable insights into weather preparedness for offshore. Tom, when we think about onshore wind, what are the key distinctions in building out new onshore wind capacity?

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Tom returns with the turbines in the green hills and the Travelers logo in the upper right.

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TOM COOPER: A lot of similarities. Certainly a lot of similarities for sure, but also some pretty unique differences impacting the buildout. We have an aging fleet. So if we take Europe as an example, we've got 14 gigawatts predominantly at the moment in Germany, Spain, and Denmark, but 14 gigawatts is already over 20 years old. And by 2030, it's estimated that there will be 78 gigawatts has reached that 20-year-old point.

Now, bear in mind, the design life is around 25 years. So that entire fleet is going to be in need of extensive and regular operations and maintenance or indeed repowering, depending on how the owners choose to approach. We see a lot of challenges around the retention of skilled engineering technicians in the workforce. Certainly in Europe, there has been a bit of a brain drain, the appeal of the more lucrative offshore sector, which leaves an absence of those qualified individuals to be installing and servicing the installed onshore turbines.

There have been some pretty well-publicized profitability challenges of the three leading OEMs, I think, that kind of escaped anyone's attention in the news. And until now, they've really monopolized the space, especially in the Western hemisphere, but they've definitely been battered by a combination of interest rates, elevated commodity prices, demand uncertainty, and strained supply chains.

And to an extent, that has created a really good opportunity for the emergence of the Chinese OEMs in much the same way as we saw that similar dynamic with solar a few years ago. Recent report published saw Goldwind and Envision, two Chinese OEMs named as the two top firms from an installed capacity delivered in 2023. And we saw GE concurrently falling from a ranking of third to sixth. So that was reflecting about a 35% drop in sales.

And finally, I mentioned some of the challenges encountered by the Western OEMs. Part of this-- and in fact, a lot of it, has been related to quality issues associated with their newest, largest models. We've seen a real race to scale up in terms of nameplate capacity, and that has not been accompanied by sufficiently iterative process when it comes to R&D and focus on reliability of the technology.

And I think in addition with turbines scale comes other challenges. So we see a lack of availability of appropriate transportation and certainly adequately sized cranes for installation and repair. And that has often exacerbated losses within the onshore fleet. So I've had conversations with you, Katelynn, about this, and I know that risk control have got some really good insights around crane. What's your take?

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Katelynn returns with the gray background and red Travelers umbrella in the upper left.

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KATELYNN SPACHER: Yeah. Thanks, Tom. So pre-planning for cranes is an incredibly important piece of this puzzle. It's about ensuring that you have the right people, the right equipment, and the right setup for the job. So let's talk about a few key areas to consider when developing your pre-plan for crane picks.

So there have been losses that occur while the large turbine installation crane is moving between sites that are within a larger project footprint. And in these cases, instead of using the delineated access roads, they've actually cut across an area to save time. Think about the shortest distance between two points.

When this occurs, it leads to the potential for a tip over event or similar. Now, generally speaking, access roads on the project can be narrow and difficult to traverse. That said, you want to make sure that they are properly engineered, compacted for use by cranes and other heavy equipment, and importantly used by the cranes and other equipment.

So for work in hilly areas, which is often where these onshore wind sites are located, thought needs to be given to the maximum incline and decline grade. And this can vary by crane manufacturer and model. Make sure someone on the team has consulted with a manufacturer's literature to determine the appropriate maximum incline and decline for the crane.

Turbines are, of course, located in high wind areas, and it's no surprise that wind is no friend of cranes. Monitoring weather during lifts is critical. Larger cranes typically have anemometers that are built right into the equipment. You want to make sure that these are properly calibrated. We have seen situations where anemometers are broken and never repaired, and when this is the case, it can only lead to difficulties down the road.

You also want to make sure you understand the impact that wind can have on the lift and the load. And for wind projects in general, you're dealing with some of the largest booms that are available on the market. Wind gets stronger and harsher the higher up you go, and this can make for severe consequences if you're not managing it properly.

And the last thing I'll say about cranes, one other potentially overlooked area involves the other cranes that are on a site. So these are often referred to as assist cranes. You'll want to make sure that you're planning on the crane picks for these smaller cranes, just as you would for the larger turbine installation cranes. And for these smaller cranes as well as other equipment on site, You want to make sure that for transport within the site, you're using proper tie downs and securement.

I want to shift gears to equipment breakdown. So equipment breakdown is a significant concern in wind. In terms of loss prevention, there's a mantra that actually one of our equipment breakdown specialists shared with me, which is keep it cool, keep it clean, and keep it tight.

So keep it cool, that's really about preventing any overheating, particularly as it relates to friction. Sometimes in a piece-- or oftentimes, in a piece of equipment, the oil is the means of keeping it cool, which is why oil analysis is so important. Keep it clean relates to the condition and the purity of the oil. It should have no unusual particulates, as those can indicate a breakdown.

Keep it tight refers to limiting the amount of vibration. Turbines often are huge masses of rotating equipment. Having something even a little bit off kilter can have dire consequences. So the key to preventing the vibration-related issues is by performing a vibration analysis and getting a sound signature that's coming off the turbine gearbox or other piece of equipment.

Another helpful tip for equipment breakdown, one of the best ways to make the most out of any form of testing is through trending over time. So if you think about going to a doctor, you're more likely to get an accurate diagnosis if your doctor has your medical history and understands your background. So in the equipment breakdown world, this means keeping track of report findings from inspection to inspection and taking note of even small changes.

So, for example, one year, you may have a low level of iron particulates in a sample. And the next year, the level might be a little bit higher. This could be an indication of a specific issue, like a part breaking down. Staying clued into report findings can help you get ahead of potential equipment breakdown issues well in advance before they cause a disruption or a loss.

(DESCRIPTION)
Eileen returns with the gray background and red Travelers umbrella in the upper left.

(SPEECH)
EILEEN KAUFFMAN: Thanks, Katelynn. Chris, Dominion is also involved in solar and battery energy storage. So what can you tell us about the key distinctions in building out these projects, particularly the ways in which they might differ from on and offshore wind as well as each other?

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Chris returns with the turbines in the ocean and Dominion Energy logo in the upper right.

(SPEECH)
CHRIS PATTERSON: Yeah, that's right. So we've been building solar projects for well over five years. And more recently, we've been ramping up utility scale storage efforts. Now, the fundamental challenge is the same in terms of needing to do site work in advance of construction. But obviously, these are different technologies constructed in different environments.

And while securing the land rights is less of a challenge from a financial standpoint, in some cases, with solar in particular, there are several landowners that you have to work through, as well as having to work with various counties and municipalities in the state or states you're operating in to obtain conditional use permits.

Now, some of the site specific work that has to be done in advance includes geophysical and geotechnical studies. And they look at different things from soil compatibility and stormwater management, which includes the need for vegetation and retention ponds to help with runoff. And that expands to looking at the constructability of the land for design of foundations and posts and other major pieces of equipment.

And aside from that, some of our projects incorporate on-site storage. And in those cases, perimeter fences may need to be constructed, as well as coordination with local law enforcement to help mitigate theft. And that certainly expands to site preparedness for inclement weather, be it storing the materials inside containers, elevating them if possible, and/or manually rotating panels to a safe stowed position.

Now, Katelynn, I know you've got a lot of insight into managing some of these challenges as well.

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Katelynn returns with the gray background and red Travelers umbrella in the upper left.

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KATELYNN SPACHER: Yeah. Thank you, Chris. So as far as solar is concerned, I want to first touch on site drainage or stormwater management. And this is one area that can sometimes be overlooked on a solar farm project. Inadequate or improper stormwater management can lead to water-related damages that can occur before, during, or even after installation.

Damage can involve electrical equipment piles, which can then result in racking systems, bending, or becoming damaged, access roads, as well as panels. Preventing floods at the site level comes back to design. The design phase may include a completed geotech report. Understanding the local environmental factors, historical rainfall, and the nearby topography are crucial to developing a sound stormwater management plan.

Other factors that can impact stormwater management at a project site include soil compaction, as you mentioned, Chris. Looser soils allow much more water infiltration and allow for improved and quicker vegetation growth. Soil depth is another consideration as well as ground cover, and the distance between arrays. So more distance between arrays can result in more water infiltration and less runoff.

So during construction, there may be a higher potential for erosion or muddy conditions on site due to the lack of ground cover. This is partially because you don't have vegetation management in place during construction. Those muddy conditions can have a trickle down effect, no pun intended, because they can impact site accessibility.

And that's why maintaining access roads is critical. They can help ensure emergency responders can access the site. They help direct the flow of equipment and vehicle traffic, and they can reduce the potential for property damage and injury.

And that brings us to our next topic, which is material storage. So materials can be damaged while they're waiting to be installed. There have been occasions where panels are dropped off early at a site and left out for weeks or even months before they're slated for installation.

And then in these cases, once the project team opens up the box and starts work, they find that the panels are damaged or otherwise unusable. So having panels sit on site for a while before installation increases the potential for loss. A better alternative is to use just-in-time delivery for panel installation or have panels stored at a safe location until the project team is ready for install.

We should also mention panel packaging, so pallets that are used to ship panels may be fairly flimsy and they can deteriorate quickly, especially if they're left out in the elements. This can lead to panel sliding when they're being moved. And that means when you move panel from the laydown area to the installation rack, for example, panels may become more easily damaged by the equipment.

Another factor to consider is material handling. So each time you have to handle a package, you're increasing the potential for damage. This is another reason why that just-in-time delivery, where the panels are brought directly to the installation area, is a great loss prevention strategy.

Whether a material handling related damages are only two reasons for proper storage, there's also theft and vandalism, which are a concern for solar farm projects, especially if there's local pushback or concern about the project. Think about the NIMBY kind of mindset. You also want to be aware of other targets of theft other than panels.

ATVs, for example, are sometimes used at solar farms to get from place to place. And these are easy targets of theft, particularly in rural areas where solar farms are most common. Proper key controls combined with proper equipment storage and securement can help reduce the chances of equipment loss.

And then lastly, I wanted to mention a little bit about environmental. So as stated before, stormwater management is key, and it can have impacts that extend beyond property damage and project delays. Erosion or runoff from a site can travel into bodies of water. For example, there was an instance where someone alleged that runoff from a solar farm went into a trophy fishing pond.

You want to identify nearby bodies of water, as well as the potential for runoff. Implementing erosion prevention features into your design is critical. Herbicides use for vegetation management and pesticides use for pest control may also pose a runoff exposure. The method for controlling vegetation and wildlife should be identified well in advance, and potential issues with runoff should also be controlled.

(DESCRIPTION)
Tom returns with the turbines in the green hills and the Travelers logo in the upper right.

(SPEECH)
TOM COOPER: Some really good observations there, I think, Katelynn. And, Chris, if you don't mind me just jumping in and actually turning the conversation directly to storage, what approach has Dominion taken compared to the industry and what's the reason for the setup you've chosen?

(DESCRIPTION)
Chris returns with the turbines in the ocean and Dominion Energy logo in the upper right.

(SPEECH)
CHRIS PATTERSON: Yeah. So I would say we're definitely taking perhaps a more conservative approach, but it's one we strongly believe in. And I'll give a quick shout out to our in-house team of loss control engineers as they participate in industry committees and have studied the losses that have occurred with the lithium ion batteries over the years.

As a result, we've developed standards for our EPCs that are focused on safety and are also designed to help limit property losses when a thermal runaway event does occur. These standards range from 25-foot separation or for our firewalls, separating BESS groupings of 6 megawatt hours.

And we've done this because we essentially feel that this would contain the loss and limit it to something more akin to an AML and not something that would quickly become an MFL. And the separation also applies to other utility equipment, including transformers. And in addition, we've required a 100-foot setback from the property line for large BESS systems.

And combined these spacing and firewall requirements should allow fires to burn safely without suppression and hopefully without the need for first responder involvement. And we're also taking steps with our container designs to offset the gases and help minimize explosion risk. If you look at the image in the picture, this is one of our BESS systems that's co-located with a solar farm here in Central Virginia.

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(SPEECH)
And the rectangular boxes, if you can make them out at the top, are what are called deflagration vents, which are designed to off vent those gases.

In addition to this, we're also actively working with one of our suppliers to develop spring-loaded roofs that would essentially open up allowing those gases to even more quickly ventilate. And lastly, we're adamant about requiring UL certification on all battery systems. So I know that continues to be a concern on batteries coming out of China that may not be tested and/or rated at the same criteria.

Now, Tom, considering our approach is likely more conservative than others are taking, I'm curious how this lines up with your observations and the underwriting philosophy that Travelers has adopted.

(DESCRIPTION)
Tom returns with the turbines in the green hills and the Travelers logo in the upper right.

(SPEECH)
TOM COOPER: Yeah. I mean, I think we took a great deal of confidence from the feedback from the in-house risk control engineers that you mentioned. And I think the way the Dominion approaches this asset class gives us a good degree of certainty.

So as with any emerging technology, BESS comes with that uncertainty. And we therefore seek evidence of how that's being mitigated often through the philosophy of the insured when it comes to things like the safety factor and redundancy being built into initial design engineering, as well as the procurement and contracting approach that that client is taking.

And there are a few emerging trends which are influencing underwriting thought process at the moment as especially as we look forward. So we see the increasing energy density of new BESS products. And questions we ask here are, how does increased energy density in the same footprint impact the intensity of fires caused by thermal runaway? And how much more complexity does that add to, for example, firefighting activities?

Is the industry accepted 10 foot? And you mentioned 25 foot. That gives us a good level of assurance, as I say. But is the industry accepted 10 foot that a lot of clients build to still regarded as appropriate?

And I suppose we really need to wait for the UL 9540A test results to better understand how this may impact some of our established PML assumptions. Obviously, with an emerging technology, we don't have a huge amount of claims, historical data to lean on. So more losses sometimes equals better trend spotting for us.

In terms of what we're seeing so far, integration, assembly, and construction remain the leading root cause of the losses we've seen on our books. So we see challenges with quality issues during installation, inexperienced workforce being one of the key drivers of this, where 50% of the construction crews currently out there and working on BESS did not work on this technology two years ago.

Cell failure, which attracts a lot of attention, actually accounts for the lowest root cause. However, when we look at that, it may be attributed to the difficulty in identifying cell defects as a root cause after a fire incident. When we look at recent BESS losses that we've seen both anecdotally and on our book, a lot of the loss quantum is actually being attributed to debris removal and recycling and disposal. So 29% of the costs of the last loss we saw was all channeled in that direction.

And between 2015 and 2022, 58% of BESS failures occurred within the first two years of operation. So some interesting trends there emerging. And finally, the last one I'd touch on is manufacturing.

And I suppose the overarching question we're asking ourselves is, is there a serial defect issue coming on a fleet basis? So consider the fact that 50% of batteries produced today come from production lines, which are less than two years old. So we've got very immature manufacturing base.

And 76% of total global battery build out was deployed in the last two years. So another question would be, has the QA QC scaled accordingly given this surge in growth? The majority of cell manufacturing is undertaken in China. And, Chris, kind of dovetailing with your point, is the FAT, factory acceptance testing, sufficiently rigorous by Western standards?

And there's one bit of information and an interesting stat that I read, according to an established third-party cell monitoring company, a 500 megawatt hour BESS system has about 500,000 individual cells. 1,500 of them are expected to have manufacturing issues. So these are trends and patterns that we're keeping an eye on.

But I know from a risk control perspective, and Katelynn, you and your colleagues have some really great insights. So what's your take in general?

(DESCRIPTION)
Katelynn returns with the gray background and red Travelers umbrella in the upper left.

(SPEECH)
KATELYNN SPACHER: Yeah. Thanks, Tom. So I want to start off just with damage prevention and specifically the physical or mechanical damage. That's one of the key risks when it comes to BESS, and it can occur while the unit is in transit or during installation or even after placement.

And when I say physical damage, I mean BESS container maybe is dropped from heights or perhaps comes into contact with equipment. So while in transport, let's start there. In many cases, the manufacturer is responsible for transport and they would, upon arrival, log into the BESS and verify the condition of the BESS prior to interconnection and commissioning.

In cases where an entity other than the manufacturer handles transport, the entity should use the manufacturer provided checklist to verify its condition upon arrival to the site. This is called generally the site delivery acceptance, and it's about ensuring whatever arrive meets the manufacturer delivery standards.

Now, while in transport, if BESS are assembled on site, it's also important to check the condition of the container and the module upon arrival. Battery modules may short circuit if they come into contact with other batteries, metal objects, or other conductive surfaces. Keeping strong, rigid packaging is in good condition while batteries in transit is an important way to prevent this from happening.

Now, let's shift gears to during installation piece. So crane and rigging controls should be implemented. And if something goes wrong with the lift and the BESS container is dropped, the consequences can be substantial. Crane safety comes back to pre-planning, so crane or lift selection, operator qualifications, inspection, equipment placement, ground conditions, and qualifications of rigging and signaling personnel.

Looking at after installation, you want to ensure that the BESS is protected from accidental contact with equipment or vehicles. You can do this by establishing clear access routes for the site during construction, use bollards or other means of protection as an additional kind of layer. This not only helps with prevent equipment damage, but can also help ensure first responders can access key areas in case of an emergency.

Shifting gears over to emergency action planning. This is one important measure that can help mitigate the severity of losses. So for your emergency action plan development, you want to coordinate with the responding agency, which is often the local fire department. Walk through the site with them so they can get a feel for the site accessibility.

You want to make sure that you relay information about battery chemistry, quantity, purpose, scope of the project, key dates, any protective features, as well as whether or not those protective features will be active during the period of construction. The more prepared that they are to respond to an emergency, the greater the chance you have of minimizing the damage and the downtime. Eileen, I'll turn it back over to you.

(DESCRIPTION)
Eileen returns with the gray background and red Travelers umbrella in the upper left.

(SPEECH)
EILEEN KAUFFMAN: Thanks, Katelynn. As the energy storage technologies continue to rapidly evolve, we will continue to monitor the potential risks and challenges for these exposures. So, Chris, what can you share on the additional technologies Dominion is exploring?

(DESCRIPTION)
Chris returns with the turbines in the ocean and Dominion Energy logo in the upper right.

(SPEECH)
CHRIS PATTERSON: Yeah. So starting with hydrogen, I'll say that we continue to assess the role that it can play to decarbonize our operations, as well as the end-use customer. And so while there's nothing to announce, I'll just say that we're exploring clean hydrogen production technologies and partnerships that can help provide cost-effective solutions for our businesses.

And that does include our involvement in the low carbon research initiative, which is led by EPRI and GTI. For SMRs, in addition to the SMR designs that are based on the traditional light water reactor designs. I'll say that we're also evaluating the potential use of advanced designs that do not use water as a reactor coolant, such as high temperature gas or molten salt.

And while it probably goes without saying that Dominion isn't an R&D company, our recently filed RP in Virginia does have the first SMRP being operational in 2034. And lastly, in terms of BESS, we have actually recently announced some pilot projects with three new battery storage technologies, the first one being an iron air battery, which is developed by Form Energy, which has a 100-hour discharge.

The second is a zinc hybrid battery, which is developed by EOS Energy and has a four-hour discharge. And the last is a metal hydrogen battery developed by EnerVenue, which has a 10-hour discharge. So each of these is alternative to the traditional lithium ion, which could obviously help strengthen safety features for storage, as well as some of those longer duration discharges I mentioned.

(DESCRIPTION)
Eileen returns with the gray background and red Travelers umbrella in the upper left.

(SPEECH)
EILEEN KAUFFMAN: Thanks, Chris, for those great insights on the emerging technologies. We've undividedly dove into a wealth of information here and our hour is almost up. So any closing thoughts? Tom, I'll start with you.

(DESCRIPTION)
Tom returns with the turbines in the green hills and the Travelers logo in the upper right.

(SPEECH)
TOM COOPER: Well, we've taken a fairly US-centric view today, but needless to say, the level of buildout globally is massive across multiple asset classes. So I'd say we recognize the complexity of the energy transition. And from the perspective via our Lloyd's Syndicate and established team of lead underwriters across multiple energy disciplines, I think Travelers are really well positioned to provide solutions to the numerous challenges which our clients are regularly encountering across their increasingly diversified portfolios, both in the US and internationally. Chris?

(DESCRIPTION)
Chris returns with the turbines in the ocean and Dominion Energy logo in the upper right.

(SPEECH)
CHRIS PATTERSON: Yeah. One thing that I'll mention is that we've worked closely with Tom and the rest of his team to build insurance solutions for some of the things that I mentioned earlier. Travelers is actually the co-lead on our CAR policy for the offshore wind project. And I really can't underscore how invaluable that role has been in educating not just me and the rest of the risk team, but our project team, on industry losses and best practices and things of that nature.

And in addition to that, we have a master builder's risk policy for our solar and storage build out that Travelers leads. And obviously, with the pipeline of projects that I mentioned, continued growth, the consistent approach that we take in building them and the work that's gone on up front, it's already proven to be a valuable, effective, efficient means of ensuring these projects. Katelynn.

(DESCRIPTION)
Katelynn returns with the gray background and red Travelers umbrella in the upper left.

(SPEECH)
KATELYNN SPACHER: Yeah, thank you. So I'd like to just take this chance to highlight our risk control professionals and resources, including our forensics lab. Our risk control team is made up of professionals with diverse backgrounds in electrical engineering, equipment breakdown, cranes, vessel safety, construction, loss prevention, you name it. So in an ever-evolving field like renewable energy, we are really fortunate to be able to use this technical expertise to help our customers manage risk and prevent loss.

(DESCRIPTION)
Eileen returns with the gray background and red Travelers umbrella in the upper left.

(SPEECH)
EILEEN KAUFFMAN: Thanks, Katelynn. And I just want to let everybody know we cover from construction to operational for all lines of coverage for renewable energy assets. We are writing in the US domestically. We are writing internationally with Tom and his team out of London, and we also write in our Canada operation.

So we are very much a global footprint when it comes to renewable energy for onshore offshore wind, solar, and battery energy storage. And as the energy sector is a rapidly evolving industry landscape with ever-changing technologies, which presents many challenges, as we discussed today, I believe sharing our knowledge and lessons learned across the industry will help mitigate for all involved. So thank you for your insightful thoughts.

And before we wrap up for today, I'd like to take a moment to share Travelers Innovation Network for Energy, an online platform that provides Travelers energy customers with access to industry insights and resources. This collection of risk management solutions helps our renewable and traditional energy customers keep their workers, worksites, and businesses safe.

There are targeted technology solutions on on-site monitoring, cyber risk, equipment management, and much more. And eligible customers also qualify for discounts on services through the platform. So make sure you click on that QR code and look at our website.

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(SPEECH)
Tom, Katelynn, and especially our guest, Chris Patterson, I want to thank you so much for the valuable insights that you have shared today. There is so much to talk about on this topic. And in this hour, I think we've barely scratched the surface, but I hope we've left our audience with some interesting perspectives and proactive tactics to address the challenges you face on renewable energy projects now and into the future. Thank you all for joining us today. This concludes our discussion.

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