Building resilience into renewable infrastructure
This article originally appeared as partner content sponsored by FM in the Financial Times.
The shift towards renewable energy continues to gather pace, with thousands of gigawatts of new capacity planned and under construction in the next five years. A survey of renewable energy financiers, issued recently by global insurer FM, suggests 76 per cent of lenders and 70 per cent of investors plan to increase their commitment to renewable energy over the next three years.
But with three quarters of funding coming from private and commercial sources, demand is outstripping supply, holding back new projects. In addition, global trade disputes are inflating prices. In 2024 Statkraft, Europe’s largest renewable power producer, scaled back plans to build new wind and solar plants, citing lower electricity prices and higher costs. Meanwhile, government support has shrunk in the US with the passing of the One Big Beautiful Bill Act.
“While unfavorable for renewables, the final version of the Bill is less destructive for near-term projects, but we still anticipate many earlier-state projects, even though capitalized and advanced, will be cancelled,” says Sam Jensen, Founding Partner at California-based insurance consultants Stance. “Without tax equity we would expect renewable growth to slow more substantially around 2027.”
Renewable energy projects at scale are highly complex to plan, develop, construct and operate; wind and solar developments are often located in remote or exposed locations. Two of the biggest concerns associated with installations are defective manufacturing and installation practices and damage from extreme weather; some high-profile incidents have resulted in losses exceeding $100mn, not all of which is insured, given deductibles and applicable sublimits. Increasingly, investors are choosing to back projects where risk, especially location, construction quality and technology, has been thoroughly assessed, and resilience is baked in from the outset.
Rigorous selection processes
FM’s investment portfolio has included renewables since 2019. Its Chief Tax Officer, Pamela Griffing, is responsible for identifying and managing investment. “Our survey demonstrated that there’s a high appetite for renewable energy, and we’re expecting it to stay strong and increase over time,” she says. “That appetite is also strategic and selective. As an investor, we want projects that are going to operate continuously and avoid disruption. Resilience is important.”
This requires close partnerships not only between owners, developers and manufacturers but also insurers, who play a central role by underwriting the huge sums at stake, as well as deploying their expertise to prevent delays, outages and damage. FM’s renewable energy survey also revealed that 53 per cent of financiers expect project partners to work with independent risk advisers during construction. When operating, 48 per cent want to see independent risk engineers involved, and 46 per cent expect the infrastructure to be well insured. “I’m personally involved in every single project we invest in,” says Griffing. “I tap into the global experience of our renewable energy team and engineers. If they express doubt, then a red line goes through it.”
De-risking renewables
Insurers no longer simply indemnify projects; they also assess risk and identify solutions to prevent failures from arising. Last year, FM established a dedicated business unit focused on research, standards development and loss-prevention engineering for utility-scale solar, wind and battery energy storage systems. The intention is that its team will partner on projects from inception so that they can shape processes optimally for geographic location and future-proof long-term performance.
It’s an unprecedented move for an insurer in the sector. Michael Perron, a former broker and now Renewable Energy Market Lead at FM, says: “I’ve been involved with renewables for over a decade and, for a long time, insurers weren’t even interested in visiting a project site. There was the expectation in the industry that it was straightforward and didn’t have the same problems as other industries, which is clearly not the case.”
Premiums for renewable energy insurance market policies have indeed risen between 20 and 40 per cent, although rates have recently stabilized and even started decreasing; FM’s survey found that the increased price of insurance was energy providers’ second greatest concern after construction fees, with almost half of those surveyed also concerned about their ability to secure cover for future projects.
The need for cover is only set to grow, as the proliferation of data centers and mass vehicle electrification require unprecedented amounts of power; wind and solar will remain indispensable. With future projects depending on the support of stable, reliable investors and insurers, productive partnerships will offer much-needed reassurance. “Investors are looking to get comfortable with the risk and protect their returns,” says Griffing. “If you want them to come back, you have to demonstrate that your assets have been thoroughly de-risked.”