Insuring renewable energy projects: Barriers and recommendations for engaging the insurance sector
The United Nations Secretary General recently announced the need for USD 4,4 trillion per year to flow into renewable energy technologies by 2030, to meet the world’s 2050 net-zero targets. However, significantly less than that has materialised.
This scoping study provides an overview of the renewable energy sector, highlighting the pressure companies and governments face in decarbonising the global energy system, how unevenly distributed the energy transition is, and how the declining costs of renewable energy is further enabling the growth of the industry. Private and public funding has been deployed to fund renewable energy projects, and further investments will be needed from all sources.
Funding, Risk Management and Market Dynamics
Renewable energy projects face a range of risks including commercial, macroeconomic, and political. Insurance plays a fundamental role in transferring and reducing risk to make projects financially viable. Overall, the renewable energy insurance market has seen premiums stabilise in recent years, as traditional insurance strategies continue to be refined and more innovative forms of insurance – such as parametric – help to manage costs.
Barriers in Underwriting Renewables and Inclination Towards Fossil Fuels
The report goes on to unpack barriers affecting the underwriting of renewables. While insurance was not found to be a significant hindrance to the growth of renewables, several challenges do need to be overcome. These include changing risk exposures, especially in remote locations, insurers struggling to keep up with rapid technological change, and a shortage of expertise in the renewables sector itself. Adequate data is a perennial challenge.
Despite global pressure and the momentum behind renewables, insurers’ incentives still appear to be skewed towards fossil fuels due to its profitability and known risk profiles. Governments have several key roles to play. These include being transparent and making clear commitments, careful use of subsidies, and facilitating access to the energy grid (especially in areas with high potential).
Recommendations & Opportunities
The final section of the report shares some recommendations for areas in which the Sunrise Project could support the insurance sector to deepen the underwriting of renewables. These include leveraging regulator announcements to deepen capacity, celebrating insurers proactive in transitioning their portfolios, and increasing pressure on governments to align commitments on the low-carbon transition. Other opportunities include encouraging greater access to reliable data, supporting the growth of emerging markets and supporting insurers expand their role as risk managers and advisors.
This report was delivered by WeESG on behalf of The Sunrise Project in September 2022.
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