The UK’s transition to clean power presents significant opportunities for renewable energy investors, developers and operators. With projects rapidly scaling up and diversifying, insurance has established itself as a key enabler of investment. To secure the most favourable terms and keep premiums down, however, it pays to recognise and understand insurers’ concerns around the UK’s nascent and rapidly evolving clean energy generation sector - and the risks that come with it.
Opportunities in renewables
The UK government’s commitment to achieving clean power by 2030 highlights the scale of the transformation currently underway. The National Energy System Operator’s 2024 report suggests that achieving the government’s targets will require a substantial expansion in the UK’s renewable energy infrastructure. This includes a four-to-fivefold increase in grid-connected battery storage (from 5 GW to more than 22 GW), a near doubling of onshore wind capacity (from 14 GW to 27 GW), and a big increase in solar power capacity (from 15 GW to 47 GW), according to the Clean Power 2030 report by NESO (opens a new window).
In 2023, renewable electricity generation reached a record 135.8 TWh, according to the Digest of UK Energy Statistics 2023 (opens a new window). This growth, achieved despite a year of notably less favourable weather for wind and solar, reflects a significant increase in installed capacity. Renewables now contribute 46.4% of the UK’s electricity generation, a new milestone that underlines the growing dominance of clean energy in the national energy mix. The UK added 2.8 GW of renewable capacity in 2023, a 5.2% increase. Offshore and onshore wind and solar PV accounted for most of this growth.
The transition to clean energy brings substantial economic opportunities. Developing and operating an expanded renewable energy infrastructure will create jobs, stimulate technological innovation, and foster regional development. For investors and developers, the government’s commitment to clean energy helps build confidence in the market’s long-term growth potential, and a strong incentive to get involved. Naturally, any investment comes with risk, but specialist insurance products can help industry participants manage and offset their risks effectively.
The enabling role of insurance
Having robust insurance coverage in place is often a prerequisite for securing financing and meeting contractual obligations. It gives stakeholders the confidence to proceed with large-scale investments, knowing that financial losses from unexpected events will be mitigated. By collaborating with insurers early in the project lifecycle, developers can tailor policies to address specific risks, making insurance not just a protective measure, but a crucial enabler of innovation and growth in the renewable energy sector.
Current challenges in insuring renewable energy projects
Arranging cover for renewable energy projects can be a complex process. The rapid pace of technological innovation and the fast-evolving nature of the risks entailed present insurers with significant challenges. To be certain of getting a project adequately insured at an affordable price, investors and developers need to be aware of, and address, underwriters’ concerns.
Technology risks: New and evolving technologies - for example, larger wind turbine blades and more advanced battery storage systems - introduce fresh uncertainties for insurers. Developers using less familiar and less well tested technologies are likely to face higher premiums and/or more restrictive terms - unless they can provide strong performance data and/or robust warranties.
Climate impacts: Stronger winds, heavier rainfall and extreme weather events driven by climate change are increasing both the frequency and severity of losses. Projects located in areas more prone to extreme weather are likely to see higher premiums - unless robust resilience measures are in place.
Limited historical data: Many emerging renewable energy technologies lack the long-term performance data insurers rely on when assessing risks. Developers and investors can mitigate this by providing detailed project assessments and evidence of strong risk management strategies.
Rising loss costs: As renewable energy projects grow in scale, the financial impact of individual claims is increasing. For instance, the cost of replacing a wind turbine blade has risen from around £20,000 in the early 2010s to more than a million today, driven up by technological advances and the increasing scale of installations.
How to mitigate insurance costs
There are a number of strategies investors and developers can adopt to address insurers’ concerns and keep their insurance costs down:
Proactive risk management: By implementing predictive maintenance technologies and proactive monitoring, developers can identify potential issues before they escalate, reducing the likelihood of claims and improving their risk profile.
Resilient project design: Projects that incorporate features like excess capacity, multiple substations, and diversified energy sources are more robust and less prone to single points of failure. Insurers tend to view such designs more favourably.
Proven technology: Developers who select equipment with an established track record and comprehensive warranties are likely to jangle fewer nerves with underwriters. While innovative technology is always appealing, untested systems often attract higher premiums and more restrictive coverage.
Contract transparency: Having clear terms in contracts with equipment manufacturers and service providers demonstrates a commitment to risk mitigation and long-term maintenance. This, again, is likely to prove reassuring to insurers.
Engage early: Collaborating with insurance brokers and insurers during the project-planning stage opens a path to smoother negotiations later on and can highlight opportunities to make small changes that could have a big effect in keeping risk mitigation costs in check. Having the opportunity to understand a project’s risk profile in its early stages, helps insurers gain comfort they’re in safe responsible hands.
Navigating an evolving insurance market
As it grows, the energy insurance market is also evolving in response to an array of emerging risks. Understanding this process can help investors and developers insure on more favourable terms.
Battery storage risks: As performance data improves, insurers are becoming more comfortable with battery technologies. But concerns about thermal runaway events and fire risks persist, particularly around newer designs. To allay such fears, industry participants should follow best practices by using cell chemistry that has been adequately tested in systems that are certified by a relevant body as well as maintaining adequate spacing between batteries.
Climate adaptation: Projects in areas prone to extreme weather need to go the extra mile to demonstrate robust resilience measures. For example, detailed hydrology studies that assess flood risk and provide steps to mitigate are essential.
Pricing trends: Premiums for more established technologies like turbines are stabilising, but newer technologies may still attract higher premiums due to the uncertainty around their performance. Developers who can provide strong evidence of appropriate risk mitigation will be better positioned to secure competitive rates.
For further information, please contact the author or visit the Lockton Renewable Energy page (opens a new window).
