Interview: Transparency and Accountability in US Renewable Energy

On Wednesday 4th September 2019, GCube held its 16th Advisory Council meeting in Chicago, where leading risk and insurance managers came together to discuss the state of the renewable energy insurance market, and the key risk trends to look out for. We spoke to GCube President Jatin Sharma following the meeting for his take on some of the main messages for GCube’s Insureds.



At the Advisory Council, you highlighted the urgency of tackling extreme weather losses. Could you tell us about the impact these extremes have had on projects so far this year?


2019 to date has indeed been a year of extremes. We’ve seen a polar vortex, heavy rainfall, large hail, earthquakes and tornados. Hurricane season has been active for a third consecutive year and in the US, these storms are getting slower, larger and wetter – which of course poses a greater threat to the structural integrity of renewables projects.


In terms of the specific impacts, we’ve encountered ice build-up and sheeting on blades, major hail losses in solar PV and flooding – which has been exacerbated by increasingly poor site selection in the pursuit to lower costs. As we’ve highlighted previously, the locations in which extreme weather events are occurring are increasingly erratic, with previously identified geographic ‘risk zones’ getting larger.


As a result of this extreme weather, 2019 has been the costliest in GCube’s history.


The US market is currently much more volatile than any other market and that doesn’t look like it’s going to be changing in the future. GCube’s support for US renewables asset owners remains unwavering, but this, of course, necessitates a response from the insurance markets that will see a reset on terms and premiums, following a number of years of soft market conditions.


Each region in the US presents it’s unique underwriting challenges. With the increasing frequency and severity of natural peril losses, it is unsustainable for GCube to continue to underwrite 100% on property risks. This is particularly true for utility scale operational solar PV and onshore wind construction, which have performed very poorly for GCube as well as our competitors. We must help our insureds and supporting brokers reset expectations for the lending community on what bankable insurance looks like going forward. Early engagement, transparency and candor will be essential to manage this shift.



How can we avoid ambiguity around Nat Cat impacts?


This unseasonal weather is continuing to take its toll on US renewable energy projects, and as a result, two categories of Natural Catastrophe (Nat Cat) are starting to emerge; ‘Hard’ Cat and ‘Soft’ Cat. At the Advisory Council meeting, we explored how grey areas can be addressed, presented the case for clear, transparent definitions to avoid damaging ambiguity, and provided practical policy advice.


In their claims presentation GCube’s Roy Muñoz and Chris Bender highlighted how the insurance market must begin to differentiate clearly between these ‘Hard’ and ‘Soft’ Nat Cat events in order to prevent parties taking advantage of ambiguity and putting insured clients at risk of unfair claims settlements.


How might market pressures introduce further risks?


Policy wording issues such as this could have a major impact on the renewables sector, as a substantial amount of new capacity is currently being rushed to completion to meet tax incentive and subsidy deadlines.


Adrian Frank, Senior Executive President of J.S. Held explored how the pressure to bring online new wind and solar capacity in a tight timeframe puts a significant emphasis on managing construction schedules. This is critical when it comes to determining the size and scale of any potential advance loss of profit or start up claims.


Adrian highlighted the importance of using a professional scheduler to undertake a third-party independent review of the construction schedule. This creates another layer of accountability, as many schedules have not been crafted in an effective manner, potentially creating problems if claims are filed.



What other themes were tackled at the Advisory Council?


David Halligan, Former CEO of Goldwind Americas spoke on cryptocurrency and how it has a part to play in attracting a wider, more diversified investment base, explaining how this shift will be driven by blockchain technology.


David highlighted how blockchain, a shared and distributed data ledger that can store digital transactions without using a central point of authority, can help solve problems like hacking and lack of transparency which occur during or after online financial transactions with cryptocurrencies such as Bitcoin.


Interestingly, David presented the case for how solving these problems through improved security and making cryptocurrencies easier to use through renewable energy investment platforms will create a more secure and engaging consumer experience, arguing that this will allow the further development of renewable energy assets.


We also looked at the wider theme of digitalisation, with Eric Bergman, Senior Account Executive at Greenbyte presenting on data in renewable energy operations and maintenance (O&M). Eric highlighted some of the ‘cardinal sins’ of data management, alongside some of the challenges faced, including data availability, signal taxonomy and cyber security. Eric explored how these challenges can impact how asset owners respond to projects faults and failures, and how a solid foundation is required to face these challenges.



What’s next for GCube?


Our next Advisory Council meeting will be taking place in March 2020. To find out more about our previous Advisory Council events and see what’s coming up, please visit our events page.


In addition, we’ll be announcing some new names joining the US team at the beginning of November so this is an exciting time to be part of a market transition. I would invite any clients with questions or concerns about their forthcoming projects or renewals to make contact with our underwriting team and myself.