Why insurance in renewable energy sector will see a massive uptick in 2023, Energy News, ET EnergyWorld

Why insurance in renewable energy sector will see a massive uptick in 2023India aims to reach net zero emissions by the year 2070 and to meet almost 50% of its energy requirements from Renewable energy sources by 2030. At present, India has around 175 GW of non-fossil fuel based clean energy capacity which includes about 63 GW of Solar, 43 GW of Wind energy, 10 GW of biomass power, about 5 GW of small hydro, 47 GW of large hydro and 7 GW of nuclear power capacity. The government is working towards achieving 500 GW of installed electricity capacity from non-fossil (RE) sources by 2030. Thus India will have to add at least 40 GW of Renewable Energy capacity per annum for next eight years continuously to achieve the 500 GW target by 2030.

India’s renewable energy sector is expected to boom with a likely total investment of US$ 15 billion (INR 1.24 Lac Crore) this year and bigger investments every year in near future. The private sector is also investing in renewable energy projects in India due to favourable government policies and a growing demand for cleaner energy. The investment by Indian Renewable Energy Development Agency (IREDA) is pegged at Rs 35,777 crore for 2023-24. The growth of renewable energy in India has also been supported by declining costs of materials and technologies, which has made Renewable Energy (mainly Solar) more competitive as compared to traditional fossil fuel sources.

The renewable energy sector has been growing rapidly in recent years, and with that growth comes increased demand for insurance products that can help mitigate the traditional and emerging risks associated with renewable energy projects. The renewable energy sector faces a wide range of risks, including natural disasters, equipment failures, supply chain disruptions, regulatory changes, newer technologies and political instability. Innovative and tailor-made Insurance and risk management solutions can help to mitigate these risks, providing financial protection for renewable energy projects and promoting their long-term sustainability. As more renewable energy projects are being developed, insurance brokers and insurers are increasingly offering insurance solutions, products and services tailored to the unique risks and challenges associated with renewable energy projects.

Here are some insurance products & solutions that are available for the renewable energy sector which are driving huge growth of Insurance Industry :

Property & Engineering insurance: This type of insurance covers damage to renewable energy assets (operational & under construction) caused by natural disasters, equipment failure, and other risks. It can include coverage for solar panels, wind turbines, and other renewable energy infrastructure.

Liability insurance: Liability insurance provides protection against legal liability arising out of third-party bodily injury and third party property damage, product liability, environmental liability, and other risks.

Parametric insurance: Parametric insurance is a type of insurance that pays out a predetermined amount of money when a specific trigger event occurs, such as a hurricane or a drought. This type of insurance is particularly well-suited to the renewable energy sector, where weather-related risks eg Solar irradiation or loss of wind can have a significant impact on project performance.

Cyber: With the increasing digitization of renewable energy projects, cyber risks are becoming a growing concern. Cyber Insurance can help to protect renewable energy projects from the financial impact of cyberattacks and other cybersecurity risks.

Performance guarantee & PV Warranty insurance: This type of insurance guarantees that a renewable energy project will perform to a certain level, providing financial protection to project owners if the project fails to meet its performance targets. The PV Warranty insurance also helps OEM’s to insure warranty claims on PV modules and in the event of insolvency of OEM, the policy gets transferred to the buyer.

Political risk insurance: Political instability, changes in government policies, and other political risks can pose significant challenges to renewable energy projects, particularly in emerging markets. Political risk insurance provides protection against these risks, helping to ensure that renewable energy projects can be completed successfully.

The insurance industry will continue to play a critical role in the renewable energy sector as more complex Hybrid renewable energy projects are being developed around the world which will need comprehensive insurance covers. As new technologies emerge and the regulatory landscape continues to evolve, insurance companies will have to continuously innovate in order to keep up with the changing needs of their Renewable energy customers. Insurance brokers and Insurance/ Reinsurance companies are developing innovative insurance solutions to address the unique risks and challenges associated with these

In 2023, we are expecting a massive 15-20 % insurance market growth coming from the RE sector insurance portfolio. More awareness for the Parametric & Warranty Insurance products will lead to increased demand and will further propel the insurance market growth and insurance penetration.

[This piece was written by Sudhish Ramteke, Associate Director, Property Practice Leader, Anand Rathi Insurance Brokers]