Risk managers working in the renewables sector must face up to the ever growing risks presented by geopolitics, climate change and cyber interruption.
Renewable Energy risk managers, brokers and insurers are having to face up to significant changes in the risk and reinsurance market, not to mention the global economy. How they adjust to these changes may be critical to their future prosperity in the years ahead.
To help risk managers navigate the new world, Willis Towers Watson has launched a review into the renewable energy market and the emerging risks it faces. The review identifies several new realities that the sector needs to face up to at the beginning of the new decade.
Here’s three of the biggest issues that should be front and centre for risk managers and some of the things they can do to keep their businesses safe.
Conflicts and other international tensions are threatening the renewable business landscape. This includes standoffs such as the US/Iran situation, but also serious conflicts between Turkey and Syria and between India and Pakistan.
There’s also the threat to economic and political stability from growing populist movements in Europe, notably in Spain, Italy, France, Germany and Hungary and the UK. The outbreaks of mass unrest in Chile, France and Hong Kong have made it clear that political risk events can arise suddenly in regions traditionally seen as relatively risk-free.
”When designing scenarios, renewable energy companies should assemble multi-disciplinary, diverse teams from across the organisation”
Meanwhile, the renewable energy sector is making waves of its own. The promise of energy security and independence is changing the power structures of regions and states and enabling downstream sectors such as electric vehicles and heat pumps, which in turn are transforming the future of transport and infrastructure.
Lucy Stanbrough, emerging risks research manager for the Willis Research Network said: ”When designing scenarios, renewable energy companies should assemble multi-disciplinary, diverse teams from across the organisation. This… reduces the possibility of blind spots.
”Think about the common themes and what drivers and trends might result in risks and opportunities. Are they on your company’s risk register and does your company have a plan for them?”
The new risks emerging from the climate change threat
As the threat of climate change makes itself more apparent, it is now generally accepted that renewables are likely to make up the largest share of total global energy supply by 2050.
The Willis Towers Watson review found that the accelerated renewable energy industry growth brought on by climate change is bringing with it new risks and issues which need to be faced, particularly within sub-sectors such as Floating Offshore Wind and Hybrid Renewable Energy.
“The opportunities to build new insurance products and make new markets will be very significant.”
Peter Betts CBE, a climate change consultant said: ”So how does the global insurance industry respond to this rapidly evolving environment? There is an opportunity to contribute positively to the adaption of our key infrastructure and mitigation of climate risk whilst using our well-established skills to some commercial advantage.
“Insurance has a fundamental role of underpinning and de risking investments and with a 60 plus trillion-dollar number being quoted as the price to build the necessary low carbon infrastructure around the globe, the opportunities to build new insurance products and make new markets will be very significant.”
An increasing cyber-security threat
As we are seeing more integration of technology into business processes and increased interconnectivity, there has been a corresponding growth in both the sophistication and number of cyber incidents. Hacks are getting easier to build and simpler to obtain, while the attack surface is growing.
While the renewables sector can learn lessons from other industries, it also must face up to the challenge in quite a different way.
Myles Milner, account director, Renewables GB at Willis Towers Watson said: ”As the power transition continues to ramp up and technologies evolve, the industry has large numbers of distributed assets connecting to the grid system in a way that has not been seen before; all must be protected to ensure power supply stability.
”The industry has large numbers of distributed assets connecting to the grid system in a way that has not been seen before”
“As we move into 2020, companies involved in the renewable energy sector should expect to see greater focus on cyber clauses in their current insurances.
”There may be a transition over to a new form of covers, owing to the new clauses which underwriters may apply. This will clarify intent of cover but may in some instances create gaps in cover or inconsistencies across the panel of insurers. Furthermore, for a project owner where lenders are involved, the issue may be heightened as now cover may not be in alignment to any financing requirements.
”So, what should a participant in the industry do?
- Have an open conversation with your insurance advisor about the current state of your coverage and if this is expected to change at renewal.
- Identify any gaps in exposure and cover.
- Analyse these gaps relative to your business’ vulnerabilities and quantify the potential impact of several cyber incidents.
- If material, work with your advisor on whether these gaps can be addressed through your existing insurance providers or whether specialist solutions are required.
”Taking this approach will empower any risk manager with the confidence to advise their key stakeholders how their insurances will, or will not, react to a variety of cyber incidents.
”To be sure that their risk is covered, renewable energy risk managers should be able to evidence how their company is assessing the risk, protecting its people, brand, assets, and profit, and able to recover should something go wrong. These are the building blocks to a cyber-resilient power supply.”