Though the renewable energy industry offers an abundance of untapped potential for insurers, there are numerous barriers to its continued growth. According to Willis Towers Watson’s (WTW) annual Renewable Energy Market Review, a hardening insurance market is seeing pricing increase by 10% to 40% across a number of global markets, with even more significant casualty rating increases in certain instances.
One of the biggest issues facing a widespread transition to renewable energy sources in Australia is intermittency, according to John Rae (pictured), Australasian renewable energy leader at WTW.
“The vast majority of new renewable energy projects in Australia are wind or solar-powered and, as a result, don’t tend to produce energy at a standard flat rate,” he told Insurance Business.
“Other countries like New Zealand use hydro sources, which can react quite quickly to changes in demand, to produce large amounts of their electricity in a sustainable way. With solar and wind there’s somewhat of a lack of reactiveness and this, combined with energy network transmission issues in Australia, can lead to difficulties in responding to the market’s needs.”
Another thing that Rae sees as a potential impediment is the exposure to natural catastrophes that many areas of Australia face. An area like northern Victoria – “home to significant renewables infrastructure”, in Rae’s words – has become one of the most bushfire-prone regions in the world, making certain risks near-impossible to insure.
“In Australia, we’re incredibly exposed to a lot of natural catastrophes including cyclones, hailstorms, floods, bushfires and more,” he said.
“Adding to that is the fact that many renewable projects are built in areas of high wind and with high amounts of sunshine, which can help maximise their yield but also brings added risk. All in all, developers need to be very aware of the risks associated with these weather events, since a natural catastrophe can cause a level of damage overnight that takes a long time to recover from.”
Given the skyrocketing demand for renewable energy sources, however, Rae still sees the growth of this sector as “inevitable”.
“There are a few factors that make this growth inevitable,” he said.
“There are social expectations that companies should move towards renewable energy sources, and that carbon footprints need to be mitigated. And from a purely economic point of view, renewable energy sources are significantly cheaper than other energy sources, making them hugely attractive for electricity generation moving forward.”
Another reason for optimism in Rae’s view is the fact that many leading insurers in Australia and beyond have “significant experience in the renewable energy sector.”
“We like to encourage the dialogue between these renewable project developers and their insurers so that both sides can make the best of the situation,” Rae stated. “If they’re working together and combining the tools at their disposal to effectively mitigate any risks that present themselves, that’s going to deliver the best result.”
Ultimately, working in a constantly evolving sector like renewables is an extremely exciting and rewarding challenge for Rae.
“It’s a real problem-solving industry and the people in it are so passionate about what they do, that you can’t help but be inspired by them,” he said. “The team here at Willis Towers Watson definitely shares that passion, and I’m very lucky to be a part of it.”
