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Why insurance is an important part in delivering climate change goals and renewable energy projects

March 07, 2023

Climate change mitigation is an absolute necessity with world leaders pledging their commitment to net zero by 2050.1 In addition the British and Scottish Governments have released their draft net zero strategies that, amongst others, calls for the scaling up of hydrogen production and ensuring support for biomethane beyond the Green Gas Scheme.2

Therefore in order to achieve these goals we must deliver the necessary projects and in order to do this, they will require investment. One of the important factors in delivering project investment is insurance - if projects are insurable they are bankable.

However the insurance market is tough generally, but when you move to niche fast-developing sectors like clean power generation, then the market becomes even tougher. This is due to: 

  • Unknown risks
  • New technologies
  • For some technologies a lack of critical mass of premium means the premiums of the many don’t cover the claims of the few.

As a result, it’s vital that the entire sector understands and mitigates the risks.

The cost benefit of insurance

Insurance is often see as a necessary evil driven by legal or contractual requirements. However, engaging with insurers early on can actually become a cost benefit as it enables them to review designs to ensure the right loss controls are factored in and the correct construction and operational controls are implemented. This will help improve your return on investment and allow insurers to keep underwriting risks to ensure  climate change targets are met.

cost benefit of insurance graphic

As well as early insurance broker engagement, broker selection is also key. This is due to the complex risks these projects pose and therefore due diligence must be taken to ensure the broker selected has the necessary expert knowledge and understanding to help achieve the best outcomes.

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Sources:

  1. un.org/net-zero-coalition
  2. r-e-a.net

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