Renewable leaders weigh in on insurance's role in future-proofing the energy transition

Renewable leaders weigh in on insurance’s role in future-proofing the energy transition | Insurance Business Asia

Construction & Engineering

Renewable leaders weigh in on insurance’s role in future-proofing the energy transition

“One’s very transactional, while the other is more consultative”

Construction & Engineering

By
Kenneth Araullo

One of the highlights of the WTW Asia Power and Energy conference in Manila, Philippines last week was ACEN chief risk officer JP Orbeta’s presentation on the renewables firm’s successful utilization of the energy transition mechanism (ETM), which saw the firm acquiring South Luzon Thermal Energy Corp. (SLTEC) and its thermal power plant for an early retirement in 2040, ensuring that it will result in less greenhouse gases than it would have if it was powered through its entire lifespan.

Outside of that presentation, Orbeta also took part in a panel that discussed the energy transition in the region as well as the role of insurance in this journey to net zero and a cleaner, greener world. He started off by saying that the energy sector should start looking at insurers in a different way from what most of the market is doing now.

“We took a step back, and we said, ‘We should be looking at insurers (the insurance market and the brokers) more as partners.’ The first principle is to step away from buying insurance to how do we look at managing our risk. This is a very different part compared to the other: one’s very transactional, while the other is more consultative, strategic, collaborative, etc.,” Orbeta said during the panel, which was attended by Insurance Business Asia.

A second point to make, Orbeta said, is to stop looking at the collaboration on a year-by-year basis, which would fall under a transactional arrangement. Rather, ACEN looked at the market as the firm’s partners and investors, and to do that they had to share their story.

“To make that shift, we shared with them our growth story: ‘Here’s our portfolio, here is where we’re growing, here are the different markets where we will be growing.’ Therefore, we’re approaching the insurance markets as if they’ve invested in us, because we have all these risks that’s going to be coming up for grabs, if you will, for the next few years, and we need your help with that,” Orbeta said.

Finally, ACEN approached its risk management proposition with a different tone, one that’s much more advisory in nature and delves into the heart of the energy transition matter, especially given the hard market that the energy sector is facing today.

“We approached the market (WTW being one of them) to say, ‘If you were in our shoes, how would you manage this risk?’ We turned into a kind of consultancy with insurers and brokers. Then, they would help us to clear the risk; we needed the expertise of people in the industry to help with that. How we’re going to analyse the present growth in a situation where the market is harder, very difficult to get financing because of the no-coal policy. Even insurance companies, as you know, were very strict on the no-coal policy,” Orbeta said.

Giving ETM a shot

ACEN’s journey in getting coverage for its coal purchase for ETM was not without its difficulties. Orbeta recalled that a lot of insurers turned them down because of the no-coal policy, and it finally took a private meeting with WTW for their ventures to be fruitful. He hoped that the successful ETM that ACEN managed with SLTEC provides a solid proof of concept for the mechanism to grow in the future, especially as more and more companies are trying to cover their own ESG and net-zero propositions.

“It’s more about the communication, the marketing, telling that story for their understanding. Otherwise, it’s sometimes very difficult for insurers to see unless it’s already on the ground. Once you get there, I think there’s less to worry about,” Orbeta said.

Another renewables firm in the country, Alternergy, was present during the event. President Gerry Magbanua, who listened to Orbeta’s presentation, said that ETM presents a grand opportunity for the sector, if there are solutions in place tailored for different firms and companies.

“It is such an innovative idea, and we all should consider that. Maybe there are variations to it that can be made here and there, but overall, I think it’s such a noble idea. I’m happy to hear that SLTEC embarked on it and followed through, from concept to realization. I hope more of these can take place in this country and the region,” Magbanua said.

Likewise, he stressed that the insurance industry is key to all these energy transition movements, especially as fossil fuel-based companies struggle to keep being insured at a time when they’re responsible for powering over half the country.

“As long as there is that commitment towards the transition, I believe that there will always be room for insurance companies to keep supporting these technologies. Everyone in the energy sector is going to need this support for the energy transition journey,” he said.

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