The Big Question: Can the renewable energy market meet the challenge of natural catastrophe risks?

The growth in renewable energy capacity is increasing as the drive for a move to a more sustainable energy future gathers momentum.

But the move towards greater renewable capacity comes with new risks.

The International Energy Agency (IEA) says due to supportive policies and favourable economics, the world’s renewable power capacity is expected to surge over the rest of this decade, with global additions on course to roughly equal the current power capacity of China, the European Union, India and the United States combined.

In terms of technologies, solar PV alone is forecast to account for a massive 80% of the growth in global renewable capacity between now and 2030 – the result of the construction of new large solar power plants as well as an increase in rooftop solar installations by companies and households. And despite ongoing challenges, the wind sector is also poised for a recovery, with the rate of expansion doubling between 2024 and 2030, compared with the period between 2017 and 2023 according to IEA figures. Already, wind and solar PV are the cheapest options to add new electricity generation in almost every country.

As a result of these trends, nearly 70 countries that collectively account for 80% of global renewable power capacity are poised to reach or surpass their current renewable ambitions for 2030. 

This growth has created new challenges for the renewable energy insurance sector as projects are established in areas of the world which have not seen such projects and do so in a changing and challenging global climate. While insurers are being asked to assume the risk, the sector is calling for projects to put weather risks at the forefront of their thinking when it comes to where they will be cited and the risk mitigation plans to be put in place.

Ian Summers, Global Business Leader, AdvantageGo.

James Totten, Underwriter at specialist renewable energy underwriter GCube says the  company’s latest research has identified natural catastrophe and unmodelled extreme weather risks emerging as a defining challenge for renewable energy markets worldwide, raising concerns about the long-term bankability and viability of clean energy projects as the industry expands.

“We based our report, Known Unknowns: The growing threat of Nat Cat and extreme weather to global renewables, on our global claims database,” he adds. “While North America has long been the focal point of these challenges, it is now evident that this has become a global issue. Across Europe, the Middle East, and Australia, the renewables sector recognises the increasing climate-driven risks, but, due to modelling and data shortfalls, the full scale and complexity of those risks remain unclear.” 

In the US he adds, hail and wildfire losses are rising, with some Nat Cat events exceeding $300 million in insured damages. The tightening of coverage limits, and rising deductibles is adding further pressure on project owners and financiers. 

In terms of Europe Totten adds: “This region can no longer be considered a lower-risk renewables market. In 2024, Europe faced unprecedented renewables asset losses from Nat Cat and extreme weather, alongside its second-costliest year for flood damages – leading to a rise in the frequency and severity of claims across the continent. 

“Previously considered a ‘benign’ market for extreme weather, MENA renewables now face growing climate risks. As these risks escalate, insurers must rethink exposure, and the renewables industry must move beyond short-term fixes and begin to address the underlying vulnerabilities of its projects.”

In terms of Australia Totten says losses to renewables from extreme weather fortunately remain low, but the current rapid expansion into new regions increases exposure to bushfires, cyclones, and hailstorms. 

“The sector is acutely aware that Nat Cat and extreme weather risks are increasing, but there remains uncertainty around their true scale and impact, particularly in new and rapidly expanding markets,” he says. “These “known unknowns” – the recognition of Nat Cat and extreme weather risks without a full understanding of their true severity – are what make this moment so critical. If the market fails to respond now, we risk a scenario where insurability and bankability become major barriers to growth.” 

“What is clear is that there is now a growing trend with natural catastrophe perils for the renewables sectors which is moving away from a US centric situation.

“The past three to five years have seen large scale risks for renewable projects in areas where they simply would not have been imagined in the past.

“For instance we have seen extensive flooding and hailstorms in Dubai.

“The concern is that with these new perils there is now prior claim data, and there is always a tendency to look at limiting cover. What we have seen can be viewed as a huge wake up call.”

Totten adds: “Australia is looking at a strategy of significant growth in renewable energy capabilities. Part of the expansion is on the northern coast where we have windstorm and cyclone risks. You also have the situations where we have seen significant flooding quickly followed by drought and with it a rising wildlife risk.

“Wind and solar and battery storage risks are rising, and it is ironic that renewable energy risks are now under increasing threat from the weather.

“Importantly this is an issue for everyone, not just for insurers. If we do not have a collaborative approach we are likely to see a reduction in capacity.

“Insurers want to be in the position to ensure that the capacity needs are met.”

He adds: “These are not unknown risks. We know there is a great deal of experience in the property market  around wildfire, floods or storms. It is simply not as well known in certain sectors such as renewables, where we do not have the data on the risks.

“Australian has faced El Nina and El Nino which created a very unhelpful environment for building renewable projects. We can move from fire to flood in a very short space of time.”

Totten continues: “When it comes to renewable projects as insurers, we need to be part of the conversation earlier so we can put measures in place. It allows us to discuss what steps can be taken to reduce the impact of future events.

“It is a proactive approach. Early engagement is vital. Insurance cannot be at the end of a long and complex list when it comes to building a project.”