Sustainability risks and future energy solutions
Climate change is one of the core risks that If P&C Insurance is following to secure its ability to serve its clients in their risk management.
Article by Matti Sjögren
The worst predictions are dim, and the stakes are high, but the world has already started to move towards sustainability. The governmental and the regulatory pressure are pushing the development further. The drivers, like the cost and the investors’ appetite or the obstacles such as needed political and behavioral changes, must be taken into consideration too.
Transforming the way we produce and use energy to comply with the sustainability targets of the UN Paris Agreement requires another major technical revolution occurring in quite near future.
The global average temperature should stay well below 2°C above pre-industrial levels. This calls for lowering greenhouse gas emissions to net zero. Currently, energy production causes two thirds of those emissions.
Technologies for renewable energy production
The main technologies for renewable energy production are hydropower, wind, biomaterials, solar, geothermal and ocean energy. The potential of these technologies exceeds tremendously the energy needs of the world.
Some of the methods are already vastly in use like hydropower, or they are increasing and developing rapidly, e.g. solar and wind. But time is essential in fighting against climate change, which paradoxically may actually hinder the implementation of new production technologies
New energy production technologies are typically decentralised compared to traditional sources of energy, creating requirements for delivery networks. The existing infrastructure may not be able to bear the stress that will come with distributing power. Also, e.g solar and wind production are more dependent on weather conditions, requiring more stable energy production support.
New types of risks
All new technical facilities are subjected to basic risks like fires and machinery breakdowns. However, each completely new technology carries new types of risks which can often take some time and experience to recognise. Examples are fire risks with solar panels and breakdowns at wind power plants.
Liability risks stemming from the new power generation methods include environmental risks prevalent in offshore wind and in the production of renewable biomaterials.
Further to this, the construction projects for production facilities may be huge and take place in very demanding circumstances. The special skills needed require numerous companies to co-operate. The contractual relationships are complicated, and interdependencies are strong. There is an urge to focus on quality and durability instead of cost savings.
Another perspective to the climate targets is illustrated by the technologies to collect greenhouse gases like CO2 from the production processes, or to remove them directly from the atmosphere. It is possible in theory, but the scalable solutions are still under development.
Big business opportunities
With all these developments and investments in new technology comes big business opportunities. The insurers, like If, are providing capacity for risk transfer and risk management services to reach the targets both in projects as well as in operating the facilities. We are in a hurry to transform energy production to more sustainable alternatives.
The rapid erection of new production units with less tested features can be challenging for the insurer, which may be balanced by standardisation of the materials and technologies.
The unnoticed accumulation of similar new risks in the insurer’s portfolio, possibly being triggered at the same time, is the risk that keeps If P&C Insurance firmly positioned in these ambitious and inspiring projects for a more sustainable energy future.
We are in a hurry to transform energy production to more sustainable alternatives.