COVID-19 may mean rate hikes for renewables projects

“We are certainly being more diligent now as the virus could drive up premiums in the renewable insurance space.” Fraser McLachlan, CEO of GCube Underwriting.

COVID-19 is having a profound impact on international supply chains, which is likely to hit renewable energy projects hard - and make them more expensive to insure.

With stock prices plummeting and the global economy slowing down, the impact of the COVID-19 coronavirus is significant. The renewable energy sector, an industry that relies heavily on global supply chains, will be hit by both disrupted supply chains and rate hikes from the insurance industry that supports it.

“We’re seeing reduced work patterns, business interruption exposures and site closures all leading to decreased energy output,” Fraser McLachlan, CEO of GCube Underwriting, a managing general agent and specialist in renewable energy insurance, told Intelligent Insurer.

The impact of COVID-19 has affected renewables projects directly due to reduced working patterns in China, a country with the largest wind power capacity in the world, according to McLachlan.

COVID-19 is also affecting renewables projects through the disruption of supply chains which are crucial for supplying raw materials. McLachlan outlined China as a large producer of photovoltaic panels required for solar photovoltaic farms. Turbine blades and many other critical components for wind farms are also produced in China, with large manufacturers like Beijing-based Goldwind.

The virus is slowing down manufacturing output as well as impeding international shipping and trade. As a result, renewable companies are facing delays to projects and profit losses.

On March 4, 2020, US energy provider GE Renewable Energy announced a potential $200-$300 million profit hit across its industrial business in the first quarter of 2020. In February, Invenergy and NextEra Energy warned of delays to their Wisconsin-based solar farms.

According to McLachlan, some renewable companies are not covered for the damage that COVID-19 is causing. “A lot of businesses' exposure comes down to policy wording. Some business interruption policies for example, have extensions for infectious disease but many only cover loss of income from physical damage. We are certainly being more diligent now as the virus could drive up premiums in the renewable insurance space,” he said.

The International Energy Agency (IEA) stated this month (March 2020) that countries should not allow the virus to derail the world's shift towards green energy. As renewables markets become more challenging to operate in, the sustainability commitments of large re/insurers and governments could now be put to the test.

According to McLachlan, the virus will not disrupt GCube’s recent acquisition by Tokio Marine HCC, which is in the advanced stages and due to close at the end of June. The deal is said to enable GCube to tap new markets across the globe and comes at a poignant time as many large re/insurers such as Munich Re seek to expand their presence in the renewables sector.

“I don’t believe the renewables insurance market has much competition, we are specialists in our field. The sustainability pressure on some of larger re/insurers doesn’t always lead to results because they are not set up to handle large attrition losses. Some competitors have tried to tap into the offshore wind sector but this didn’t work and drove down prices in the industry,” concluded McLachlan.