The ‘New Trilemma’ of challenges for Renewables-sector risk managers

According to the Renewable Energy Market Study 2023, released by WTW, a prominent worldwide advising, broking, and solutions organisation, this trilemma will elevate risk management and ESG as key challenges for the renewables industry in the coming year.

The Review, subtitled “Geopolitics, inflation, and the energy transition: Where do renewables go from here?” includes contributions from more than two dozen international experts and specialists. Together, they provide a comprehensive and up-to-the-minute analysis of opportunity, risk, and insurance for the global sector, from floating solar in Asia to battery storage in Ireland. Throughout, the need to balance risk and opportunity in a changed economic, political, and social environment comes to the fore.

“Macro events and trends such as inflation, the cost rises, security, and supply chains are hurting the renewable energy industry, making the current business environment tough for risk managers,” writes contributing author Margaret-Ann Splawn, Executive Director of the Climate Markets & Investing Association. Three key actions will assist them in assessing their vulnerabilities throughout the Net Zero transition and protecting themselves from present and future ESG and climate-related risks. Splawn assists risk managers in her contributions to:

Understand their ESG and sustainability positions.

• Adopt a reactive risk-response view.
• play a strategic role across the company.
• work in concert with relevant stakeholders.

Despite the challenges, the outlook for renewable energy in Asia remains positive, with significant capital investment expected in the sector. In particular, floating solar has gained traction and will play an important role in the energy transition of countries such as China, India, and South Korea. This also coincides with India’s shift towards alternative renewable sources and technologies such as Round the Clock (RTC), battery energy storage systems, and wind-solar hybrid projects to meet its clean energy transition goals.

Renewable energy is a key growth area for insurers, and premium rates are expected to increase. However, newer technologies could be met with reluctance and low-risk appetite from insurers due to their limited technical understanding and lack of historical loss data.

Ankush Gupta, Practice Leader – Renewable Energy at WTW, says: “With the increase in renewable energy premiums, some large independent power producers (IPPs) have started considering the possibility of a reinsurance programme for their solar portfolio.” The Wind portfolio continues to be a non-preferred line of business due to unfavourable loss ratios, OEM financial health, and the overall complexity of the operation. For non-traditional solutions such as weather-dependent insurance coverage and module performance warranties, the market relies on reinsurers, with fronting by local partners. We are seeing an increase in inquiries about these insurance covers as lenders require future-proofing on these projects.

“The renewable energy sector in India has seen an influx of capital investment, and for this trend to continue, the risk profile of the power plant must be satisfactorily managed during the entire life cycle of the project.” As the sector grows to its full potential, the role of intermediaries and specialists becomes even more critical. “WTW will continue to engage all key stakeholders in ensuring the right information and insight is made available to mitigate risk and minimise coverage restrictions,” adds Gupta.

To read the report, please visit-wtwco.com.