Adapting to Climate Change: Renewable Energy

ClimateChange_Renewables

Climate change is arguably one of the greatest challenges of the 21st century, and one both the construction and insurance industries are required to step-up to on several different fronts.

For its part, the energy sector has to meet the demands of economic growth and rising living standards all over the world. All societies demand energy to meet basic human needs (in terms of lighting, heating, communication, and mobility) as well as to service and enhance a country’s productive capacity.

The growth of renewable energy continues to gather pace globally as countries look to offset their carbon emissions and bow to pressures to produce clean energy. As the renewable sector grows rapidly it continues to grapple with a number of emerging risk management issues.

Renewables Today

Renewable energy is derived from sources that are naturally replenished, such as ocean tides, waves, wind, sunlight, and geothermal heat.

Although the origins of biomass (organic materials or plant-based fuel) can be traced back almost 800,000 years, it is only since 2004 that we have seen an accelerated growth of renewable energy capacity on a global scale.

Currently renewable energy accounts for around 15% of the global energy provision, the vast majority being derived from biomass.

Having long held the titles of biggest renewable energy producers, Europe and North America have found themselves challenged heavily by Asia, South America and Africa.

Global New Investment in Renewable Energy: Developed v Developing Countries, 2004-2013, $BNChina tops the world leader board with 26% of the world’s renewable energy supply. This trend seems set to continue with the likes of India, South Korea, Brazil and South Africa setting ambitious growth targets in renewable energy.

In addition to helping to mitigate climate change, the renewable energy sector assists in social and economic development, provides a reliable form of energy and reduces the negative impact on the environment and human health caused by burning fossil fuels.

Vibrant Insurance Market for Renewables

Although there is a vibrant insurance market for renewable energy it will need to adapt as the sector evolves, becomes increasingly complex, and expands around the globe.

For example, the demand for more and more energy means that renewable technology is being deployed on larger scales, earlier in the genesis of development, and in configurations that are unique and unproven.

Additionally, construction companies and designers in the renewables sector have to consider the additional demands that climate change will impose on a building over its entire life span. Contractors and designers clearly have a responsibility to ensure that the building is fit for purpose and will remain so.

Key areas of focus are insulation, Photovoltaic (PV) panels, and the overall energy rating of a building, with the ultimate aim for large commercial buildings to become self-sufficient in energy terms.

Future of Renewables

In the future we envisage that insurers are going to focus increasingly on the growing risk of flood as more and more geo-spatial data becomes available. Clearly, insurers will also want to understand built-in mitigation measures, such as the level of the foundations relative to anticipated flood water maximums, the capability and capacity of air handling equipment and the energy efficiency of the building.

Another area that the insurance market is moving towards is in developing a financial guarantee for the energy efficiency improvements provided by new technologies and investments in infrastructure.

Although not currently available, we are aware of a number of insurers who are potentially looking to provide financial compensation based on the prospective savings afforded by the adoption of energy efficiency improvements if those targeted savings are not met.

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