Renewable Energy Sector Faces Growing Risks
The renewable energy sector in North America is navigating significant challenges as it continues to scale, including extreme weather events, shifting regulatory landscapes, and unpredictable construction timelines. For insurers, anticipating the impact of volatile weather patterns and trade policy on project lifecycle exposures has become increasingly complex.
“Severe convective storms are one of the emerging threats that aren’t being properly addressed,” said Doug Akerson, head of energy, power and construction North America at Munich Re Facultative & Corporate. “We’re seeing greater frequency and severity, and the insurance market is arguably not focused enough on that exposure.”
Aggregation Risks from Severe Convective Storms
Renewable energy projects, particularly those with centralized installations in vulnerable geographies, are especially concerning due to their “lottery-like” exposure to severe weather events. Akerson noted that the accumulation of projects in close proximity means a single storm could impact multiple installations simultaneously.
Some insurers continue to provide high limits in areas prone to weather volatility without fully modeling the clustering effect. “I don’t think insurers are fully prepared for the losses that could come from this,” Akerson warned.
The situation is further complicated by reinsurers stepping in to support capacity in high-risk zones, potentially without fully understanding the risks involved.
Construction and Regulatory Challenges
Beyond weather-related risks, renewable energy projects face additional challenges including rising tariffs, supply chain interruptions, and erratic construction schedules. These factors can lead to significant financial losses, especially when supply chain disruptions delay project completion.
Regulatory unpredictability, particularly in markets like the US where tax incentives have fluctuated between administrations, adds another layer of complexity. “It all comes down to capital,” Akerson said. “If tax incentives like production or investment credits go away, some renewable projects won’t be financially viable.”
Despite these challenges, the insurance industry remains engaged in the renewables sector, with healthy capacity available for proven technologies in insurable locations. However, Akerson emphasized the need for greater transparency and rigor in risk assessment practices.
“We still need more transparency from brokers and clients,” Akerson stated. “More is better. You’d expect more rigor given how exposed these projects can be, but some submissions still don’t answer key questions.”
