Impact of Regulation and a Shift to Renewables Leading to New Risks, According to Willis Power Market
London, UK, November 14, 2013 – As the merits of different types of power generation continue to
be influenced by government regulation and volatile fuel prices, companies are finding themselves exposed to complex
new risks, according to the latest Power Market Review, from Willis Group Holdings Plc
(NYSE: WSH), the global risk adviser, insurance and reinsurance broker.
With the renewables sector continuing to thrive, operators and their underwriters have to contend with many complex
new risks. Wind power, for example, is growing globally at a rate of 30% annually, with
a worldwide installed capacity of 282,482 megawatts (MW) at the end of 2012, according to the
Renewables Global Status Report.
Many governments have also committed to meeting a set share of demand from renewables. The EU Renewables
Directive, for example, stipulates that at least 20% of total energy consumption in the EU will
be obtained from renewable sources by 2020, and the Australian government has set the same ‘20%
by 2020’ target. To meet the growing demand renewable energy companies are building larger wind turbines.
As turbines increase in size, so too do the costs when things go wrong.
Meanwhile, Concentrated Solar Power (CSP) is becoming more popular, particularly in the US, Spain, Africa and the
Middle East. But CSP remains a ‘high risk’ technology for insurers compared with traditional Photovoltaic (PV)
arrays. The insurance market has seen individual losses in excess of USD 15 million for CSP
heat exchangers, suffered a number of fires due to poorly cleared land, and seen turbine failures
resulting in single claims in excess of USD 6 million.
At the same time, the level of machinery breakdown losses in the power sector as a whole
is an on-going concern for underwriters, according to the report. Because of the need to accommodate
more renewable generation to meet environmental goals, many Combined Cycle Gas Turbine (CCGT) plants that were
designed to operate at baseload (i.e. at a steady and consistent capacity) are now having to
‘two-shift’ – a term given to the process of shutting down a plant when demand for
output is low and restarting it when demand increases – which can cause more wear and
tear on a plant’s machinery. Power generators should ensure that proper engineering and operational practices are
in place to minimize these risks, noted Willis.
Nevertheless, capacity in the power insurance market has, to date, held up well with none of the
leading insurers walking away from the sector. In fact, new capacity isentering the power insurance market,
which is having a dampening effect on premium rates despite loss trends.
Commenting on the power market, Graham Knight, Deputy CEO of Willis’ Construction, Property & Casualty division, said
that the relatively stable market environment is “very much to the credit of the insurance industry,
which has demonstrated resilience in the face of continuing power sector losses and shown that it
is there for its clients for the long term. It is clearly good news that an
industry whose purpose is to provide some form of stability to its customers is itself showing
stability, especially when change is continuing apace elsewhere.”
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