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How record floods are changing Australia’s renewable energy industry

By John Rae and Kishan Dasan | February 14, 2023

Developers and operators in the renewable energy sector should engage with risk intermediaries to ensure that the impact of insurance changes is minimised.
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In Australia’s most populous state, New South Wales (NSW), 2022 will go down as the costliest year on record for Nat Cat claims. A prolonged La Niña weather system has inundated widespread areas of the state, as well as Queensland and other parts of Australia to a lesser extent.

The flood claims bill has reached over A$5.5 billion in NSW alone, according to figures released by the Insurance Council of Australia in November 20221. It is not surprising, with several areas of NSW being impacted several times over the year, that some risks have been deemed uninsurable. For those still able to attract cover for their Nat Cat exposures, premiums have soared as capacity has steadily left the Australian market.

Effect on the Australian renewable energy industry

Three consecutive La Niña events have wreaked havoc in the renewable energy industry, catching many operators and developers out in terms of their risk mitigation, management and transfer.

It has led to a major rethink, not only in terms of their approach to risk but also changes in working practices throughout the construction of new renewable projects. Many such considerations have led to increased costs for developers, after decades of practices geared around the prevailing drought conditions.

Flood risk is not unique to Australia; many of the changes in construction and development practices we are now seeing will have significant implications for renewable energy projects around the world.

Other Nat Cat perils reduce insurer appetite

While flooding is directly responsible for a major shift in insurer attitude in Australia, other Nat Cat perils across the country such as wind and hail damage, have added to the claims bill and resulted in a reduced insurer appetite for renewable risks.

Australian projects are also competing for global capacity that continues to be selectively applied. There is no hard and fast ratio, but capacity is highly dependent on the size and complexity of the project.

The need to anticipate adverse weather

Several renewable energy projects throughout Australia, but most notably in NSW and Queensland, were caught out by the severity of flooding throughout 2022 with widespread damage to open trenches and unsealed roads, with some evidently failing to account for the cost of dewatering. Project developers and operators are clearly on notice that anticipating adverse weather and planning an appropriate risk management strategy are now paramount.

Given the reduction in insurer capacity and appetite, having principal oversight of risk management at any renewable energy project site is key to a successful long-term relationship with the insurance market. This is vital for projects seeking the most favourable renewal terms; insurer portfolios are running at a loss, resulting in increases in premiums, much higher deductibles and more restricted coverage.

Essentially, any practice the insurance market deems to be unsafe or likely to cause physical damage (especially following an adverse weather event) is increasingly resulting in it being excluded – or at least, severely restricted coverage.

Here are some major examples:

  • Restricting a single length of open trench to a certain safe distance before it is backfilled. If long stretches of trenches are left open for an extended period, and there is an adverse weather event, insurers may cynically view this as not fortuitous/or unforeseen. Rather, they are now saying this is a risk that can be anticipated and therefore should have been mitigated by being backfilled the same day.
  • Restricting the length of unsealed roads. This can be defined as ‘Unsealed Roadworks being partially or completed roadworks at any stage of construction that have not received a minimum of one application of a weatherproof course’. The riskiest period for roads in a renewable energy project, which are often in remote regional areas of Australia, is prior to being sealed. Insurers increasingly take a dim view of potentially large claims or costs from delays arising from washed away roads, when a project does not seal them in a timely manner.
  • Dewatering. Insurers encourage strong mitigations to be in place against rain events that can be forecasted. With an ongoing La Nina weather pattern, insurers expect a sophisticated level of risk mitigation against any resulting damage or delay. Buyers cannot hide behind the adage ‘that’s what insurance is for’. Project owners and operators can mitigate this risk by purchasing spare pumps to remove excess water from foundations, trenches, etc.

The need to fully embrace risk management into project methodologies

All these restrictions have come into force for renewable energy projects over the last 12 months and, to be fair, have come as a bit of a shock to many; however, all insurers offering capacity for these risks have taken a hit throughout 2022. Having said that, the response by the industry is more of an evolution of work practices than wholesale changes and should not be onerous for most projects.

Risk intermediaries work with insurers and projects to make sure that these restrictions are adapted and incorporated into the project methodology, ensuring that there is minimal impact to the schedule. Projects that fully embrace risk management into their project methodology get the best results with premium rates and coverages, while minimising potential issues/conflicts in the event of a claim.

1 NSW floods become most expensive natural disaster on record with $5.5b in claims


Australasian Renewable Energy Leader

Director of Strategic Growth – Construction and Natural Resources

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