The energy crisis in Australia continues to worsen. On Wednesday, the Australian Energy Market Operator (AEMO) temporarily suspended the national electricity market. The regulator’s media release said the suspension “is the best way to ensure a reliable supply of electricity for Australian homes and businesses.”
Marsh, the global insurance broker and risk advisor deals with a wide range of clients across the sector including both traditional and renewable energies.
Alex Cohen (pictured above), energy and power growth leader for Marsh Pacific said inflationary pressures are playing into this energy crisis and are a “key issue for our clients.” These pressures particularly concern, he said, ensuring the adequacy of clients’ declared property and business interruption values.
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“In most instances markets want to see independent property valuations so our team work closely with the Marsh Advisory Valuations team to support our clients with this – integration with the broking and valuations team allows seamless communication with the insurance market to get great client outcomes,” said Cohen.
Cohen said volatile energy prices were also impacting business interruption (BI) values.
“There is increasing concern from insurers that BI exposures may, in fact, be higher than those declared due to the higher energy prices. In order to manage this exposure some insurers are including clauses to limit or cap exposure to BI volatility,” he said.
The current energy issues have also brought ESG (Environmental, Social and Governance) challenges to the forefront.
“The insurance market is increasingly scrutinising carbon intensive clients with insurers reviewing appetite for certain sectors such as coal as they re-align to ESG guidelines,” said Cohen.
He said “significantly reduced capacity” in this space is putting “immense pressure” on any renewals.
“Anyone in this space should allow a long lead time into renewal as restructuring of programs would now be commonplace, alongside the need for a more global placement approach and a re-evaluation of the risk transfer strategy,” said Cohen.
Marsh has a recently launched ESG Risk Rating tool. This self-assessment tool allows organisations to measure environmental, social and governance performance, identify ESG risks for improvement and gain access to more favourable risk and insurance terms in particular areas such as Directors and Officers liability.
“The global energy market is volatile due to supply constraints as a result of strict sanctions on Russian oil and gas causing record prices,” said Jane Smith (pictured below), energy and power regional leader, for Marsh Pacific.
Smith placed the current crisis in its wider context.
Jane Smith here
“Energy and power companies face significant challenges and wide-ranging risks including infrastructure damage, weather and natural catastrophes, human error and cyber threats that can all cause power blackouts or severe disruption to energy production as the industry continues to transform at a rapid pace to meet energy requirements and community expectations on how to deliver energy solutions,” she said.
Smith said, across Australia, demand for new sources of energy is growing as a number of large base load power stations are nearing closure or already shut-down.
“At the same time, the government, organisations and communities are committing to reduce carbon emissions and accelerate the transition to clean energy sources driving transformation in the sector,” she said.
The Marsh Pacific regional boss said traditional energies “remain critical” to the success of the Australian economy and a stable energy supply.
“This has been further emphasised as a result of the geo-political instability we have seen following Russia’s invasion of Ukraine combined with our post COVID recovery,” she said.
Improving Australia’s energy security through a balanced energy supply, “including a mix of renewable and traditional sources is critical,” said Smith.
In the AEMO media release announcing the suspension of the national market, the regulator blamed what it called “the current energy challenge in eastern Australia” on several factors including, in recent weeks, a large number of generation units not operating because of planned maintenance. There have also been planned transmission outages, periods of low wind and solar output and about 3000 MW of coal fired generation out of action due to what the release described as “unplanned events.” The regulator also said the early onset of winter had created increased demand for both electricity and gas.
Earlier this week, AEMO imposed a $300/MW-hour price cap for Victoria, South Australia, Queensland and NSW in an attempt to ensure enough electricity supply. The operator also directed generators to pump more electricity into the network. However, some parts of the east coast have already seen blackouts due to supply gaps.
