How Insurance is Supporting the Future of Clean Energy
The global push toward a greener future is reshaping industries, and the insurance sector is no exception. As countries across Asia, the Middle East, and Europe pursue ambitious energy transition goals, the demand for tailored insurance solutions to manage emerging risks has never been greater. With investments in clean energy projects on the rise, the outlook for 2025 points to insurers playing a critical role in de-risking these projects, making them more attractive to investors and accelerating the transition to net-zero. In particular, early involvement from insurers can make renewable energy initiatives more resilient from the planning stage to the project being operational and operated.
Managing New Risks: The Role of Insurance in Renewable Energy
Renewable energy projects come with complexities that challenge traditional insurance models. For example, Saudi Arabia’s NEOM project a $500 billion investment in green hydrogen—faces significant construction risks, from delays due to extreme heat to logistical challenges in remote areas. Long-term uncertainties around the performance of new hydrogen technologies and the integration with existing infrastructure add to the risk profile.
In Asia, where wind farms are expanding rapidly, the unpredictability of typhoons can threaten the stability of even well-engineered projects. These events can cause extensive physical damage to turbines and disrupt energy production, leading to potential losses and project delays. Similarly, Europe’s growing offshore wind sector must contend with risks like harsh marine conditions, which can affect the installation and maintenance of turbines, leading to increased operational costs.
Such projects require a nuanced understanding of the unique risks involved, as well as strategies for mitigating those risks throughout the project’s lifecycle. This shift is driving growth in the renewable energy insurance market, which is expanding by 8% annually driven by a surge in investment in regions like Japan, South Korea, and Europe’s offshore wind sector, as companies and insurers work together to manage these new challenges and ensure renewable investments remain financially viable, even in challenging conditions
Innovative Solutions: From Parametric Insurance to ESG Alignment
As the energy transition reshapes markets, insurers are developing new solutions to meet the evolving needs of renewable energy projects. Across Asia, where extreme weather events like typhoons pose risks to solar and wind developments, parametric insurance is becoming a game-changer. These policies, which pay out based on predefined triggers like wind speeds or rainfall levels, provide faster settlements, offering a financial safety net in unpredictable climates.
Unlike standard annual renewals, multi-year coverage provides stability for large-scale ventures like Europe’s offshore wind farms. This stability not only helps secure financing but also makes these projects more appealing to long-term investors. As regions worldwide pursue their clean energy goals, the demand for innovative insurance solutions will only continue to rise.
Building Resilience through ESG
In the insurance industry, Environmental, Social, and Governance (ESG) principles have evolved from being buzzwords to core elements of business strategy. This shift is especially evident in Europe, where insurers have committed to significantly increasing their investments in renewable energy and other sustainable projects. For instance, a group of major European insurers aims to allocate around $70 billion toward ESG-related investments by 2024.
The role of insurers in this space extends beyond simply financing renewable energy. Insurers are beginning to play a role in advising companies on how to integrate ESG practices into their business models, which can make projects more attractive to investors and reduce financing costs. Globally, discussions like COP28 underscore the pivotal role of insurance in shaping the future of sustainable energy. By integrating ESG criteria into underwriting processes, insurers can lower financing risks and attract more investors, making large-scale clean energy projects more viable.
Case Study: European Offshore Wind and Asian Solar Expansion
Europe’s offshore wind sector, particularly projects like Dogger Bank, demonstrates how strategic insurance can support the growth of renewable energy. As the largest offshore wind farm globally, Dogger Bank is expected to generate 6 TWh of electricity annually, enough to power 6 million homes when fully operational by 2026. The project secured over £6 billion in financing for its first two phases, backed by a consortium of 29 banks and export credit agencies. This financing is supported by specialised insurance coverage that addresses the risks of environmental challenges, logistical complexities, and construction delays. These insurance solutions ensure stability and investor confidence, enabling Dogger Bank to meet its ambitious output targets.
Looking Ahead to 2025: Insurance at the Heart of the Energy Transition
Looking to the future, the insurance sector’s role in the energy transition is becoming clearer—and more crucial. According to the Financial Times, the need for insurance tailored to renewable projects could reach $10 trillion by 2030, driven by the growth of clean energy investments. Insurers are now tasked with creating adaptable products that balance the excitement of new tech with the stability that investors demand.
Asia, the Middle East, and Europe will continue to lead the charge, with insurers paving the way for green hydrogen, solar expansion, and offshore wind. By turning uncertainty into opportunity, they’re not just insuring projects—they’re insuring the future.
Bond Chambers: Bridging the Talent Gap for Insurers
Our deep industry knowledge allows us to identify professionals who can develop innovative risk management strategies, from parametric insurance to complex energy initiatives. We work across diverse markets, including Asia, the Middle East, Europe and the US to ensure our clients are equipped with the expertise to support renewable energy projects and allow companies to manage emerging risks effectively.
Whether you’re expanding in Asia, the Middle East, Europe or the US or an individual contemplating your professional future, Chambers has the industry insight and global reach to help you thrive.
Contact info@bondchambers.com today to learn how we can support your journey.
