23, Feb 2023
WTW outlines “New Trilemma” of challenges for Renewables-sector risk managers
NEW DELHI, 23 February 2023 — Renewables will remain the darling of the global energy transition, yet risk managers will face multiple challenges arising from a ‘new trilemma’. It comprises the convergence of:
- · The need for net-zero energy security,
- · unsettled global macroeconomics, and
- · rising demand for renewable energy in an era of squeezed supply of inputs.
This trilemma will escalate risk management and ESG as key issues for the renewables industry in the year ahead, according to Renewable Energy Market Review 2023, published today by WTW (NASDAQ: WTW), a leading global advisory, broking, and solutions company.
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.
Contributing author Margaret-Ann Splawn, Executive Director of the Climate Markets & Investment Association, says: “Macro events and trends such as inflation, cost increases, security, and supply chains are impacting the renewable energy industry, making the current business environment a challenging one for risk managers. Several important steps will help them to assess their own vulnerabilities in the transition to Net Zero and protect themselves from current and future ESG and climate-related risks.” In her contribution, Splawn advises risk managers to:
- 1. Understand their own ESG and sustainability position.
- 2. Adopt a reactive risk-response view.
- 3. Play a strategic role across the company.
- 4. Work in concert with relevant stakeholders.
Despite the challenges, the renewable energy outlook in Asia remains promising, with significant capital injection expected into 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, WTW says: “With the increase in Renewable Energy premiums, some large Independent Power Producers (IPPs) have started considering the possibility of a reinsurance program for their Solar portfolio. The Wind portfolio continues to be a non-preferred line of business, due to unfavorable loss ratios, OEM financial health, and the overall complexity in the nature of the operation. For non-traditional solutions such as Weather Derivate insurance cover and Module Performance Warranty, the market relies on reinsurers, with fronting by local partners. With lenders imposing a requirement for future-proofing these projects, we are seeing increased inquiries on these insurance covers.”
“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 minimize coverage restrictions.” adds Gupta.