30 June 2026
SETTING THE PACE
Subsea power cable is not a particularly new technology, with the first commercial power cable system installed in the 1950s. However, as the world races to meet ambitious net zero targets and energy security concerns, the utility and importance of interconnectors has become increasingly important. The surge in demand for these systems has placed pressure on supply chains as the number and scale of projects has increased significantly. Whilst the influx of private capital, often in the form of project finance, has introduced a very different stakeholder dynamic to many projects, both factors have fundamentally shifted the insurance challenges faced by the sector.
Although renewable energy naturally has great environmental and energy security benefits, its growth as a source of energy in many grids presents certain challenges. The frequency of electrical grids has to be carefully balanced, if it falls too low there is not enough power to meet demand which will could lead to blackouts. If the frequency is too high there is too much power and if left uncontrolled this which may trigger automatic responses to cut power input to prevent damage to infrastructure, potentially leading to blackouts. To prevent this, the Transmission System Operator (TSO) [AM1] is constantly balancing power input vs output, ordering generation assets to produce more or less power to maintain the equilibrium.
The use of inverter-based renewables assets can present challenges to this system of carefully managed balance. Traditional generation assets have mechanical inertia, which keeps turbines spinning for a short period after a generator might have tripped. This acts as a shock absorber for the grid allowing time for energy to be drawn from other sources preventing imbalance. Renewables do not have this built in inertia, and whilst forms of synthetic inertia are being developed to mitigate this issue, these have their own challenges of integration and cost that are still evolving.[1] What this means in practice is that if renewables assets trip, or the wind abruptly stops blowing, this has the potential to reduce power generation quickly, potentially creating a grid imbalance and increasing the risk of cascading outages.
Too much wind and sun can also be challenging, especially in periods of low demand, as renewable assets might have to be curtailed and then ordered to shut down their generation, with their potential energy generation being wasted and, in the UK at least, at the financial expense of the consumer.
Another challenge faced by renewables is that it is often only windy or sunny, in commercially meaningful levels, in places which are far from where the energy is likely to be consumed. The problem this creates for grids is that they weren’t originally designed to move very large volumes of power over long distances, let alone to countries across the sea. Londoners will be familiar with the looming edifices of the Battersea and Lots Road power stations. These were not for show, they powered the homes that fell under the shadow of their soaring chimneys and soot blackened belchings. Clearly, these have long been closed and our power plants are no longer in the heart of the city, but the example is salient, our grids were designed to distribute power relatively locally and not primarily intended to move large volumes of power from one end of the country to the other.
Interconnectors can help address many of these challenges. They can be used to import or export power to help balance the grid, they allow grids to move large volumes of power over much larger distances than most existing grid infrastructure, they even have the potential to unlock the renewable potential of areas much further afield, such as North Africa. The further energy security benefits in diversity of supply and redundancy are also significant.
Whilst we must be careful not to view interconnectors as a complete situation to our electrical problems, governments have begun to appreciate their central role in the energy transition and have increasingly supported their construction in volume, especially in the UK and Europe. The scale of demand for these assets by government and the ambitious timeline for delivery has meant that they have looked to private developers to deliver these systems, alongside the larger TSOs.
The private sector has shown strong interest in the technology supported in part by regulatory incentives introduced to encourage development, but relatively few participants have the balance sheets or appetite to fund these capital-intensive projects even as consortiums and as a result project finance or other senior debt has become a core funding mechanism over the last 7 years or so. An uptick in projects, especially with lender scrutiny over insurance procurement, has contributed to an increase in demand of project insurances.
The insurance market for interconnectors has been challenging in recent years, claims (mainly in the renewables space) have affected insurer appetite for ‘cables’ as a whole and premiums have increased significantly in some cases, with insurers offering reduced coverage, imposing higher deductibles etc. These are features of a so called, ‘hard market’ and unfortunately for many, if not all, of the more recent projects they have had to seek insurance at exactly the moment when the market was at its most intractable.
For projects this creates a complex dilemma. Buying insurance is possible, but can be costly, and may create tension between project owners and lenders from the insurance market . There may be tools and products available to help manage this issue but the optimal approach may vary and stepping from the well-worn path of traditional insurance solutions risks making the project un-bankable with lenders, who want you to buy as much insurance as possible with A rated security.
The answer is typically twofold. Getting the right lenders insurance advisor (LIA) is highly important. Clearly, the LIA works in the lender’s interest, but having the right LIA who is open to consider and advocate for workable solutions can play an important role in facilitating projects. The second part is to have an insurance broking partner working for the project with the right experience, expertise and knowledge, who can help develop and articulate an appropriate and bankable insurance solution for the project and its stakeholders. Insurance should be an enabler and ideally not a barrier to project delivery; and should be carefully considered.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher (UK) Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
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