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Renewable energy insurance could triple by 2020: Analysis

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Renewable energy insurance could triple by 2020: Analysis

Insurance premium volume for the renewable energy sector — including conventional insurance, derivatives and structured products — could more than triple from $850 million today to $1.5 billion to $2.8 billion by 2020, according to a Swiss Re-sponsored report issued Thursday.

The report, which was conducted on Swiss Re's behalf by Bloomberg New Energy Finance, a unit of New York-based Bloomberg L.L.P., examined six of the world's leading markets for solar and wind insurance, including Australia, China, France, Germany, the United Kingdom and the United States.

Among the factors driving growth of renewable energy insurance is that the “sheer growth in investment needs for renewable energy projects will require new sources of capital, including institutional investors such as pension funds and insurers,” Swiss Re said in the report.

To attract more capital, “it therefore becomes important to bring the risk/return profile of renewable energy investments closer to bond-type investments. This can be achieved by de-risking the cash flow volatility of renewable energy assets,” according to the report.

Another factor is that the rising market share of offshore wind projects, particularly in Europe, will increase construction risks. “Better evaluation and insurance against these risks would improve project returns,” according to the report.

“The third driver of demand for risk transfer solutions comes from everyone who has been impacted by the increasing presence of renewable power generation in the energy market,” according to the report.

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The report says, “As the renewable energy sector continues to grow, so will its demand for insurance and risk transfer solutions. By 2020, an anticipated 50% increase in investment in renewables is likely to produce more than a doubling of spending on risk management services in the sector. Depending on the scenario, expenditure on third party risk management services — including conventional insurance, derivatives and structured products — could reach anywhere between $1.5 billion and $2.8 billion by 2020 in six of the world's leading renewable energy markets.”

“Insurance is not a silver bullet,” Juerg Trueb, head of environmental and commodity markets at Swiss Re Corporate Solutions, said in a statement. “But by mitigating the risk in the construction phase and improving the consistency and surety of revenues during operation, insurance can help improve the return on investment for renewable energy projects. This, in turn, would allow the sector to attract the scale of investment necessary to put the world's energy mix on a more sustainable footing.”

Guy Turner, chief economist at Bloomberg New Energy Finance and lead author of the report, said the analysis “shows that the demand for risk management solutions will increase partly because the renewable sector will simply get bigger, but also because of increasing uncertainty affecting power markets in general.

“As the renewable sector matures and becomes part of the mainstream energy industry, it will need to evolve from an innovative sector where risks are taken on the chin to one where returns are predictable and there are fewer surprises.”

Read the report, Profiling the Risks in Solar and Wind, a Case for New Risk Management Approaches in the Renewable Energy Sector.