Introduction

Welcome to our Renewable Energy Market Review for 2021. They say that change is constant, but I think I can safely say that none of us had any idea of the changes that the world has experienced in 2020. It’s astonishing to think that when we published the 2020 Renewable Energy Market Review last January, COVID-19 was being reported simply as an outbreak of an unusual strain of influenza in Wuhan, China, with little or no idea that there would be any implications at all for the rest of the world. We can only hope that the rollout of the various vaccines that have been developed are swift and successful globally and that we can look forward to better times as 2021 develops. In the meantime, we hope that all our readers are staying safe as the world tries to find exit strategies from a pandemic that has turned so many established assumptions on their heads.But just as COVID-19 has challenged so many of these assumptions, so has the rapid development of the energy transition and the new risks and challenges that it poses for the renewable energy industry. It might seem strange from the perspective of early 2021, but in time the pandemic will pass as the global vaccination programme gathers pace. However, what won’t pass is the onward march of climate change and the rapid changes in the energy mix that we are beginning to witness.That’s why we have called this year’s Review “managing the transition”, as the changes in the overall global energy mix have brought their own shift in the renewables risk landscape. For example, just how prepared is the renewables industry to meet the challenge of its own climate risk? In Part One of the Review, Margaret-Ann Splawn, an independent climate policy finance and investment consultant, names three: overcoming barriers for scale, the regulatory scrutiny arising from climate change and Environmental Social Governance (ESG). At the end of her piece she concludes, quite rightly, that renewable energy risk managers and business leaders will need to adapt to climate change and integrate it as a major consideration in decisions.But how, exactly? The next article by Tony Rooke, Geoff Saville and Lucy Stanbrough of our Climate Resilience Hub, helps to show the way forward. In it, they set out a framework within which renewable energy companies can take the first steps in the process of identifying, quantifying and ultimately managing their climate risk, be it physical, transitional or liability exposure.Part One continues with a variety of articles relating to the energy transition, including an excellent client perspective from Mainstream Renewable Power’s Lesley O’Connor together with an underwriter’s view of the future development of Offshore Wind, from Codan’s Brendan Reed.In Part Two we focus on some of the specific risks and challenges currently besetting the renewables industry, aside from the issue of the energy transition. Perhaps the most important risk management question bedevilling the industry right now is how to develop strategies to counter the effects of the current hard insurance market. One critical tool which risk intermediaries can offer is the use of advanced analytics to suggest new but viable risk transfer strategies to offset the increased costs of risk transfer. There’s also a deep dive into the topical issues of Wildfire risk, Floating Solar, Offshore Wind turbine pitch bearings, microcracks and solar trackers - to name but a few.But this year we make no apology for focussing Part Three of the Review on today’s challenging insurance market conditions. Many of our readers will know enough about the renewables industry to acknowledge that its loss record has been far from perfect in recent years. Although we take a deep dive into conditions in the International and North American Property and Liability markets, with contributions from other markets around the globe, we begin Part Three with an overall analysis by Steve Munday, our Head of Renewables in GB. The challenges and issues that are concerning the Renewables markets across the globe are spelt out clearly: the risks surrounding aged assets, the effective risk management of operations, maintenance and spares, their exposure to natural catastrophe risk, the experience (or lack of it) of the contractors involved in specific projects, lender obligations, the rapid escalation of technology and finally of course, COVID-19 and the consequent supply chain interruption issues. All of these challenges are currently making their own contribution to the current market conditions, which have not been experienced since the immediate aftermath of the 9/11 tragedy back in 2001.We then conclude our Review with a detailed look at conditions in the various insurance markets around the world. Although the rate of market hardening is decreasing – from an average of 30-40% to 10-20% for most lines of business - conditions remain very challenging and buyers will need all the help they can get to navigate today’s tough market conditions.How can buyers respond? I’d like to conclude by the advice given by Steve Munday at the conclusion of his market article:

Make sure your risk retention, captive participation and risk transfer strategy is based on sound actuarial principles. Some of our clients have been pleasantly surprised at how much risk they can actually retain, having bought down their deductibles to successively lower amounts during the previous soft market.

Make a careful inventory of what should be insured, and what should not. The market is going to charge their rate increases regardless, so to keep insurance costs down, only insure what you need to. For example, how much of your miscellaneous general asset risk really needs to be transferred? And if so, does it really need to be on a Replacement Cost basis, or will Actual Cost Value suffice?

Ensure that your values are accurate, up to date and accountable. Insurers are going to demand to know how they stack up and the basis on which they have been calculated. Not only will this save you time when it comes to the renewal process, it will mean that any price caps that insurers will impose will be less punitive in the event of a loss.

Provide a high quality, comprehensive underwriting submission. This will be key to ensuring that the maximum potential capacity can be accessed and that the best possible results are achieved in an environment where risk selection is so prevalent.

Engage with your underwriters personally. Even if this is just by a video call in this Covid-19 environment rather than face to face, it can make all the difference. Take the time to engage with them to explain your operations and answer any questions.

Timing is everything. Work with your broker to ensure that you deliver your underwriting submission to the market at exactly the right time. Know in advance what the insurers will be looking for and so avoid any unwanted surprises.

We very much hope you enjoy reading the Review, and as ever we would be delighted to receive any feedback that you might have.

Graham Knight is Head of
Global Natural Resources, Willis Towers Watson.
graham.knight@willistowerswatson.com