We can celebrate the progress, but we must also understand what is slowing down the energy transition

During our 25+ years in the renewables insurance business, we have lost count of the times we have seen the growth of the industry referred to as a ‘race’.

There is good reason for this messaging: the transition to renewable energy is under time pressure to deliver globally agreed net zero targets. Meanwhile both the evolution of new technology and the influx of new entrants into the market makes it a competitive space to pursue bigger, quicker, and – hopefully – better renewables projects.

However, as we welcomed guests for this year’s GCube Risk Seminar in Porto, I shared with our audience my view that a focus on pace at the expense of sustainability has hampered, rather than sped up, the industry’s progress in this race. This particular race isn’t just about pace – it’s about endurance.

Notably, the fastest-growing segment in the renewables market is also experiencing the greatest challenges of durability. Solar losses from Natural Catastrophe events have been devastating in recent years. From my own personal knowledge, I can say that there have been over 1.4bn euros of losses this year alone and only a little over half were actually insured, leaving the balance of the loss on the project’s balance sheet.

We read a lot about extreme weather events being ‘unprecedented’ or ‘one-off’ as if to say there is nothing to be done. While this may be the case in terms of severity, the frequency of Nat Cat events means that it would be irresponsible to write this off from a risk management perspective as rare ‘bad luck’.

As our ‘Hail No!’ report detailed in December, hail claims now average at USD 54.8 million – evidently, this is not a sustainable average and we need to think urgently about how this might be reduced. Some practical ways of achieving this are explored in this newsletter as we ask Darren Askari, our North American Claims Manager, the question: to stow or not to stow?

As those who have been unfortunate enough to experience losses in renewable energy projects know, it is not the relatively simple, yet significant, expense of replacing damaged components, but the much more unpredictable expense of joining the back of a congested queue for the supply of these parts which sets business back. Clearly then, this is not a race that will be won by cutting corners and adding further strain to the supply chain.

It isn’t only Nat Cat risk that has evolved and warrants our attention either. In the last few years, advances in Battery Energy Storage Systems (BESS) have pushed the class prominently into the renewables field, with Wood Mackenzie projecting the US market to install BESS projects worth approximately 232 GWh between 2023-2027.

A decade ago, GCube shifted to a much more cautious approach with BESS – following a hefty loss - to better understand the risks involved and analyse the evolution of the technology and its risk management procedures. In GCube’s market report in February, ‘Batteries Not Excluded’ we outlined our sense that BESS has reached an important point of its maturity where underwriters could start to feel optimistic about its future even against a difficult track record of project failure.

What is uniquely challenging about insuring BESS projects is that, compared to energy generation assets, underwriters have considerably less data to inform their approach to terms and pricing. The increasing demand for insurance coverage coupled with a lack of market experience is, however, a familiar story across renewables - we have encountered the risks of evolving technology before and continue to do so with the production of ever-bigger wind turbines, for example.

Again, prioritising the collaborative growth of knowledge around how to bring BESS to market so it can endure will be far more effective in this race than rushing it through as quickly as possible.

To that end, we are delighted to officially announce in this newsletter the announcement that our Head of London Market Underwriting, Olly Litterick had the pleasure of sharing with our guests at the GCube Risk Seminar: that GCube has launched a BESS consortium, backed by six Lloyd’s syndicates, that will make USD 100m capacity available for BESS projects.

In practice, this allows us to lead on almost any utility-scale BESS project through construction and operation, and answers our brokers’ demands for more (and, crucially, more experienced) underwriting capacity in this segment.

As with any developing market finding its feet and establishing a routine, there will be complexity in the claims processes that we feel well-placed to mitigate given our long-term experience in the field. It’s an exciting moment for GCube to be on the front foot as the market leader for BESS, which has shown that it too will be critical in our race for renewables production.

This news takes me back to the serious point that I put to our audience in Porto: that we can celebrate the progress, but we must also understand what is slowing the energy transition. Even despite of renewables growth and the emergence of new technologies and global markets, the reality is that the goals set at COP28 can only be achieved by adding 1,000GW of new renewable energy each year until 2030.

This is the vast scale of the ‘race’ we are involved in and, yes, it requires speed to deliver. As I’ve said, however, in the face of intensified Nat Cat risks and the unknowns of technological innovations, the pace at which the industry moves should be dictated by sustainable practices that enable our renewable assets to endure for the entirety of this race and do not have to be retired early.

The energy transition isn’t slowed merely by energy policy, though this is of course significant, but also by our own attitude to learn from past mistakes and take decisive action. If we can rethink of the race as one of endurance, supported by knowledge-sharing across the industry, rather than purely of speed, then we will find ourselves in a much smoother rhythm and move beyond the stop-start approach we seen to date.