The role of insurance in the energy transition

As the challenges of curbing global warming grow, major projects involving renewable energies are advancing around the world towards a low-carbon economy.

We’re talking about generating energy from the heat of the sun (solar energy), from the amplitude of the winds (wind energy), from river water (hydropower), from organic matter (biomass), from the heat of the Earth’s interior (geothermal) and also from green hydrogen (H2V), a fuel obtained through the electrolysis of water, with high potential for application in industries that are intensive in GHG (Greenhouse Gas) emissions.

The insurance sector has a fundamental role to play in this scenario, especially as one of the key players in driving the energy transition.

“Insurance products are essential instruments throughout a plant’s investment cycle, whether in the initial stages through guarantee insurance to make business viable, or through engineering risk insurance in the construction stage, or even during the operating phase to protect against exposures and ensure the expected cash flow,” explains Carlos Eduardo Lichtenberger, Horiens’ Risk and Insurance Director for Infrastructure.

New steps and challenges

One of the main challenges involving insurance in renewable energy projects is the number of variables that can generate risk. These factors range from climate instability and fluctuations in production to the scarcity of historical data, since there are new and disruptive initiatives in this area.

“In general, energy projects comprise complex activities, require extensive knowledge and require us to always be very attentive to the latest insurance available on the market and to the specificities of this type of business,” says Vanessa Falco, Risk and Insurance Director at Horiens for Energy.

The insurance must reflect each project, so that exposures are identified, dealt with and the residual risk that can be transferred to the insurance market is duly covered by the policy.  “This is totally personalized and specialized work, which results in competitiveness and business protection, yet another angle on the importance of insurance,” adds Vanessa.

New initiatives and technologies require a joint effort to become a reality, and all the players involved need to advance in their roles if the energy transition is to happen at the necessary pace.

“The best way is to have technical accuracy and transparency when providing information to subscribers. Insurance brokers are fundamental in this dialogue, especially when they have a deep knowledge of the business they are supporting, which enables them to conduct a qualified dialog with the insurance market and provide assertive advice on the company’s risk management,” says Vanessa.

Renewables on the rise in Brazil

Currently, the smallest part of the world’s available energy comes from renewable sources. In Brazil, due to its geographical position, the large supply of natural resources allows the energy matrix to be more balanced, with almost half of the energy being generated from clean sources, such as sugarcane biomass (15.4%), hydro (12.5%), wood and charcoal (9%), lye and other biomass (7%), wind (2.3%) and solar (1.2%), according to data from the National Energy Balance (BEN/2023).

Considering only the electricity matrix, the share of renewable sources is even higher, reaching almost 90% of the production base, most of which comes from hydroelectric plants.

When it comes to wind power, the strong and often constant winds, especially in the northeast of Brazil, reinforce the country’s immense potential for generating this type of energy, both onshore and offshore.

The trend is for wind energy projects to continue to expand in the coming years.  To give you an idea, by 2030, onshore wind generation is expected to almost double in the country. In the case of offshore wind generation, there are important research and development movements, such as the projects led by Petrobras in the area, for example, as well as great expectations with the consolidation of the sector over the next decade, which should attract more and more investment and bring a great boost to electricity generation.

Solar energy is also gaining ground in Brazil. In 2023, the country was among the top 10 solar energy generators for the first time, coming in 8th place, according to a survey by the International Renewable Energy Agency (Irena).

Another alternative to fossil fuels that is booming is green hydrogen, obtained through the electrolysis of water using renewable energy sources in the production process. H2V, as it is known, has stood out as a tangible opportunity in the quest to reduce emissions, with the potential to be used as a fuel or raw material in industries such as steel mills, fertilizers, chemicals, transport, among others.

Several northeastern states have announced projects in the area, with Ceará standing out with the Pecém Industrial and Port Complex (CIPP), which will produce H2V for the domestic market and also abroad, through a partnership with the Port of Rotterdam, Europe’s main hydrogen hub.

“The country’s expectations and potential are great on the renewable energy front. The rapid technological evolution of this sector brings great challenges and opportunities not only for the insurance market, but also for the companies that are leading these projects and all the players involved. It’s an important issue, and it needs and will continue to need all our efforts,” concludes Vanessa.