Demand for renewable energy projects has spiked over the past few years, increasing demand for equipment, labour and capital. While all are in short supply – and exacerbated by the pandemic’s impact on supply chains – the shortage of capital has become particularly problematic. Investment capital continues to pour into renewables, according to PCS’s market sources, but they struggle with access to insurance. Without appropriate insurance protection, renewables project financing is much more difficult to attain.
For many insurers, elemental risks have become an impediment. PCS client conversations suggest the existence of a risk appetite to insure renewables projects, but many would likely require exclusions for directly relevant natural risks, from wildfires in California to tropical storms in Texas and California. Hailstorms – both frequent and increasingly severe – have posed the greatest challenge to renewables insurers. And it could get worse.
A 2020 study from the European Severe Storms Laboratory (ESSL) forecasts an increase in hail events by as much as 80% over the next decades because of climate change, with Italy, Germany and Eastern Europe particularly exposed. The recent French hailstorms that swept through central and southwestern France in June offer a timely reminder. The study further observes that events with hailstones larger than 5cm in diameter are particularly relevant for claims. A 4cm hailstone (the size of a golf ball) travels at 100km/h, while a 10cm hailstone (small soccer ball) travels at 150km/h. About 52% of the tracks have a diameter between 20-40km wide, coving larger areas of exposure.
In the second quarter of 2022, several hail events each caused losses in excess of $50m in the solar industry – all within a span of 60 days. France sustained the greatest damage, with events from June 3-4 and June 21-22. The reported size of the hail ranged from golf balls to tennis balls.
The energy transition requires insurance – not just investment capital. However, cleaner energy brings a set of risks that insurers will need to understand, as well as the new technologies that can mitigate the risk of insured loss. Loss experience doesn’t come without experience, though. While it is tempting to wait on the sidelines to see how the market evolves, doing so puts more at risk than insurance market expansion. It could cost future generations the planet they deserve.
PCS Global Marine and Energy