New report outlines renewable energy challenges

Australia’s renewable energy market, like the rest of the world, is feeling the impact of covid-fuelled disruptions in the global supply chain, a new report from GCube Insurance says.

The implication for the renewable energy insurance market is that project developers and asset owners could face large losses resulting from business interruption (BI) if their insurance policy terms are not updated to reflect current market conditions.

“BI risks, which are measured by the potential risk of physical and/or revenue loss, are set to become more concentrated as the spillover effects from extended Covid-19 lockdowns work their way through the supply chain,” the report says.

GCube, a renewable energy specialist underwriter, says its data show although the volume of BI claims examined have remained static over the past two years, BI periods on those claims have increased.

The pandemic and subsequent supply chain disruptions have pushed sector-wide average business downtime days up by 38% between 2016 and 2020.

“This data provides an early indication to the extent of disruption caused by the Covid-19 pandemic and subsequent global supply chain disruptions,” the report says.

In the report’s section on Australia, GCube says inflationary pressures and supply chain disruptions in the Australian renewables market are exacerbated by the country’s reliance upon international trade.

“The nation’s relative isolation from its neighbours exposes it to similar logistical issues as the US, with dependence on shipping a key obstacle to project development,” the report says.

“The unique challenges to the Australian market present in its relative lateness to the party in pushing for renewable energy development, and the speed at which it aims to catch up.”

While a more favourable political climate is presenting lucrative opportunities for building big projects in the country, the report says it means Australia must compete with existing, established markets for components, skills, and professional services.

The task is not easy, the report says, noting Australia already struggles with a shortage of skilled labour that cannot keep pace with either the speed of component development or national demand for capacity growth.

Also, renewable technologies now have such high turnover in the pursuit of increased energy production potential that equipment stockpiles are limited, and particularly for wind, these components have long outpaced the capacity of many of the alternative shipping and installation methods designed to support them.

“These conditions breed a claims landscape that is already more turbulent than in other global markets, with contractor errors and defective technologies constituting a high proportion of issues that have already pushed a number of local contractors into liquidation,” the report says.

“The market, therefore, already exposed to a higher frequency of business interruption or delayed start up, faces potentially greater severity of BI and [delay in start-up] claims than existing markets with more diverse supply options and a broader range of skilled contractors.”