As the world pushes for more renewable energy, the challenges of financing and insuring these projects are becoming increasingly important. A recent study by FM Global, a commercial property insurer, highlights the growing concerns among stakeholders in the renewable energy sector.
The research surveyed 650 executives and investors involved in renewable energy. It found that nearly all solar developers (97%) and most onshore wind operators (95%) expect to increase their energy output in the next three years. Additionally, 73% of financial stakeholders plan to invest more in infrastructure. However, there is a catch: access to capital is a significant issue. Many lenders (64%) and investors (58%) reported that demand for funding exceeds the available supply.
Another critical factor is project resilience, which refers to the ability of energy projects to withstand disruptions. The study showed that a project’s risk management capabilities significantly affect investment decisions. About 66% of financiers said this influences their willingness to invest, while 69% noted it impacts valuations, and 72% said it affects contractual terms.
During the construction phase of these projects, stakeholders are worried about rising equipment costs, regulatory challenges, and logistical delays. Once operational, projects face threats from extreme weather, mechanical failures, and supply chain issues for replacement parts. Despite these challenges, 59% of energy providers are confident in their projects’ resilience, although they acknowledge gaps in their knowledge.
The survey identified several areas of uncertainty that contribute to financial risks. These include a lack of transparency from equipment manufacturers, insufficient understanding of local environmental risks, and the rapid pace of technological change. Respondents indicated that these uncertainties lead to higher construction costs, increased insurance premiums, and difficulties in securing comprehensive insurance coverage.
Doug Patterson, FM Global’s senior vice president, emphasized that developers often lack the necessary information to make informed decisions. He stressed the need for better insights into technology and environmental risks early in the development process.
In a related report, WTW’s Willis unit noted a softening trend in energy insurance pricing. Underwriters are competing in a market with abundant capital, creating favorable conditions for buyers. However, recent losses could impact this trend. The downstream energy sector saw few major losses in 2024, prompting insurers to lower rates. Yet, potential losses in early 2025 have already reached $1.5 billion, which could introduce volatility into the market.
In the upstream sector, a 5% increase in underwriting capacity is leading to further rate declines. Insurers are eager to expand their business, often taking lead roles in placements. However, many have already allocated a significant portion of their 2025 capacity to construction risks, which have historically been challenging for profitability.
As the renewable energy sector continues to grow, the interplay between investment, risk management, and insurance will be crucial for its success.