In this chapter of our Annual Insurance Review 2020, we look at the main developments in 2019 and expected issues in 2020 for power.
Key developments in 2019
Only four years after the US signed the Paris Agreement (along with 194 other nations), President Trump announced in October his intention to withdraw the country from the treaty. This is another move intended to meet his pledge of stimulating the US energy industry, particularly US coal.
However, a free market economy is proving that just because Trump digs coal it doesn't necessarily follow that the industry will pick up their shovels and follow suit. To a large extent coal remains financially unattractive compared to lower-cost power sources including natural gas and renewables. In the US at least, power companies continue to reduce their coal consumption with coal-fired plants being retired or switched over to natural gas.
Those companies that continue to burn coal have an increasingly smaller pool of carriers willing to cover their operations. The US insurer Chubb announced this year that it will not sell new policies to companies which build or operate coal-powered plants, or those that generate more than 30% of their revenue from coal mining or supplying coal-fired electricity.
Chubb follow a number of large European carriers who implemented similar policies last year. Around a third of the global reinsurance market has now restricted its cover for coal. This year Zurich took its commitment to a low-carbon future one step further by becoming the first insurance company to sign the Business Ambition for 1.5% Pledge aimed at limiting global temperature increases to 1.5% above pre-industrial levels by 2030.
What to look out for in 2020
The International Energy Agency (IEA) predicts that global supplies of renewable electricity could expand by 50% in the next five years. The higher forecasts are driven by falling technology costs and more direct governmental policies. The predominant renewable sources behind these forecasts are wind and solar. The IEA points to the enormous potential of offshore wind as turbines grow in size and efficiency and as the next generation of floating turbines capable of operating in deeper waters come on-stream. The IEA predicts that the offshore wind industry will be worth £780bn in the next 20 years.
As far as solar infrastructure projects are concerned, the $20bn Sun Cable project was announced in 2019. It promises to build the world's largest solar farm in Australia's Northern Territory. The majority of the electricity produced will be transported to Singapore via a high-voltage direct-current submarine cable which will run for 3,800km weaving its way around the Indonesian archipelago. It aims to provide one-fifth of Singapore's electricity needs.
Whatever the power source, the industry must remain alive to cyber threats. A report published by Siemens and the Ponemon Institute notes that the risk may be worsening. Of the utility professionals consulted, 56% reported at least one shutdown or operational data loss per year, and 25% report having been impacted by mega attacks, which are frequently aided with expertise developed by nation-state actors. As we noted last year, organisations require fully integrated, comprehensive plans and frameworks to address these risks.
Authored by Hugh Thomas.
Download our full Annual Insurance Review 2020 for more insights.