04 August 2014, Lagos – The renewable energy industry could be spending three times as much on insurance every year by 2020, to mitigate risks to projects, according to a new report by Bloomberg New Energy Finance sponsored by Swiss Re.
The report looked at six of the world’s leading markets for solar and wind, including Australia, China, France, Germany, the United Kingdom and the United States.
According to the report, depending on the scenario, insurance premium volumes in these markets could increase from $850 million currently, to anywhere between $1.5 billion and $2.8 billion by the end of this decade.
Based on current projections, the report said new renewable power capacity built worldwide between now and 2030 will account for more than $2 trillion in total investment.
“Of this, 75 per cent or 900GW of capacity additions will be in the solar and wind sectors, both onshore and offshore, and over half of this is attributable to Australia, China, France, Germany, the UK and the US,” the report stated.
The report further stated that the growing demand for insurance in these six markets comes as owners and developers of renewable energy projects are seeking to tap into new sources of financing, including from institutional investors such as pension funds.
The report, however, noted that to make investments in renewable energy more attractive to these investors, projects must become less risky, all the way through from early stage construction to operation.
Commenting on the report, Juerg Trueb, Head of Environmental and Commodity Markets at Swiss Re Corporate Solutions said, “New solar parks and wind farms require enormous investments. Not only that, you are also asking investors to put their money into relatively new and sometimes less mature technologies. To reassure investors you really need sound risk management.
“Insurance is not a silver bullet. But by mitigating the risk in the construction phase and improving the consistency and surety of revenues during operation, insurance can help improve the return on investment for renewable energy projects.
“This, in turn, would allow the sector to attract the scale of investment necessary to put the world’s energy mix on a more sustainable footing.”
Continuing, the report said, “Growing offshore wind deployment is another reason why insurance considerations are moving to the fore.
“Besides the technological complexity involved, offshore wind farms are exposed to adverse weather and operate in very difficult geographic conditions. Damage, delays and downtimes are not uncommon and can significantly reduce the expected returns on investment.
“Risk transfer products are available to manage risks associated with the development and operation of renewable energy projects. Besides protecting against physical accidents or delays due to inclement weather, insurance can also help to reduce revenue volatility.
“It can do this by compensating for the periods when the sun does not shine and the wind does not blow or when energy prices fluctuate in the market.