In 2018, global energy demand grew by 2.3%, its fastest pace this decade. Growing economies need more fuel. A changing climate requires more thermal energy, both to cool and to heat our surrounding environment. But renewable energy still accounts for less than a fifth of all energy demand… around 15 percent to be precise.

Of that figure, solar and wind energy contributed less than 2%1 while energy related carbon dioxide emissions are still on the rise.

But the world will grow, and demand will increase. Global energy demand is expected to grow by around 25% by 2040 from current figures with Asia Pacific leading the way. By then, this region will account for nearly 50% of global energy consumption2.

Renewable energy, especially solar and wind power, will be needed to reduce the burden on other forms of energy. Apart from preventing our climate from changing further, fossil fuels, oil and gases are becoming harder – and more expensive – to extract. The damage it could potentially cause at extraction has also concerned environmental groups.

The Paris Agreement on Climate Change sets ambitious targets for governments to meet by 2050. Saving the world from environmental capitulation comes at a cost: USD2.4 trillion investment in clean energy every year through to 2035.

Renewable energy projects in ASEAN

The 10-member Association of Southeast Asian Nations, or Asean, has set an aspirational target of securing 23% of its primary energy from renewable sources by 2025. This will require an estimated investment of USD27 billion every year3.

The first solar power plant licensed to operate in Vietnam came online in April this year. Government data shows more than 120 solar projects country-wide have been approved, while over 200 more have been submitted4. These projects are expected to generate more than 19,000MW for the national grid, representing more than 35% of Vietnam's total current power generation capacity5.  Vietnam's long coastline also makes it one of the most suitable places for wind energy in Southeast Asia.

Similar stories are happening across the region. Malaysian state-backed utility Tenaga Nasional began commercially operating one of the nation's largest solar facilities last November. And earlier this year, another call for bids for an estimated RM2 billion (USD478 million) worth of Large-Scale Solar projects were announced by the government. Over in the Philippines, the government's Board of Investments approved eight solar projects worth USD1.6 billion in 2018, continuing its support to replace coal and diesel models with alternatives. Thailand is the region's solar energy leader, with 2,700 MW worth of solar generators in operation in 2017. Its output has increased 84-fold since 20076.

Although solar and wind farms have been largely driven by governments through feed-in-tariffs, cheaper start up and operating costs are increasingly strengthening the business case for both. Since 2009, commercial-scale solar power has dropped approximately 86% in price while wind has dropped 65%7. Technological innovations such as better solar power efficiency and floating solar panels also mean that renewable energy is now more accessible than before, addressing an issue specific to ASEAN countries where there are still 70 million citizens without access to reliable electricity8.

The potential for renewable energy is huge, but opportunities always come with risks.

Enable a sustainable future

There are an evolving and complex set of risks that need to be managed. The Swiss Re and Bloomberg New Energy Finance study shows these risks can be summarized as:

  • Construction risk: As renewable projects are capital-intensive, damage to assets during construction can have a significant impact on overall costs, and cause project delay.
  • Operational risk: After project completion and commissioning, there will be material risk of damage to physical assets due to accident, negligence, wear and tear, design flaws, or natural catastrophes. In 2015, Super Typhoon Soudelor hit a wind farm in Taiwan, caused an estimated NT$560 million (USD17.67 million) damage to eight wind turbines9.
  • Business interruption: Downtime from equipment failure or natural catastrophes also results in lost revenue. Just last month, monsoon rains damaged the 250MW solar Madhya Pradesh, India facility, reducing output to just 92.5MW10.
  • Market-related risks: Market-related risks include weather risks, curtailment risks, power price risks, counterparty risks and policy risks. Taking weather risks as an example, wind and solar projects depend on favorable weather conditions for their power output. When the weather is not so favorable, output from both wind and solar can vary by around 15-20%, depending on where the farm is located.

This risk exposure is even worse in Asia, a region prone to natural catastrophes. A large swath of Asia sits on the Pacific Ring of Fire, where most of the world's deadliest quakes occur, while typhoons regularly hit Macau, Taiwan, Hong Kong, the Philippines and China. Sound risk transfer solutions such as engineering policies, property insurance and index-based parametric solutions are crucial for renewable projects from pre-construction to operation. As favorable government policies and technology advancement pave the road for rapid development, (re)insurance is vital to attract the necessary capital, protect renewable energy producers as well as stakeholders along the value chain.

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Contact

Thai Pham

Senior Underwriter Engineering

Property & Specialty Underwriting

Thai is currently the Senior Engineering Underwriter for Malaysia, Vietnam, Myanmar, Cambodia, Laos and Brunei markets.