Navigating the Complex Landscape of Renewable Energy Insurance

In the global transition to renewable energy, risk resilience and insurance have become key concerns for stakeholders involved in these projects. According to recent findings by FM Global, a leading commercial property insurer, and WTW's Willis unit, insuring and financing renewable energy infrastructure amidst evolving risks and market conditions is becoming increasingly complex. The studies highlight the intricate dynamics of risk management as solar and wind energy projects grow. FM Global's research involved a survey of 650 executives and investors in the renewable energy sector. The results revealed a strong drive for expanding renewable energy capabilities, with 97% of solar developers and 95% of onshore wind operators planning to increase energy output in the next three years. Despite the enthusiasm for growth, access to capital poses a significant challenge. Most financial stakeholders, including 73% planning to boost infrastructure investment, indicate that demand outstrips supply, with 64% of lenders and 58% of investors facing this bottleneck. Project resilience, which is the ability to handle both natural and operational disruptions, plays a crucial role in investment decisions. About 66% of financiers report that a project's risk management capability affects their willingness to invest, influences valuations (69%), and contractual terms (72%).

The construction and operational phases of renewable energy projects come with their unique set of concerns. During construction, rising equipment costs (44%), regulatory constraints (41%), and logistical delays (40%) are major hurdles. Once operational, projects must contend with extreme weather (54%), mechanical breakdowns (50%), and supply chain issues for replacement parts (48%). Despite these challenges, 59% of energy providers are confident in their projects' resilience, although they admit to significant knowledge gaps. Key areas of uncertainty include transparency from equipment manufacturers (57%), full understanding of local environmental exposures (53%), and the rapid progression of technology (47%). These uncertainties have financial implications, with respondents reporting higher construction costs (52%), elevated insurance premiums (47%), and difficulties in securing comprehensive insurance coverage (44%) as direct consequences.

Doug Patterson, FM Global's senior vice president for Forest Products and FM Renewable Energy, emphasized the limitations developers face due to insufficient information. 'Providers are doing the best they can with the information they have, but they need more insight into the technology they are buying and the environmental factors that threaten it,' Patterson stated, highlighting the necessity of integrating risk expertise early in development. In the realm of energy insurance, WTW's Energy Market Review indicates continuous softening in energy insurance pricing due to competitive underwriter environments and abundant capital. This trend is advantageous for buyers, although contemporary losses could introduce volatility. Notably, the downstream energy sector experienced fewer major losses in 2024, which encouraged insurers to reduce rates. However, significant potential losses in the early months of 2025, totaling $1.5 billion, could upset this trend. In the upstream sector, underwriting capacity has expanded by 5%, spurring rate declines as underwriters vie for more business by securing leading positions in placements. Many insurers, however, have already allocated a considerable portion of their 2025 capacity to construction risk, a notoriously challenging and less profitable area.

The renewable energy industry's evolution remains dynamic, with financial and operational challenges necessitating sophisticated risk management and insurance strategies. Stakeholders need to bridge information gaps and adapt to market conditions to maximize project resilience and financial viability. There is a pressing need for improved risk assessment tools and greater transparency from equipment manufacturers to mitigate uncertainties. As the sector continues to grow, the interplay of insurance, investment, and technology will dictate the pace of progress and the success of renewable energy initiatives. By fostering collaboration among insurers, financiers, and energy providers, the renewable energy industry can overcome hurdles and drive forward a sustainable energy future.