Energy transition for power sector creating new risks says Willis Towers Watson Review

Rhea-AI Summary

Willis Towers Watson released its 2021 Power Market Review, titled "Adapting to New Realities", highlighting significant challenges for power companies amid energy transition efforts. Key issues include reducing greenhouse gas emissions and ensuring operational resilience against climate change. The review identifies geopolitical risks related to green materials and renewable energy sources. Financially, losses in 2020 exceeded those in 2019, with insurance capacity estimated at approximately US$1.4 billion and rating increases averaging 15-20% for property programs.

Positive

• The report emphasizes the power sector's potential for innovation through new technology and business models.
• Initiatives like the Climate Transition Pathway accreditation are aiding the sector's adjustment to cleaner energy.

Negative

• Significant power losses in 2020 exceeded 2019 levels, with major losses amounting to US$450 million in 2021.
• Insurance capacity continues to decline, estimated at only US$1.4 billion realistically.

2021 Power Market Review “Adapting to New Realities” outlines the challenges facing the power market as it embraces the energy transition

LONDON, June 30, 2021 (GLOBE NEWSWIRE) -- Power companies are facing key challenges arising from the energy transition and the move to cleaner fossil fuels, according to Willis Towers Watson’s (NASDAQ: WLTW) 2021 Power Market Review. These include how power companies need to substantially reduce their greenhouse gas (GHG), emissions (referred to as climate change mitigation) as well as ensuring the resilience of their assets and operations to the impacts of climate change (referred to as climate change adaptation).

The review highlights how the industry is embracing the need to meet climate change requirements but also looks at how climate change is presenting unique risks to the sector that must be managed effectively to maintain reliable supply. The review also explores how geopolitical power from energy transition will derive from:

• control of the “green earth” materials needed in the energy transition;
• availability of renewable sources for power production;
• ability to produce and export both power and new low carbon industrial fuels such as hydrogen;
• innovation of new technology, business models and industries and flexibility to the pace of transformation;
  the flexibility to the pace of transformation as this is likely to be non-linear in form

Other key highlights of the review from an insurance market perspective include:

• Capacity: In 2021, WTW estimates that the global theoretical total has now reduced still further to approximately US$3.25 billion, with the realistic level in the region of US$1.4 billion.
• Losses: Losses for 2020 are more extensive than 2019 with two major Power losses in 2021, totaling US$450 million between them. However, this is not as disastrous as during the period 2015-18.
• Rating levels: Rating increases are now averaging between 15-20% for Property programmes, depending on a variety of factors, including risk profile, premium income volume, spread of risk, loss record and, increasingly, ESG criteria. This represents a slight easing of the hard market but is still far removed from any actual turnaround in rating levels.
  

Graham Knight, Head of Global Natural Resources, Willis Towers Watson, said: “In these uncertain times, adapting to the new realities of the energy transition and the move to cleaner fossil fuels is critical for a sustainable future for the power sector. However, it is not a simple matter of an immediate and irreversible switch to renewable energy. It is essential that there remains room for the power sector to adapt and absorb new technologies such as hydrogen and biofuels, rather than face a wholesale abandonment by stakeholders for renewable sources of power such as Wind and Solar.”

He added: “Recent initiatives such as the Climate Transition Pathway accreditation process and the movement from coal to hydrogen are all helping the power sector and its insurance partners adjust to a move to cleaner and more sustainable environment. But it is imperative that buyers and their brokers deliver clarity, transparency, and a renewed engagement with their leading insurers. Only then will they minimise the impact of this challenging market.”

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

PR Contact:

Sarah Booker +44 (0)7917 722040
sarah.booker@willistowerswatson.com

FAQ

What does the 2021 Power Market Review by WLTW highlight?

The review emphasizes challenges in reducing greenhouse gas emissions and ensuring asset resilience amidst climate change.

What are the key findings regarding insurance capacity in the power market?

The realistic insurance capacity is estimated at approximately US$1.4 billion for 2021.

What financial losses did power companies experience in 2020?

Power companies faced extensive losses in 2020, which were more significant than in 2019, totaling US$450 million.

How is WLTW helping the power sector adapt to the energy transition?

WLTW is facilitating adaptation through initiatives like the Climate Transition Pathway accreditation process.

What is the average rating increase for property programs in the power sector?

Rating increases for property programs are averaging between 15-20%.