The Insurance-Debt Nexus: How risk policy keeps renewable energy bankable

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Innovate UK
Innovate UK
Innovate UK
Innovate UK
Innovate UK

£249,475

May 31, 2022

Aug. 31, 2022

Despite London being a key global marketplace for offshore and emerging renewables, insurance is becoming more expensive and less fit for purpose. In order to deliver on its climate objectives, the UK does not have the luxury of waiting for market forces to rebalance.

_"The industry insurance market is hardening, it's becoming harder to get the breadth of cover previously available. This is due to the frequency of claims. New models for insurance could be investigated, to help incentivise earlier intervention -- such as a mutual insurance model?"_

* RenewableUK's Cables 2021 Post Show Summary: The subsea cable insurance market

Approximately 80% of the value of offshore wind claims have come from cabling losses. Of these costs, about 65% are attributed to vessel hire, which can amount to between £100,000 and £200,000 per day. Nearly 40,000km of offshore wind farm export cables are forecast to be laid worldwide by 2030, compared with just over 7,500km at the end of 2020\.

Our application of a hybrid discretionary mutual will stimulate the cascading effect of insurability on bankability to enhance investment through the leveraging effect of risk-averse debt on equity. Only through market-pull, achieved through scale deployment of power generating assets, will emerging technologies cross the 'valley of death' towards commercial readiness. We call this 'The Insurance-Debt Nexus'.

The hybrid nature of a hybrid discretionary mutual means that the entity would access reinsurance markets to cover severe or frequent risk events that are outside the members' risk appetites. If the UK Government was reinsurer for the early years, it could withdraw over time as funds build-up and the need for its support is reduced.

* Phase 1 will inform customers and financial end users of the benefits, risks and costs of the mutual.
* Phase 2 will allow a targeted subset of customers to enter the mutual and reduce the cost of capital.

The project is led by Renewable Risk with support from Prospect Law and ORE Catapult:

* Renewable Risk is a specialist risk management / insurance claims consultancy and insurance broker with an unparalleled depth of experience of risk mitigation in the renewable energy sector since 2005\.
* Prospect Law is a UK based Multi-Disciplinary Practice which combines an SRA regulated law firm with the services of engineers, economists, insurance experts and other professionals.
* ORE Catapult is the UK's flagship technology innovation and research centre for advancing wind, wave, and tidal energy.