A recent report from Gallagher Re tackles the question of renewable energy mega-projects, and whether such endeavors will see a return in 2024.
With the global renewables industry receiving a boost over the festive period, buoyed by optimistic developments at the COP28 global climate conference, Gallagher Re notes that the sector is poised for a strong growth trajectory in 2024, spurred by new orders for wind turbines and a positive forecast for the solar industry.
For the reinsurance sector, this resurgence in larger and more costly renewable projects signals an increased need for coverage. The reinsurance broker explained that these projects, characterized by larger hardware, are associated with higher Estimated Maximum Losses (EMLs), prompting primary carriers to seek reinsurance for construction risks.
According to the report, this trend marks a departure from the previous year, when higher interest rates led to a preference for smaller projects. These smaller initiatives, with shorter construction timelines and fewer supply-chain issues, required less reinsurance. As a result, the industry saw an uptick in smaller onshore wind farms and robust growth in solar installations.
However, a potential decrease in interest rates could herald the return of larger renewable projects. The wind sector, in particular, has seen significant activity, with turbine manufacturer Vestas announcing major orders, including four 1GW-plus projects. Gallagher Re believes that these developments not only provide a steady workload for Vestas’ manufacturing plants but also hint at the possibility of expanding production capabilities.
Notably, the UK’s offshore wind projects and Pattern Energy’s SunZia onshore wind project in New Mexico have contributed to this momentum. The advancement in turbine technology, as demonstrated by Vestas’ new 15MW mega-turbines and Siemens Gamesa’s upcoming certification of its largest wind turbine prototype, underscores the industry’s growth and innovation.
Despite recent challenges, such as cancelations of offshore wind projects in the US, Gallagher Re notes that the sector remains optimistic. Economic improvements and the potential for project resumption, as seen with the sale and continuation of a part of the Norfolk project, bolster this outlook.
The competitive landscape among manufacturers is dynamic, with opportunities for better pricing and project acquisition when the timing aligns with product readiness and production capacity.
The solar market is also on an upward trajectory, with Wood Mackenzie projecting 55% growth in the US solar industry for 2023, primarily driven by utility-scale projects overcoming supply-chain difficulties. The forecast for 2024 suggests further expansion, with over 35GWdc expected.
Political support for higher power prices enhances the financial feasibility of renewable projects, increasing their total insurable values. With clear loss and income data available, the insurance and reinsurance markets are prepared to back these ventures, anticipating a busy 2024 with higher-value projects needing protection.
In another recent forecast, the reinsurance broker noted the significant trends in AM Best rating changes for US property and casualty insurers which could present challenges to the industry.
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