Power Market Review 2025
With no transmission, there will be no transition
While investment in renewables has been increasing rapidly – nearly doubling since 2010 – global investment in grids has barely changed, remaining static at around $300 billion per year. In a scenario consistent with meeting national climate goals, grid investment needs to nearly double by 2030 to over $600 billion per year after over a decade of stagnation at the global level.
The need to invest in upgrading transmission networks is clear.
Transmission companies are caught in a paradox: tasked with enabling the energy transition, but underfunded and overburdened.
Regulation is struggling to balance investments and costs: Post energy crisis, regulators are capping charges and setting tight budgets. This is directly limiting transmission companies’ five-year plans.
Capital is largely tied up in repairing and maintaining existing networks and there’s little left to invest in new infrastructure.
Capital for investment in new infrastructure is limited: In the U.S., 70% of transformers are over 25 years old, and in Europe, 25–35% of low-voltage lines are over 40 years old. These aging systems were designed for one-way electricity flow and are ill-equipped for modern, decentralized, and bidirectional energy systems. Existing transmission infrastructure has been operational beyond the original lifespan and capital available to upgrade networks is scarce. This is increasing the risk of plant failure.
Lead times are exposing fragile infrastructure to interrupted supply: Transmission networks span entire countries and connect across regions. The infrastructure is major. And planned maintenance and upgrades come with long lead times that are out of transmission companies’ control. Transformer waiting periods are reaching 36 months, leaving aging assets exposed to failures and networks exposed to interrupted supply, often without available spares.
The five-year model is out of step: Major risks to power supply chains, such as natural catastrophes and geopolitical headwinds, are difficult to predict on the long-term horizon. Building this into a five-year forecast is a major challenge, but transmission companies have no option but to align with these timelines set by regulators. And as power companies are appealing to regulators for budget in years to come, it’s difficult to make accurate forecasts which are leaving power and transmission companies undercapitalized.
Despite the noise of this year’s high-profile power failures in the U.K., Spain and Portugal which gained traction as news stories across international media, transmission remains a profitable risk for insurers.
Transmission networks rarely concentrate high-value assets in one place, which limits the financial loss of property damage in any single location. Underwriters maintain a strong appetite to write these risks into their portfolios. Pricing remains competitive for transmission risks, and there are opportunities to build the lowest possible total cost of risk, freeing up capital to invest in infrastructure and growth.
As pressures on power grids and transmission companies intensify, risk leaders have a critical role in building resilience for the short- and long-term.
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Insurance purchased by contractors during the construction phase becomes obsolete at the operational phase, and exposures can emerge in the transition. Increasingly, project owners are taking responsibility for the insurance program for the entire project lifecycle—maintaining control over costs as prices rise. Meanwhile, retention strategies are a useful tool to enable transmission companies to lower their total cost of risk. Transmission companies have a strong track record of successfully retaining risks to reduce insurance costs.
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Surveys conducted as part of a robust risk engineering initiative will identify key risks and signpost risk controls to limit exposures. By implementing these controls, brokers can articulate the measures taken to proactively manage risk to underwriters. Backed by data, negotiations can establish an appropriate balance of cost and coverage.
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Building certainty into risk programs is a critical component to a resilient 5-year operating strategy for transmission companies. Sophisticated analytical tools such as WTW’s Global Peril Diagnostic give you the intelligence to better safeguard assets and prepare for losses with live-event tracking and notifications for natural catastrophes, supply chain disruption and geopolitical risks. By looking ahead and working to implement appropriate risk controls on that journey, transmission companies can better future proof their five-year horizon.
After modelling exposures, building the optimal risk strategy is a critical next step. Using an old and siloed risk strategy is unsustainable. A balance of risk retention and transfer is critical to protect assets in the short-term, while building a sustainable business model for the five-year horizon. Data and analytical models – such as Connected Risk Intelligence – can help clients build the most efficient risk strategy that balances risk retention and transfer for the entire portfolio of risk.
Market cycles change and pricing dynamics can swing, but making informed decisions, backed by data, can help transmission companies withstand volatility.
Download the full article to find out how risk and insurance can help you build resilience.
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
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