Investments in EV charging stations, solar panels, and other renewable energy options are surging. Although there are many benefits to the adoption of renewable energy, this is a rapidly evolving sector, which means there may be unexpected risks. In addition to the risk of physical damage and equipment breakdown, regulatory uncertainty may create management liability exposures. Whereas these risks do not mean businesses should avoid renewable energy, they do necessitate risk management and insurance coverage.
The Increase in Renewable Energy Investments
The renewable energy sector is booming.
The 2023 World Energy Report from IEA shows that investments in clean energy have been rising significantly since around 2020. This is due to the recovery from the COVID-19 pandemic and in response to the global energy crisis. According to BloombergNEF, global new investment in renewable energy surged 22% in the first half of 2023 compared to the same period in 2022, reaching $358 billion.
Government agencies and corporations alike have helped drive interest in renewable energy. Deloitte says 24 jurisdictions have zero greenhouse gas emissions or 100% renewable energy goals that cover 2030 to 2050 and 30 companies joined RE100 (a global initiative to obtain all electricity from renewable sources) in the first 10 months of 2023 alone.
There has been a significant increase in solar power and electrical vehicle charging stations. Other renewable energy sources include wind and hydropower.
The Benefits of Renewable Energy for Businesses
The business case for renewable energy is strong:
· Cost savings. Earth.org says renewable energy sources are cheaper and easier to produce than fossil fuels. However, to see these benefits, it’s critical to choose the right renewable energy system for your needs. Research published in Joule found that a rapid transition to green energy could result in net savings in the trillions of dollars.
· Resilience. Deloitte says renewables have become a resilience strategy for businesses. According to Stanford University, demand for energy is increasing, but fossil fuel deposits are limited, creating an unsustainable situation. We could run out of oil by 2052 and gas by 2060.
· Environment. Fossil fuels are the biggest contributor to climate change. The United Nations says fossil fuels account for 75% of global greenhouse gas emissions.
· Reputation. According to McKinsey & Company, consumers care about sustainable business practices and many are willing to spend more on sustainable products. In fact, products with ESG claims averaged a 28% cumulative growth rate over a five-year period, whereas products without ESG claims only averaged a 20% cumulative growth rate.
Renewable Energy Risk Management
Although there are many benefits to investing in renewable energy, there are risks.
Despite the potential for cost savings, upfront costs are frequently a barrier to switching to renewable energy. According to Risk & Insurance, the U.S. imports around 80% to 90% of solar cells and modules and tariffs are often a significant obstacle for adoption.
Evolving regulations create additional barriers. Morningstar explains that climate goals to limit global warming will require long-term changes to how the world produces and uses energy, but it’s still unclear how these changes will play out. In the face of this uncertainty, moving forward with major changes may seem risky. Political conflict creates additional uncertainty regarding future regulations and programs.
For example, what if a company invests heavily in solar energy, but then a better renewable energy source emerges? Or what if a company invests in hydropower to take advantage of current incentives and government plans to expand hydropower, but then a new political administration takes power and moves away from hydropower? Scenarios like these may expose stakeholders to losses, which could create management liability exposures.
Other risks involve the physical assets themselves. For example, MarketWatch says solar panels degrade by about 0.5% every year and have an average lifespan of around 20 to 30 years. Unexpected damage could shorten that lifespan. Likewise, electric charging stations could face unexpected damage, either from natural disasters or vandalism – according to Fox 13 Seattle, copper thieves have been targeting EV charging cords.
Business Insurance for Renewable Energy
Any major business initiative requires a reassessment of insurance – and the switch to renewable energy is no different. Multiple policies may be necessary, including the following:
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Commercial property insurance. Fires, storms, vandalism, and theft are all risks. Check your policies for coverage for EV charging stations and solar panels and consider whether you need additional coverage.
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Equipment breakdown insurance. EV charging stations, solar panels, and other renewable energy assets may break down unexpectedly. Determine whether you have adequate coverage in place.
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Inland marine insurance. Renewable energy infrastructure may be damaged in transport. Inland marine insurance provides coverage for this.
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Liability insurance for renewable energy exposures. Consider whether you have sufficient management liability insurance in place to cover potential lawsuits that could occur if your investments do not go as planned.
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Energy efficiency insurance. This is a specialty insurance designed for companies and investors in renewable energy.
Navigating Renewable Energy Adoption
This is an exciting time for renewable energy development. The sector is growing quickly, leading to numerous investment opportunities. However, the risks also deserve attention. Watkins can assess your EV charging stations insurance, solar panels insurance, and renewal energy investment insurance needs.
Do you need help securing coverage for your renewable energy investments? Contact us.
