AXIS VIEW 2023

Richard Carroll
Global Head of
Renewable Energy

AXIS View 2023 Richard CarrollContents

AXIS View 2023 - Richard Carroll

Richard Carroll
Global Head of Renewable Energy
AXIS

Our progress

Since we started the Renewable Energy business at AXIS more than a decade ago, our team has expanded from two people into the 35-strong multi-disciplined global team that we have today. Over the past 12 months, we’ve hired new underwriting and risk engineering colleagues in London, Singapore and New York to keep up with the growth in demand for experienced specialists in renewable energy risk.

Within the renewable energy industry itself, there are further reasons to be optimistic as global competition drives innovation. Offshore technology is continually advancing with machines as large as 15MW in their testing phases. While floating wind technology still has to be proven, the momentum of the industry is starting to build. Onshore turbines continue to grow in height, while solar continues to be deployed at a rapid rate and battery storage is becoming an increasing part of developers' plans.

Navigating renewable risk

As we continue into 2023 the renewable energy industry moves forward at pace, as the world wrestles with supply chain issues, rising inflation, and climate change. With the cost of and access to energy at the heart of social and geo-political pressures globally, the renewable energy industry’s ability to meet soaring demand globally is even more under the spotlight, with some huge changes. In the United States the Inflation Reduction Act (IRA) has given some certainty to investors, with companies such as NextEra¹ and Hanwha QCells² making long-term construction and manufacturing pledges. The Act’s local content provision has sparked a global competition in incentive programs, with the European Union recently announcing its own Green Deal Industrial Plan. This competition for investment will shape the industry going forward and we wait with interest to see how other governments react to these policies.

Issue facing renewables

While this optimism is well placed, there are still many issues that the industry needs to address. Even as a maturing industry, a large number of teething problems remain. In onshore wind there has been another year of losses for turbine OEMs with Siemens Gamesa explicitly stating that it has been negatively impacted by an ‘upward trend in the failure rate of certain components’.³ The downside of constantly pushing new technology with a view to reducing the cost of energy is that new models mean new methods and so just as operators are gaining expertise in one turbine, another is already being introduced.

While this focus has made wind extremely competitive against other forms of energy, combining new products with often tight deadlines has led to an increase in errors and lower levels of expertise among contractors. Battery storage systems have proved to be invaluable to their owners, but the industry must quell the ongoing concerns around the number of large fires. In the absence of standardized design, each BESS project can have its own idiosyncratic mix of modules, batteries and control systems, which means there is a lack of consistency. In both wind and battery storage operator error still happens far too often.

Exposed to the elements

The elements are still a major risk for projects. Alongside the traditional natural catastrophe concern around hurricanes and earthquakes, secondary perils such as lightning, hail, wildfire and flood must be taken seriously. Over the last decade, these events have from gone from an afterthought to becoming the most widespread weather concern for renewable energy insurers.

The increase in secondary perils has changed the natural catastrophe landscape, which has been reflected in recent reinsurance pricing and will continue to affect the industry as insurers monitor their natural catastrophe allocations.

In offshore wind, the industry has been able to manage previous cable claims issues, but as the industry moves into new territories a lack of local supply chain is an area of concern. New markets and technologies such as floating wind have little history and the ability to manage risk will be key to their progression.

In return we welcome your views and thank you for your partnership, collaboration, and support. I hope that by continuing to foster open channels of communication, we can provide you with the best products and service possible and I look forward to continuing to grow our businesses together.

The future

For this year and beyond, even deeper collaboration between all stakeholders in the industry must be the key focus if we are to learn and make progress. The relationships between insurers, brokers and insureds have never been more important. Working together to develop specialist solutions to new challenges will help to determine the sustainability of the renewables industry in the long term. For our part, the global Renewable Energy team at AXIS will continue to focus on best practices and what we believe are the minimum standards for all parties that are working together for the long-term success and sustainability of the renewables industry.

The insurance market

The specialist insurance industry for renewables is also grappling with a number of challenges. The increased demand for renewable energy globally makes it an attractive sector for new capacity, but in a complex and fast-moving sector expertise in underwriting, claims and technical understanding are key to longevity. Henrik Andersen, the CEO of Vestas, recently stated “Building a sustainable, scalable, and profitable wind industry also requires we continue to build industry maturity and commercial discipline”.⁴I believe this is true for those of us in the insurance industry, too.

Sources

¹Recharge, January 2023: ‘Transformational’ IRA spurs US green giant NextEra to record build plans

²Recharge, January 2023: ‘Biden’s vision come to life’ Hanwha to invest $2.5bn in US solar manufacturing facilities

³Siemens Gamesa, February 2023: Results for the first quarter of fiscal year 2023 (October – December 2022)

⁴Vestas, February 2023: Vestas Annual Report 2022 – A challenging year with negative productivity

Disclaimer

The AXIS Renewable Energy team provide expertise in insurance coverage and risk mitigation analysis and insights for every stage of renewable energy projects from development through operation, ranging from stand-alone projects to utility scale. This material is for general information, education and discussion purposes only. Statements contained herein are not professional or legal advice of AXIS or its affiliates. AXIS makes no representations as to the accuracy or completeness of the information contained herein and is under no obligation to update or revise the information as a result of new information, research or future events. AXIS assumes no liability by reason of the information within this material.