Renewable energy, which includes technologies such as solar photovoltaic (PV), wind and geothermal power, is still an emerging industry. In 2017, almost 20% of global energy consumption was renewable; this is expected to increase to 25% by 2035 and 34% by 2050. Government subsidies, which have fed the boom, continue; Europe and the US, historically the strongest markets, were overtaken by China in 2017 as it accounted for roughly 45% of all global investment in an industry worth around $1.47trn a year and is anticipated to expand to $2.15trn by 2025.
As renewable energy technologies, distribution methods and business models evolve, risks keep growing. For example, prototypical or unproven equipment such as specialized blades and gearboxes and new maintenance concepts require constant technical evaluation and more underwriting expertise – for example, in order to benchmark different turbine types. Also, new financing and ownership structures and cost-saving measures impact operational efficiency and may result in challenges to long-term loss performance. If these aren’t perilous enough, climate change associated with more intense windstorms, hailstorms and flood events all make renewable energy a risky business for insurers and investors alike.
With offshore wind projects, sub-sea cables cause about 70-80% of losses in terms of overall claims amount incurred, according to Allianz (member of RAWI). From losses of entire cables during transport to bending of cables during installation as well as damage caused by anchors and vessels, sub-sea cable losses have driven multi million Euro claims in offshore wind. While technology risk is a driver in offshore wind, losses tend to be aggravated by complicated logistics, such as vessel availability, and the need to wait on fair weather conditions to venture out to make repairs. According to Allianz, the cost ratio between on- and offshore claims can reach 1:10.
Solar photovoltaic (PV) panels are subject to a wide range of natural hazards such as windstorm, flood, hail damage, wildfires and snow load, but are also susceptible to theft, as they are worth from $100 to well over $1,500 each. Other sources of large losses include transformer fires which can result in business interruption (BI) and frost heave which can damage racking and modules.
Risk consulting and engineering are challenged by rapidly evolving technologies requiring close monitoring of different elements like new wind turbines being developed and upgraded in ever shorter cycles. Keeping up with international engineering standards as well as certifications for equipment (e.g. type certification) and projects is also challenging.
Renewable energy requires a comprehensive insurance product offering due to complex financing and ownership structures. Traditional products often are bundled across project phases and lines of business, while non-traditional products, such as protecting against a lack of wind or sun, aren’t fully exploited by customers yet, requiring further product integration. If implemented before financial closing, these can reduce financing costs and free-up capital. Other products cover upfront decommissioning costs for assets and lower capital requirements at the start of a project.
Insurance will continue to evolve with the renewables industry as we move forward to a greener, more sustainable world.