While renewables will remain a focus of the global energy transition, risk managers will face challenges from a “new trilemma,” according to a report by WTW.
This trilemma involves the convergence of:
- The need for net-zero energy security
- Unsettled global macroeconomics
- Rising demand for renewable energy in a time of stifled supply of inputs
This will push risk management and ESG to the position of key issues in the coming year, according to WTW’s Renewable Energy Market Review 2023 report.
The report includes contributions from more than two dozen international experts and specialists, WTW said. It highlights the need to balance risk and opportunity in a changed political, economic and social environment.
“Macro events and trends such as inflation, cost increases, security and supply chains are impacting the renewable energy industry, making the current business environment a challenging one for risk managers,” said Margaret-Ann Splawn, contributing author and executive director of the Climate Markets & Investment Association. “Several important steps will help them to assess their own vulnerabilities in the transition to net zero and protect themselves from current and future ESG and climate-related risks.”
Splawn advised risk managers to:
- Understand their own ESG and sustainability position
- Adopt a reactive risk-response position
- Play a strategic role across the company
- Work in concert with relevant stakeholders
Steven Munday, natural resources global renewable energy leader at WTW, reviewed the renewables insurance market in the report. Munday predicted that general insurance rate increases would be tempered by individual insurers’ appetites for specific kinds of clients and assets, WTW said.
“Buyers that fall within an insurer’s higher levels of risk appetite can expect low- to mid-single-digit increases,” Munday said. “Transient clients might achieve similar rates if insurers new to renewables fight for market share, but more circumspect risk carriers are likely to offer them middle- to high-single-digit increases. Finally, clients with challenging occupancies, poor claims experience, or a poor strategy may well see double-digit rate rises. Working with an intermediary who understands each insurer's specific risk appetite will be critical to moderating rate increases.”
Munday said that in all cases, cover for natural catastrophe risks would be much higher.
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