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New World Of Risk For Power Industry, Alternative Or Not

Power generation, wind tower in the foreground, fossil fuel plant with smoke rising in the back.

January 12, 2022

The evolution of power generation to cleaner and smarter systems is often portrayed as smooth and relatively risk-free, but in fact the industry is facing a variety of new exposures, according to an article in POWER, a trade publication for the global energy industry. Number one is the risk from disasters, exacerbated by climate change. That list includes hurricanes, floods, wildfires, extreme heat or cold events, and decreasing water availability. The risks vary in different parts of the country and they are evolving, says the Edison Electric Institute (EEI), a group that represents all U.S. investor-owned electric companies. Since 2012 and Hurricane Sandy, according to EEI, its members have invested more than $340 billion “to harden their investments.”

With regard to the renewable energy sector specifically, significant losses have resulted in premiums “resetting to a new base,” according to an underwriter for a major carrier. The rapidly growing offshore wind-power industry is specifically cited as a source of more frequent and expensive claims, on account of cost-competitiveness that has led to “prolific cost-cutting in the design, manufacture, construction, and operation of offshore wind.”

Old and obsolete technologies have their own unique sets of risks. Spare parts and rotors, for example, are increasingly difficult to obtain for older steam turbines, making them “virtually uninsurable,” says a source from Willis Towers Watson.

For all types of utilities, there are a number of related institutional and economic risks, including environmental compliance requirements and “regulatory uncertainty.” An executive with Allianz Global Corporate and Specialty singles out environmental, social, and governance (ESG) risk as an immediate concern and one that’s difficult to navigate, requiring both investment and divestment, and “subject to the quarterly and election-cycle mindset of shareholders and politicians.”

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