Renewable energy sector could triple annual insurance spending by 2020 to attract new investors
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The renewable energy industry could be spending three times as much on insurance every year by 2020 to mitigate risks to projects, says 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. Depending on the scenario, insurance premium volumes in these markets could increase from USD 850 million today to anywhere between USD 1.5 billion and 2.8 billion by the end of this decade.
Based on current projections, new renewable power capacity built worldwide between now and 2030 will account for more than USD 2 trillion in total investment. Of this, 75% 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 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. 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.
"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," says Juerg Trueb, Head of Environmental and Commodity Markets at Swiss Re Corporate Solutions.
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. Since variable energy production can disrupt the entire power market, insurance covers for volume risk can protect traders and grid operators against low or even negative power prices.
"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," says Juerg Trueb. "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."
Guy Turner, Chief Economist at Bloomberg New Energy Finance and lead author of the report, says “The analysis conducted for this report shows that the demand for risk management solutions will increase partly because the renewable sector will simply get bigger, but also because of increasing uncertainty affecting power markets in general. As the renewable sector matures and becomes part of the mainstream energy industry, it will need to evolve from an innovative sector where risks are taken on the chin to one where returns are predictable and there are fewer surprises.”
Notes to editors
Copies of Profiling the risks in solar and wind – A case for new risk management approaches in the renewable energy sector can be downloaded at:
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Swiss Re Corporate Solutions
Swiss Re Corporate Solutions offers innovative, high-quality insurance capacity to mid-sized and large multinational corporations across the globe. Our offerings range from standard risk transfer covers and multi-line programmes to highly customised solutions tailored to the needs of our clients. Swiss Re Corporate Solutions serves customers from over 40 offices worldwide and is backed by the financial strength of the Swiss Re Group. For more information about Swiss Re Corporate Solutions, please visit www.swissre.com/corporatesolutions or follow us on Twitter @SwissRe_CS.
Bloomberg New Energy Finance
Bloomberg New Energy Finance (BNEF) is the definitive source of insight, data and news on the transformation of the energy sector. BNEF has staff of more than 200, based in London, New York, Beijing, Cape Town, Hong Kong, Munich, New Delhi, San Francisco, São Paulo, Singapore, Sydney, Tokyo, Washington D.C., and Zurich.
BNEF Insight Services provide financial, economic and policy analysis in the following industries and markets: wind, solar, bioenergy, geothermal, hydro & marine, gas, nuclear, carbon capture and storage, energy efficiency, digital energy, energy storage, advanced transportation, carbon markets, REC markets, power markets and water. BNEF’s Industry Intelligence Service provides access to the world’s most comprehensive database of assets, investments, companies and equipment in the same sectors. The BNEF News Service is the leading global news service focusing on finance, policy and economics for the same sectors. The group also undertakes custom research on behalf of clients and runs senior-level networking events, including the annual BNEF Summit, the premier event on the future of the energy industry.
New Energy Finance Limited was acquired by Bloomberg L.P. in December 2009, and its services and products are now owned and distributed by Bloomberg Finance L.P., except that Bloomberg L.P. and its subsidiaries distribute these products in Argentina, Bermuda, China, India, Japan, and Korea. For more information on Bloomberg New Energy Finance: http://about.bnef.com.