Renewable energy sources combating global warming now require protection against its consequences
In the face of increasing climate challenges, the renewable energy sector is turning to parametric insurance to manage risks, particularly in the Asia region. Jeong Won Kim, a senior research fellow at the National University of Singapore, predicts a surge in parametric insurance products to help the sector cope with these risks.
One company that has already benefited from parametric insurance is Aboitiz Power Corp., based in the Philippines. After Typhoon Rai caused damage to its renewable energy assets, the company was able to collect a parametric payout within 30 days.
Munich Re, a global innovator in parametric insurance solutions, might be offering these services in India, given the country's growing renewable energy sector. Paris-based Descartes Underwriting is also pitching wind parametric products in several developing countries.
The shift to parametric insurance is driven by the rising impact of global warming on green assets. In Texas, solar farms are frequently battered by hail, while wind farms suffer massive damage during winter storms. Similarly, Indonesia, Malaysia, and Brunei have experienced large declines in solar irradiation, and Qatar and Kuwait have seen a slump in wind speed this century.
Solar and wind energy companies are increasingly using parametric insurance to protect their assets against wild and volatile weather. However, the triggers for these payouts are weather-related metrics, and actual losses may not be covered if the pre-defined trigger is missed.
Willis Towers Watson Plc, a global advisory, broking, and solutions company, has seen a "doubling of demand" from Indian developers for parametric insurance since 2023. Australia is also experiencing lower wind speeds in some areas and more cloud cover in others.
The threat is especially severe in India, where the high susceptibility to wind droughts and reduced solar irradiation could undermine the country's plan to more than double renewable energy capacity by 2030. Kailash Vaswani, chief financial officer of ReNew, a leading Indian clean energy company, notes that wind has underperformed in the last three to four years, and declines will need to be significantly worse for insurers to pay out.
Banks are setting requirements for some assets to be insured, which is an important motivating factor for developers. Abhishek Bansal, managing director for energy infrastructure at Actis, is in discussions with insurers to determine if the pricing level justifies the risk coverage.
However, not all claims have been successful. A few years ago, ReNew Energy Global Plc made a claim for parametric insurance protection due to a potential drop in wind speed, but the insurer declined to pay, citing a faulty turbine instead of variable weather.
Nearly half of Europe's renewable power capacity will be at "critical risk" from extreme weather unless more is done to protect them, according to Zurich Insurance Group AG. Parametric insurance provides rapid compensation when certain weather-related metrics are met, but it's crucial to ensure that the triggers are accurately defined and the coverage is comprehensive.
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