Performance insurance is emerging as a critical support in advancing renewable energy technologies, according to global advisory firm Willis Towers Watson (WTW).
In an article, WTW said performance insurance helps de-risk renewable energy technologies, especially those that lack proven performance data to attract debt financing.
Vicky Roberts-Mills, global head of Energy Transition at AXA XL, describes performance insurance as a “backstop” for newer and innovative technologies that may fall short of expected production levels during commercial scale-up.
By covering non-performance risk, performance insurance protects lenders’ returns and helps ensure debt servicing.
“Many renewable energy projects seeking to harness the performance and efficiencies of evolving technologies are not readily bankable through the raising of debt and shared risk capital due to early technology non-performance risk,” WTW said.
“With the protection of performance insurance, project developers, owners, and operators can safeguard against some of the risk of technology non-performance materially threatening operators’ ability to service their debt obligations.”
Since performance products are highly specialised, WTW said they demand thorough engineering input and insurer collaboration during project development.
“Performance insurance covers non-performance risk as a whole, cutting through the complexity of multiple technologies operating under different warranties and delivering confidence and clarity that debt servicing obligations remain protected,” WTW said.
WTW said risk managers will also need to collaborate with brokers to fully leverage the benefits of performance insurance as a tool for unlocking cost-effective financing.
Julian Richardson, chief underwriting officer, Green Solutions at Munich Re, said performance insurance is part of a broader mosaic, and risk managers must consider how all elements fit together.
“How technology risk management interacts with traditional products and alternative solutions depends wholly on fully understanding your own risk profile,” Richardson said.
Data from WTW showed that 7.5 GW of renewable energy capacity is being added in Australia, with 4.3 GW from utility-scale projects and 3.2 GW from rooftop solar.
The insurance market for these assets is, however, under increasing pressure due to rising claims, extreme weather, and evolving technological risks.
Is performance insurance the missing piece in renewable energy risk strategies? Join the conversation and let us know your view.
