Solar PV
The market in 2023 experienced some notable Natural Catastrophe (NatCat) events including Hail, Tornado, Wildfire, Flood and Wind claims globally from North America to the Middle East to Australia. The last year has shown that these events are becoming less confined to specific regions or seasons and this has put further pressure on insurers to manage their NatCat exposure by restricting coverage for these perils with sub-limits and higher deductibles.
Pivotal to this market dynamic is the requirement for projects, often driven by lender requirements, to obtain adequate NatCat cover limits sufficient to protect against Probable Maximum Loss (PML). Only a few years ago the renewable energy market provided full limit for weather events such as Severe Convective Storm (SCS), but now in order to provide sufficient coverage above the primary sub-limits available, project owners increasingly need to obtain excess layers which can come at a significant additional cost. The primary sub-limits available for SCS can range from anywhere between USD 10m to USD 50m depending on the risk profile.
Despite the Solar PV sector’s vulnerability to NatCat, the premium pool continues to grow, with more large-scale projects continuing to enter the market. Premium rates have stabilised or marginally increased throughout 2023 and there is now more “follow” insurer capacity available with continued corporate pressure to write business supporting the energy transition.
A further stabilisation is anticipated in 2024 with a potential for premium rate reductions for good claims ratio portfolios particularly in regions with more benign weather conditions.
Onshore Wind
The primary focus in this sector have been high profile technology issues for some of the top Original Equipment Manufacturers (OEMs) brought on by the rapid evolution of MW capacity for turbines and lack of standardisation in the commercial race. These issues have put a halt to certain models, with the re-engineering required delaying production lines, adding warranty obligations and in some case liquidated damages liabilities to the OEM balance sheet woes.
With this backdrop insurers are being cautious to monitor the reliability of certain models going forward.
Obsolete Technology is also becoming more into focus where there are often no suitable replacement turbines or components readily available for older turbine models. This can conclude in longer outages with higher Business Interruption (BI) claims. Insurers are trying to manage their exposure to identified obsolete technology with Actual Cash Value (ACV) and tighter caps on BI indemnity.
The rates in 2023 saw stabilisation leaning to 2.5%-10% increases on established turbines. The main variable for newer larger MW turbines being deductible level which can scale dramatically depending on insurer pool, territory and turbine make/model.
Expectations in 2024 are for a more welcome approach to a slightly broader range of OEM turbine manufacturers brought on by the commercial landscape that Developers/Owners are faced with. The scrutiny of warranties, Operations and Maintenance (O&M) arrangements and spare parts’ strategy are of even greater importance to ensure contracts are robust and lead times are managed with the backdrop of the global supply chain pressures and constraints.
Offshore Wind
The majority of markets remain cautious about Floating technologies and other Pilot/Demonstrator projects, not intending to provide effective R&D guarantee financing to industry.
In H1 2024 we expect to see just 6-10 leading markets prominent in the sector and circa 40 others providing active or passive following capacity.
Total capacity in the market for Construction All Risks (CAR) Cover on Offshore Developments of Fixed Bottom WTGs and Offshore Sub Stations (OSS) & radial export cable systems is circa USD 1 Billion from the major players with additional following capacity, all however dependant on quality as described above and no exposure to Natural Catastrophe or regional geopolitical risks. Capacity available for the Operational phase including UK Offshore Electricity Transmission (OFTOs) is much higher especially when this comes to market separate from a construction placement.
Premium rates will be stable and low for established operational programmes that remain loss free. Construction offers will depend greatly on the usual variables including project size, location, design/technology, developer track record, etc. Any developer with a non-standard project profile should take great care in planning, contracting and budgeting. They should start the insurance procurement process as early as possible.
Battery Energy Storage Solutions (BESS)
This sector has experienced rapid growth over the last year, with many experienced renewable energy lead markets now more comfortable with providing support, not just for BESS projects linked to solar and/or wind projects, but also for stand-alone grid balancing projects.
After an initial spate of high profile claims, the sector experienced a less volatile year in 2023, though insurers remain extremely cautious about the potential for high temperature thermal runaway fires. From an indemnification perspective much analysis of spacing between the units, on-site fire suppression and more recently, approval and ongoing compliance with local fire services is critical.
