Energy - market insights Q3/Q4 2024

Increasing fire risks of renewable energy  

Due to the new government’s call to “get Britain building again”, renewable energy projects will significantly increase and we may see a growth in plants and farms that are co-located; alternatively we may see several types of renewable energies being used such as solar, lithium-ion and wind in the same infrastructure project.

Firetrace International issued a report in June 2024 which found that the risk of solar and wind turbine fires, combined with the growth of BESS energy storage, are leading to escalating fire hazards where these three clean energy sources are used in the same project or located close by. Property damage losses in the US alone have been estimated at up to US$2 million due to lithium ion battery fires and up to US$9 million due to wind turbine fires. Globally, solar farm fires are believed to be underreported, compounding this risk. Firetrace have recommended that renewable energy projects adopt a comprehensive fire risk management strategy across all components of clean energy to mitigate the overall fire risk. 

Vessel shortages for offshore wind farm installation   

Increasing demand for wind energy has resulted in a rapid expansion of offshore wind farms, both fixed and floating, and the development of larger wind turbines to increase capacity. However, the necessary logistical infrastructure has not caught up and there is currently a global shortage of the specialised vessels required to transport wind turbines and other equipment and infrastructure required for the construction and maintenance of offshore wind farms.

Supply chain issues in the solar energy industry   

Solar energy has boomed in recent years. 1.5 billion solar panels were produced worldwide in 2022, representing an annual increase of 57%. In July 2024, the UK’s Department for Energy Security and Net Zero approved the construction of three new solar farm projects with the capacity to power over 400,000 homes.   

Solar energy is a vital part of the renewables infrastructure required globally for an effective clean energy transition and the number of approved solar farms will continue to grow, but it comes with several challenges particularly around supply chain issues. China currently holds a vast monopoly over solar panel production due to its unique access to polysilicon, the primary material used to manufacture solar cells and modules. It follows that China is also the world’s number one exporter of solar panels.    

The complete reliance on China for the manufacture and supply of a key component in solar energy production poses significant risks to the industry, and to insurers underwriting new projects. In the event of the imposition of sanctions or trade restrictions, or disruption to international shipping routes, projects may be exposed to severe delays.

Global governments are increasingly cracking down on the importation of goods produced using forced labour. The majority of solar panel production occurs in China’s controversial Xinjiang province, where forced labour and human rights abuses have been widely reported. Regulatory restrictions on the importation of vital components and parts will also lead to potentially lengthy and expensive delays in project construction and start-up.  

The rise of serial defect claims  

Serial defects in renewable energy projects, particularly offshore wind farms, remain a significant risk for insurers, as the rising demand for clean energy drives larger turbine capacity and technological advancements. 

Serial defects may occur where there are a large number of replicated assets (for example turbines and cables) designed, manufactured and installed in the same way across a project site. A design or workmanship issue identified on one asset may mean there is an issue with others.  Historic problems with cable protection systems are a prime example of a design issue causing serial losses across multiple wind farms.

Steps to mitigate exposure to serial defect losses include incorporating serial loss clauses (SLCs) in policies which provide a sliding scale of indemnity based on the number of losses sustained. However, one issue to consider with SLCs is the order of losses when applying the sliding scale of indemnity. If the order is determined by reference to the dates on which the loss/damage occurred, it may not always be straightforward to determine when a particular asset suffered damage.  

Serial defect issues are likely to continue occupying insurers both at the underwriting and claims handling stages. The London market is responding with updated policy wordings and clauses. Whilst the reinstatement of the Net Zero 2030 target will mean an increasing scale of renewable energy projects in the short-term bringing opportunities to the sector, challenges for risk managers, brokers and insurers will continue for many years to come. 

Geomagnetic storms  

The current solar cycle is expected to peak in 2025, bringing with it the increased risk of the occurrence and rising intensity of geomagnetic (space) storms. Our reliance on energy and technology means that exposures from space storms are significant and growing. Bloomberg Intelligence published a report in May warning that a major geomagnetic storm could cost insurers more than an event such as Hurricane Katrina (estimated loss of US$90bn), given its potential to paralyse power grids, disrupt radio communications, spacecraft and satellite navigation.  

Companies should also review their business insurance policies to understand what is covered by such disruption and to consider additional coverage for business interruption if necessary

New government bills

• The Great British Energy Bill
• The Crown Estate Bill