Key Takeaways

Renewable energy investment opportunities and risks:

While traditional operators may need to lead the way in transitional markets like green hydrogen and carbon capture and storage, independent renewables operators will also play a crucial role.

Renewable investments are driven by macroeconomic trends, not just by regulation. Yet political goodwill is crucial in ensuring renewable projects are developed in a timely manner. Fitch expects non-hydropower renewables to make up nearly half of the global power mix by 2050.

Analysing the bankability of new energy technologies in different jurisdictions involves balancing investor risks and rewards. The UK, China, South Africa and the MENA region lead in renewable energy investment due to policy support and, in MENA’s case, land availability.

Risk mitigation strategies:

Managing natural catastrophe risks, as well as the potential impact of poor logistics and supply chain management, are pivotal to project success.

Underwriters tend to prioritise proven technology and project design to mitigate risks in the renewable energy market. Yet, insurers struggle to understand and price nat cat risks in new energy infrastructure projects, particularly in areas with limited historical data.

Parametrics is an alternative form of risk transfer that operates differently than traditional insurance. It can isolate and mitigate specific risks, such as storms, and offer broad coverage. Provided parametric triggers are met, it can offer guaranteed payouts with pre-agreed payment schedules, simplifying the claims process.

Insurance’s role in project finance:

Insurance coverage plays a crucial role in the viability of renewable energy projects. Lenders require a satisfactory insurance package before approving construction – they need to understand the package and take control in case of project failure.

It is important to involve insurance experts early in the project development process. This can help avoid costly delays and legal issues later on. Early involvement can also help shape financing agreements to accommodate changing market conditions, ensuring projects remain on track without expensive legal referrals or waivers.

Project risks can be mitigated by having the right management team and technology in place. With new technology, a robust certification is vital and can involve a lengthy approval process. Coverage is still available for new technologies, but it is the level of cover that is in question. Therefore, it’s a matter of finding the right balance of risk that developers, investors, and lenders are prepared to absorb.