Clean energy revolution facing extreme weather challenge

Clean energy projects around the globe are increasing being threatened by natural catastrophes and extreme weather events. And while the US has long been the focal point of natural catastrophe challenges, the problem is now far more widespread.

Although the renewables sector recognises the increasing climate-driven risks due to modelling and data shortfalls, the full scale and complexity of those risks remains unclear.

This is raising concerns about the long-term insurability, finance and viability of clean energy projects as the industry expands.

Wildfires that destroy infrastructure are common in the western US, Europe and Australia, with windstorms that damage turbines and solar mounts in Asia and southeast US also problematic. Elsewhere, flooding is causing damage and limiting access to sites across the globe, while extreme heat in Africa and India reduces solar panel efficiency.

James Totton, underwriter at green operations specialist underwriter Tokio Marine GX, explain: “In the last 12-24 months the market has really come to terms with the fact that other territories – the Middle East, North Africa and Asia-Pacific – are now also seeing natural catastrophes in increasing frequency and severity, mirroring our experience in the US market.

“Those can extend to severe convective storms (SCS), wildfire, floods and cyclones in Asia-Pacific. These are perils that we haven’t really taken seriously in the past, given the emphasis on the US market, and now there are increasingly unmodeled events.

”Unfortunately, terms and conditions haven’t reflected that exposure and are now catching up, especially in Europe and the Middle Eastern territories.”

Severity and scale

The frequency and severity of claims are rising due to this increased exposure to extreme weather.

Renewable energy projects, such as wind or solar farms, are often built in areas where natural catastrophes are frequent and intense. It is predicted that these weather events become even more damaging due to climate change.

Peter Carter, head of the climate practice and captive insurance management solutions at broker WTW, said insurers are tightening underwriting standards and raising premiums in response to these extreme weather-derived losses.

He explained: “Carriers remain cautious about underwriting renewable energy infrastructure. Unlike property insurance, this sector has limited claims history and involves a high degree of technical complexity, particularly with evolving technologies such as wind turbines, subsea cables and solar panels.

“Accurately assessing risk is a challenge that few are eager to take on, especially when compounded by exposure to natural catastrophes and climate-related events.”

New strategies

In the face of extreme weather-related losses and the response of insurers, the renewables industry has to look to adopt new strategies.

These can include the greater use of parametric and alternative risk financing solutions, such as captive insurance, which can help manage both the immediate and medium-term risks.

However, in the longer term, adopting mitigation and avoidance measures will become essential.

Renewables developers must also consider incorporating climate change and its impacts into designs and plans in the early stages of new projects, which will help strengthen their resilience and reduce the frequency and severity of those claims.

Totton added: “Insurers are there in the middle trying to navigate this fine line between maintaining their capacity in a sustainable way and also insuring that exposure remains sustainable in an increasingly volatile market.

“Every few years the renewables technology has a quantum leap in the size of the equipment and the megawatt hours generated from it. But, as the sites get bigger, we haven’t seen as much focus on cat exposure as we might like.

“There are technologies out there – particularly in the solar space, where you’re looking at things like severe convective storms – and trackers are being developed, as well as new types of panel and how you position them. That comes with an additional cost and developers are maybe reluctant to put the money in, but it is something we need to see.”

Managing volatility

Insurers are also looking to develop a number of solutions to help them better manage the volatility and uncertainty created by severe weather-driven losses in the renewables sector.

There has been a pressing need for custom-built catastrophe models and tailored solutions to accurately assess the probability of loss for this rapidly developing assets in exposed regions. The need to accurately capture their unique vulnerabilities to quantify and manage the risk is more important than ever.

Carter said: “As an example, WTW works with utility-scale solar developers and operators to evaluate and quantify probable maximum losses, considering site-specific engineering design, risk mitigation and tracking system’s stow strategies for both wind and hail to quantify natural catastrophe risk precisely.

“Solutions use sophisticated, tailored and engineering-based modelling to assess the risks like hail, wind and fire more accurately. There is also increasing deployment of real-time sensors and predictive tools to dynamically adjust coverage and pricing.”

Insurers noted that they were looking for long-term partnerships with renewables operators and wanted to engage with clients as early as possible, preferably before construction is underway.

Alex Nelson, underwriting manager for power and renewables at Liberty Specialty Markets, said: ”We want to collaborate with clients and share our knowledge of claims, best in class original equipment manufacturers (OEMs) and what methods mitigate natural catastrophes best – for example, stowing the panels at 75 plus degrees celsius.

“Insurance products are always evolving. We try to incentivise and credit our clients to choose the best in class OEMs and ground breaking technology. For instance, we will give deductible breaks if the client is stowing their panels at the desired angle. By learning from past losses, these incentives help clients manage volatile losses, by reducing damage. There are also parametric products available for insurance buyers.

As renewables projects move into new terrain, the ability to manage these risks will determine whether the sector can scale sustainably. Tackling the uncertainty caused by extreme weather events is now essential for securing the future of the green transition.