WTW Power Renewables Market Review 2017 PDF

Power and
Renewable Energy
Market Review 2018
The climate of change
1 willistowerswatson.com
Power and Renewable
Energy Market Review 2018
The climate of change
Introduction................................................................................................................................ 03 Part Four: new perspectives on people

and risk
Part One: special features
De-risking supply chain disruption
Welcome to the climate of change!...........................................07 to wind energy projects ............................................................. 103
China’s One Belt, One Road: The future of power and energy captives............................ 108
implications for wind power and solar energy....................... 14 Connected, automated, innovative:
Managing risk through analytics: the future of work in the power industry................................112
some fresh perspectives for the power industry..................17 Managing cyber risk in the power sector...............................121
Part Two: key industry issues
M&A and Private Equity (PE) investment in renewable energy:

increasing the pace ........................................................................ 31
Private Equity investment in renewables:
a role for insurance?...................................................................... 38
Battery storage:
shaping the future of renewable energy..................................42
Hot rocks:
the rise of geothermal energy.....................................................47
Critical materials risk in the low carbon supply chain....... 53
Floating offshore wind: challenges & innovation................. 60
Solar farm case study:
Muhammed bin Rashid Al Maktoum Phase III goes
frameless ........................................................................................... 66
Part Three: the global Power and

Renewable Energy insurance markets
Introduction: the risk management

challenges facing the global power market........................... 69
London: Property.............................................................................73
London: Terrorism and Political Violence................................78
London: Construction..................................................................... 81
London: Liability............................................................................... 85
North America.................................................................................. 88
International...................................................................................... 95
Conclusion: is this the turn of the tide?................................ 100
Power and Renewable Energy Market Review 2018 2
Introduction
Welcome to our Power and to companies with significant coal
Renewable Energy Market Review for generation or mining operations, and
2018. During the last 12 months, these it appears that others will follow suit.
industries continue to operate in a
climate of change; as Selwyn Parker Without insurance, these companies
of Petroleum Economist notes in can’t operate – yet despite the
the leading article of the Review, the continuing growth of the renewables
world has embarked on “an epochal industry, analysts expect coal to
transition” away from hydrocarbon- remain the dominant component of
fuelled economic growth. A key driver the global power generation mix over
of this transition is the imperative to the next decade. Watch this space as
meet the Paris Agreement goals of the picture develops.
keeping global warming well below
2°C (relative to pre-industrial levels) Within our Review we also identify a
and pursuing measures to keep the number of issues which are impacting
rise to 1.5°C. the risk management strategies of
the power and renewable energy
One such measure, identified in the industries. These include subjects
UN’s Emission Gap Report 2017, is as diverse as the role of private
“avoiding building new coal-fired equity and the future of work in
power plants and phasing out these sectors, as well as a focus on
existing ones”. It’s interesting that geothermal wells, battery storage,
a potential game-changer in this floating offshore wind structures,
objective has emerged from what solar farms and critical materials.
some may consider a surprising We’ve also included a piece on
source – the insurance sector. 2017 de-risking the supply chain – surely
has seen a number of leading global a critical area of concern for many
insurers announcing that they will risk managers in both the power and
no longer invest in or offer insurance renewable energy sectors.
Turning to the insurance market As noted in the North American update “For well-managed power
itself, in our last edition in December contained in Part Three of the Review,
2016 we described the ways in two factors are currently mitigating and renewable energy sector
which the market had systematically against this: (1) the continued provision risks going into 2018, in the
strengthened its resilience since of ample market capacity; and (2)
absence of other factors
its annus horribilis of 1992, when the fact that power generation risks
Hurricane Andrew was one of a series weathered the hurricanes better than such as claims or significant
of catastrophic natural and man-made many other industries. In general terms natural catastrophe
losses that propelled 11 insurance this means that for well-managed
companies into insolvency.
exposure, the effect of
power and renewable energy sector
risks going into 2018, in the absence any market hardening will
This enhanced market resilience was of other factors such as claims probably be modest.”
put to the test last year by the most or significant natural catastrophe
active Atlantic hurricane season in exposure, the effect of any market
recent years, which may yet make hardening will probably be modest.
2017 the worst year for overall Be that as it may, in the light of these
insured losses in history. Although losses we thought it was important to
there is still huge uncertainty over include a special feature in this Review
both the total quantum of insurance from our analytics team that highlights
and reinsurance claims arising from modern ways of managing natural
Hurricanes Harvey, Irma and Maria catastrophe risk.
and the extent to which these claims
will have a sustained impact on We are grateful to all the contributors
market capacity, rates and coverage, to this Review, who as usual include
it appears that this impact will not both Willis Towers Watson specialists
take the form of the long-awaited return from around the world and external
of a truly hard market. A US$100bn+ expert commentators. We hope that
loss year, it seems, is no longer enough you enjoy reading it.
to actually ‘turn’ the market.
Graham Knight is Global Head of
Power, Willis Towers Watson

Part One:
special features

Welcome to the climate of change!
The new energy world In a report released in September

2017 (Oil and Gas Outlook to 2050)
Ten, twenty or thirty years? Forecasts the respected Norway-based
may vary as to exactly when the new classification society DNV GL, which
world of energy is going to arrive, but is heavily involved in the maritime,
the experts do agree on one thing: oil & gas and renewables industries,
we’re embarking on a steady but predicts several game-changing
epochal transition from hydrocarbon- events over the next three decades.
fuelled economic growth to one
powered by a mix of the earth’s
resources. In short, there’s a climate Game changer number one:
of change afoot. slowing consumption
For the first time since the beginning of
Multiple factors underlie this historic the industrial age, the world’s appetite
change in the energy mix, including: for energy will begin to slow. The DNV
GL report concludes that final energy

fast-improving science
demand has risen 35% over the past

governments that are in a hurry to 15 years, but is expected to increase
reduce emissions, such as China by only 7% between 2015 and 2030 -

powerful lobby groups thereafter it will become virtually flat.

a public increasingly concerned
The society attributes this turnaround
about the long-term damage to its
to three determinant factors:
health and environment

a commercial sector that not
reduced growth in production;
only sees value in embracing
continuous increases in energy
environmental virtue but is attracted efficiency and especially from
by the stable, long-term cashflows renewables, in particular wind and
available in new projects such as solar; and
wind farms

a slowing increase in the
global population.
Figure 1 - World Energy demand will peak in 2022, predicts DNV GL
World final energy demand by sector
Units: EJ/yr Sector

500 Non energy
Other
Manufacturing
400 Building
Transport
Today, the World’s energy is used 27%
300 in the transport sector, 30% in the
building sector, and 31% in manufacturing
200
100
0
1980 1990 2000 2010 2020 2030 2040 2050
Source: DNV GL Oil and Gas Outlook to 2020, September 2017
This reduction in demand is forecast to Even more bravely, DNV GL predicts

happen as early as 2030 - just around that the demand for oil will peak
the corner in terms of the 50-70 year as early as 2022, starting in the
timescales of the energy industry. industry’s historic stronghold of the
western world (North America and
The society has dared to put a Europe). This will spread to parts
number on this pivotal moment. of the Pacific and eventually on to
Noting that global final energy China, as that nation undertakes a
demand in 2015 was 400 exajoules monumental conversion of its entire
(to use the International System transport industry to electric power
of Units’ main measure for global (earlier this year India embarked on a
production) the DNV GL study similar route). The study assumes that
assumes it will increase to only 430 hydrocarbons will power just half of
exajoules by 2050. the world’s transport within 30 years,
compared with 90% now (see Figure
1 above).

Figure 2 - BP charts the growth of GDP and Figure 3 - Global energy demand will increase by only 30%
primary energy between now and 2035 by 2035 although world global GDP will double in that time,
forecasts BP
Growth in GDP and primary energy Energy consumption by region
Billion toe
% per annum
18 Rest of World
6%
Energy intensity Africa
GDP Other non-OECD Asia
5% 15
Primary energy India
China
4% 12
OECD
3%
9
2%
6
1%
3
0%
-1% 0
1965 1975 1985 1995 2005 2015 2025 2035
-2%
-3%
1965 — 75 1985 — 95 2005 — 15 2025— 35
Source: BP Energy Outlook 2017 Source: BP Energy Outlook 2017
Is DNV GL out on a limb? According predicts that the growing world

to a consensus of energy experts economy will require more energy,
that include BP economists, Warwick but consumption is expected to grow
Business School’s professor Michael less quickly than in the past - at 1.3%
Bradshaw and most of the oil majors, per year over the period 2015-2035
these predictions could be premature compared with 2.2% a year in 1995-
by a few years - perhaps even by a 2015. This is because energy intensity
decade or more - but few are in any – the amount of energy used for each
doubt that a revolution in energy unit of gross domestic product -- is
demand is fast approaching. expected to fall more rapidly. Global
GDP should double between now and
Although more conservative than 2035 while energy demand will grow
DNV GL, in its Energy Outlook 2017 by only 30% (see Figure 3 above).
BP broadly agrees that consumption
faces a turning point. The forecast
Figure 4 - Wind power capacity is on the rise
250
200
150
GW
100
50
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Onshore Offshore Low High
Source: WindEurope
Game changer number two – Estimates of EV sales, and hence

advances in technology their effect on oil demand, vary wildly.
However BP - more conservatively
As mentioned earlier, scientific than most - notes that an extra 100
development in recent years has been million EVs on the world’s roads by
exponential. Battery technology is 2035 would lower oil demand by
advancing almost monthly, enabling about 1.4m barrels a day.
200 mile-plus trips by electrically
powered vehicles (EVs) far sooner Wind turbines now deliver more bang
than anybody predicted even three for their buck – in 2017, 8MW turbines
years ago. Developing in tandem are being installed in sites in Europe,
is the essential battery-charging the capital of wind power, for the first
infrastructure in Europe, North time. Simultaneously, the technology
America and China which is leading that enables highly productive floating
the way for the rest of the region. offshore sites is being perfected –
the first one starts up in late 2017 off
Scotland (see Figure 4 above).

And even though there are renewable installations between 2017 “The average price of a wind
considerable doubts about nuclear and 2020 in the EU. And with 37% of
energy, it’s regaining credibility, new installations, Solar Photovoltaic
turbine, as measured per
particularly in the United States, Systems (solar PV) won’t be far megawatt produced, fell to
because of its low-emission virtues. behind. Between them, solar PV and €0.83m in 2016, down from
Under development are small modular wind energy will represent almost 90%
reactors that can be assembled in of new renewable capacity in Europe.
€0.91m in 2015.”
factories, transported on site as
whole units and plugged in on arrival. There’s already 200 GW of installed
Simultaneously, nuclear scientists are wind energy capacity in Europe and
working on molten-salt reactors that by 2020, predicts WindEurope in the
are cooled by fluoride salts that liquefy same report, the industry will meet
and remain stable at high temperatures 16.5 per cent of the EU’s electricity
without having to be pressurised, as needs, surpassing hydro power
light-water reactors do. According to and becoming the largest source of
researchers, molten-salt reactors are renewable electricity. One of the first
much less prone to meltdowns. countries off the mark, Denmark should
harvest more than half of electricity
demand from wind energy by then,
Game changer number three
Germany almost 30% with Ireland
– wind and solar take-ups defy
(29%), Portugal (27%), Spain (24 %)
original forecasts and the UK (21%) not far behind.
Meantime there’s no doubt that
renewables lie at the heart of the Globally, there are variations in the
energy revolution. In their report, DNV take-up of renewables but the trend is
GL calculates that within a little over similar. According to the International
30 years they will make up almost half Energy Agency (IEA), it was solar PV
of the energy mix, largely because of that dominated the addition of 165
the steadily falling price of delivered gigawatts in renewables globally in
power. For instance WindEurope, the 2016. This was “largely because of
voice of the EU wind power industry, booming [solar PV] deployment in
points out in its 2017 half-year report China and around the world, driven
that the average price of a wind by sharp cost reductions and policy
turbine, as measured per megawatt support1.”Last year, overall solar PV
produced, fell to €0.83m in 2016, capacity jumped by 50 per cent to
down from €0.91m in 2015. over 74 gigawatts.
As value improves, investors are Astonishingly, China accounted for

jumping aboard. Under WindEurope’s almost half of this growth, as borne
middle-line scenario, wind power will out in Figure 5 overleaf.
account for more than half of new
1
Renewables 2017, IEA
Figure 5 – China’s share in global solar PV manufacturing and demand
60%
40%
20%
0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Percentage of China in total manufacturing

Percemtage of China in global annual additions
Source: Renewables 2017, IEA
For the IEA, the trend is state tax incentives for renewables
unmistakeable, pointing out that of all kinds and they are unlikely to be
for the first time, solar PV additions abolished any time soon.
rose faster than any other fuel,
surpassing the net growth in coal. A India is on the same path – the IEA
major factor is falling auction prices, estimates it could match the United
with solar PV selling for as little as States in the rate of growth in
three cents per kilowatt hour. If this renewables, primarily solar PV and
continues, the IEA predicts that wind, within five years.
solar PV will easily surpass wind and
hydro in the increase of capacity in None of this spells the death of the oil
renewables. As a result, in its World and gas industry as we know it. BP’s
Energy Outlook 2017 the agency has Outlook predicts global demand for oil
revised its latest forecast for solar will increase by about 30% between
PV upwards by over 30%. 2015 and 2035, thereby remaining
a dominant source of energy. To
While China’s breakneck dash the industry’s credit, it has reacted
for cleaner air has skewed all the with remarkable agility to the “lower
forecasts, it’s often forgotten that the for longer” – or perhaps lower for
United States, despite uncertainty ever – commodity price environment.
about policies under the current Many producers are now profitable
presidency, is the second-largest at a price of US$50-55 a barrel after
growth market for renewables. In slashing offshore development and
contradiction to the anti-climate production costs by 30-40% in the
change rhetoric from the White past three years.
House, there are still many federal and

Figure 6 - Measured by billions of cubic feet a Figure 7 - forecast demand for LNG shows gas is the fastest-
day, growth in global LNG supply is led by the US, growing fossil fuel among Asian economies, measured by
Australia and Africa billions of cubic feet a day
LNG Supply LNG Demand
Bcf/d Bcf/d
80 RoW 80
RoW
Africa
70 Middle East
Russia 70
S&C America
United States
60 60 Asia
Australia
Europe
Qatar
50 50
40 40
30 30
20 20
10 10
0 0
1990 2005 2020 2035 1990 2005 2020 2035
Source: BP Energy Outlook 2017 Source: BP Energy Outlook 2017
Game changer number four – It’s just another example of an energy

the rise of LNG world in transition. Welcome to the
climate of change!
However, the industry’s future will
depend on gas, and particularly Selwyn Parker is a freelance
Liquefied Natural Gas (LNG). In its journalist and a regular contributor to
Energy Outlook 2017, BP predicts that Petroleum Economist magazine.
by the middle of the century, gas will
be the biggest single source of energy Bibliography
as the supply of oil flattens out. In DNV GL Oil and Gas Outlook to 2050
terms of production, the United States WindEurope 2017 half-year report
will lead the LNG charge, with Australia BP Energy Outlook 2015-2035
close behind (see Figure 6 above). US Nuclear Energy Institute
US Nuclear Regulatory Commission
But the dynamics of supply and International Energy Agency
demand will change dramatically, Oxford Institute of Energy Studies
threatening the old game of pipeline Oil and Gas UK
politics played principally by Russia. Warwick Business School
As LNG-based trade grows, supplies McKinsey Consulting
can be redirected around the world Boston Consulting Group
by sea in response to regional Rocky Mountain Institute
fluctuations in supply and demand. Oil and Gas UK
The BP Outlook suggests that as
a result, gas markets are likely to
become increasingly integrated
across the world.
China’s One Belt, One Road: implications
for wind power and solar energy
Overview of the wind power Original objectives revised
industry in China
The rapid development of wind power
Capacity doubled for four years in is forcing China’s original long term
a row objectives to be constantly revised;
indeed, China has now become the
The construction of wind farms in largest and fastest growing wind
China began in 1980s and during power generation market in the
the following 10 years, the country world. According to the statistics
experienced the initial demonstration of the Global Wind Energy Council,
and industrialization establishment the global cumulative installed wind
phases. Following this, wind farm power capacity has increased from
installed capacity grew slowly and 23,900MW at December 31 2001 to
steadily. Since 2003, which saw the 486,749MW at December 31 2016,
bidding for the first government wind with annual growth rate at 22.25%.
power concession project, wind farm During the same period, the annual
construction has entered the large- growth rate of China’s cumulative
scale and localization stage and as a installed capacity of wind power was
result installed capacity had increased 49.53%, ranking first in the world. In
rapidly. From 2006, installed capacity 2016, the new installed wind power
doubled for four consecutive years, an capacity of China was 23,328MW,
explosive level of growth2. being 42.7% of global new installed
capacity, making China the world
The rapid development of Chinese
leader. By the end of 2016, total
wind power in recent years has
installed wind power capacity was
benefitted from both from the specific
168,690MW, being 34.7% of the
plan and the upgrading development
world’s installed capacity and the
assistance from local government.
highest for any country in the world.
Power companies and manufacturers
have therefore developed wind power
confidently in China.
2
The source for all statistics for this article apart from where specifically cited is the Global Wind Energy Council
gwec.net/publication/global-wind-report-2/

Development of offshore wind Huge potential resources “The development of
power projects in China
China has huge potential offshore
offshore wind power will
As at the end of August 2017, there wind power resources, especially not only meet the electricity
are 19 offshore wind power projects in in the eastern coastal areas around demand of the eastern
China, with a total installed capacity Shanghai. According to the Chinese
of 4,799.05MW. These projects are government’s renewable energy area with a combination
located in: planning, offshore wind power projects of onshore and offshore
will be located in coastal areas
wind power, but also

7 provinces in China (Jiangsu, of Jiangsu, Shandong, Shanghai,
Fujian, Zhejiang, Guangdong, Hebei, Zhejiang, Fujian and Guangdong. accelerate the growth of
Liaoning and Tianjin) China’s renewable power
In 2016, more than 135 offshore
8 in Jiangsu with a total capacity of
wind turbine units were installed
generation.”
2,305.55MW
in China, with a capacity of nearly

6 in Fujian with total capacity
600MW. The development areas of
1,428.4MW
offshore wind power in the future are

1 in Zhejiang, Guangdong, Hebei, mainly concentrated in the economic
Liaoning and Tianjin respectively developed eastern coastal areas.
According to the Global Wind Energy
In these 19 projects the capacity of Council recent report, the research
wind turbines (installed or planned) shows that within 5 to 25 meters of
made by: water depth in coastal areas, at 50
meters above sea level, the capacity

Shanghai Electric (Siemens of wind power would be 200GW. The
technology) is 2,232MW development of offshore wind power will

Goldwind is 964.15MW not only meet the electricity demand of
the eastern area with a combination of

Ming Yang Energy is 567MW
onshore and offshore wind power, but

Envision Energy is 400.8MW also accelerate the growth of China’s

China Haizhaung is 110MW renewable power generation.
Reduced costs leaders, which includes 30.3GW of
ground solar farms and 4.24GW of
With the investment and distributed solar farms. The capacity
development of new technologies, of distributed solar farms has now
the cost of offshore wind projects grown by 200%.
is being reduced. The offshore
wind developers are facing more As at the end of September 2017,
competition; according to the Chinese newly installed solar power capacity
government development plan, the in China is at about 42GW, having
installed capacity of wind power grown by 60%; this includes 15GW of
will be 210GW by the end of 2020, distributed solar farms, representing a
including 5GW installed capacity of growth of more than 300%.
offshore wind power.
High efficiency, high quality
As the key part of China’s “One
Belt, One Road” national strategy Under the Chinese government
for renewable energy, offshore wind development plan, the Chinese solar
power is an important factor which industry is being developed with high
will promote the transformation of efficiency and high quality in mind.
China’s energy industry in these Some poor quality solar farms will be
developed coastal regions. In May eliminated; on the other hand, solar
2017, the government produced a industries enterprises will further
proposal to speed up the research reduce the cost of solar power by the
to develop the equipment and continuous innovation of technology.
components of 5MW, 6MW offshore PV modules, systems, inverters,
wind turbines. and electricity prices were reduced
by 90%, 88.3%, 91.5% and 77.5%
respectively in last 8 years. During
Development of the solar
2016 -2017, the price of components
industry in China
decreased by nearly 21%.
In 2016, the annual installed
capacity of solar power in China Ray Zhang is Head of Power and
was 34.54GW, with a total installed Renewable Energy, Willis Towers
capacity of 77.42GW. New and total Watson China
installed capacities are both world

Managing risk through analytics:
some fresh perspectives for the
power industry
Introduction – a catastrophic The impact of the recent hurricanes

hurricane season on the US power sector was also
significant. Harvey caused outages
This year’s Atlantic hurricane to substations, power plants and
season has brought a great deal transmission lines in Texas and along
of devastation to the Caribbean the US Gulf coast. Damage was
region and parts of the US. Puerto caused by both the devastating wind
Rico faced three major hurricanes forces and the widespread flooding,
in a row, with the first Category which some considered to be a ‘1
4 hurricane (Maria) to cross the in 500 year’ loss event (i.e. a 10%
country since 1932. With wind speeds chance of this loss occurring within
reaching up to 160mph, Maria caused 50 years)3.
extensive damage to the island and
its infrastructure including its power At its peak, over 10,000 MW were
distribution network. offline, fuel supplies were affected
and personnel were not able to reach
The hurricanes have prompted power generating facilities. Hundreds
interest in ways of shifting island of high-voltage transmission lines,
power grids toward greater reliance including several 345kV lines and
on renewable energy and greater more than two hundred smaller lines
power preservation techniques. experienced storm-related outages.
Centralised power grids have Outages were also reported for wind
showed deficiencies in resilience turbines which normally shut down at
to storms and experts consider 55mph winds.
that smaller diversified grids could
provide a solution and lower costs. In the aftermath of such events
Rebuilding the same type of power companies often turn their attention
infrastructure could mean similar to resilience. The best way to achieve
damage and destruction in the future this is through a holistic approach
and such reinvestment could prove to risk - from analytics through
unsustainable in the long run. insurance to managing the broader
enterprise risks.
Unless otherwise cited, sources for this article are from Willis Towers Watson, Washington Post, Reuters, Bloomberg, US Energy Information
3
Administration and the US Department of Energy
The changing risk profile of transfer markets. Analysts working “The changing power
the power industry in these areas look at historical
industry risk landscape is
experience, economic factors and
A more complicated energy mix exposure metrics to project how forcing power companies
these risks are likely to develop over to radically re-think their
The changing power industry
the coming months and years, and
risk landscape is forcing power
the range of volatility around these business and operating
companies to radically re-think their
average expectations. models. We have seen
business and operating models.
We have seen players moving to a players moving to a more
“Soft” risks tend to arise from many,
more ‘retail’ oriented mentality and volatile and opaque contributory ‘retail’ oriented mentality
investing in new technologies to
reshape customers’ experience. As
factors, often including human and investing in new
behaviour such as financial crime,
the commercial viability of different fraud, changing regulations and
technologies to reshape
renewables evolves, the energy mix sanctions. Senior management, customers’ experience.”
is getting more complex. Companies investors and local regulators want
are spreading their bets and this has evidence that the company has a real
significantly impacted their Capex understanding of both its upside and
and Research & Development (R&D) downside risks, with proper reference
spending. There have also been to the company’s risk appetite.
increasing challenges to market
position from several fronts: deep- Power companies are therefore
pocketed oil and gas players seeking increasingly asking the following
greater downstream presence and questions along the transformation
agile tech players and start-ups journey:
deploying technology to gain an edge.

Our company is a very different
Hard & Soft Risks organisation now - how has this
changed our risk profile? Is my
A power company’s risk register will insurance strategy still appropriate?
typically describe certain “harder” risks
using financial measures and other,
As our reliance on technology
“softer” risks using qualitative measures. deepens, what does this mean for
our cyber risk? What does this
Most companies employ analysts mean for our reputational and
to measure particular “hard” risks operational risk?
such as commodity prices, bank
As our company evolves, what
loan interest rates, bond rates and would happen if our employees’
currency fluctuations. Where financial skills and capabilities do not realign
instruments are available and cost to changing business needs?
effective, they will then decide the
Are senior leaders fluent in the new
extent to which they wish to pay to realities of the business? How are
hedge these risks. the portfolio changes impacting the
organisation’s culture?
These “hard” risks are characterised
by an abundance of data and mature
yet constantly developing risk

Quantifying Risks power and information to address this
concern. Growing databases of client and
“Our company doesn’t need heavy-
industry loss and exposure information
duty analytics - we’re insured”
and sophisticated analytical and
catastrophe modelling tools are enabling
As illustrated in Figure 1 overleaf,
better risk models to be created, allowing
insurance is just one means of risk
companies to objectively answer the key
management; while not addressing
insurable risk questions:
many of the key risks that power
companies face, it can provide a

What is the loss profile of the risks:
financially efficient form of risk transfer
how many losses are expected each
for a range of risks from property to
year (frequency) and how large will
liability to D&O.
they be (severity)?
Today’s processing power is

Are our assets and operations
sufficiently advanced and cheap to exposed to catastrophic hazards and
enable actuaries and catastrophe climate risk and if yes, what could be
analysts to model more risks. The the potential financial impact?
insurance industry is increasing its
How much risk should we retain, how
reliance on analytics to help them much insurance should we buy and
understand risks and to set pricing what should this insurance cost?
guidelines for their underwriters.

How can I reduce my risk costs
through alternative policy structures
Fortunately, the power sector
and risk mitigation?
increasingly has access to the analytical
Figure 2 – Indicative indication of what can be done (1) - loss

forecasts and risk transfer analysis
Current Structure — BU $0.5m, Captive $5m/$15m,

Gross Losses
Insurer $800m
Return Period Total Total Retained by Retained Ceded to Exceed Reinsurers

Percentile
(Years) Loss Number BU by Captive Insurers Limit
$800m Limit
3 in 4 25.0% 14.79 16.00 3.74 8.05 0.22 0.00
1 in 2 50.0% 28.96 19.00 4.91 12.99 10.54 0.00
1 in 4 75.0% 57.39 24.00 6.19 15.00 37.94 0.00
1 in 5 80.0% 68.27 25.00 6.54 15.00 48.47 0.00 Captive
1 in 10 90.0% 111.88 28.00 7.54 15.00 90.74 0.00 $5m EEL & $15m
1 in 20 95.0% 167.61 31.00 8.46 15.00 148.69 0.00 AAD
1 in 100 99.0% 411.34 37.00 9.96 15.00 389.97 0.00
1 in 200 99.5% 566.76 39.00 10.65 15.00 545.04 0.00
Business Unit
1 in 1000 99.9% 1,121.78 43.00 11.73 15.00 810.98 194.53
Retention
Mean 53.14 19.95 5.06 11.25 36.12 0.72 $500k per loss
Std Dev 89.38 6.33 1.86 4.33 78.52 20.01
Amount in $m
Insurance Limit
BU Deductible and
Aggregate Probability of the limit being
breached is 1 in 1,000 years
Could consider a Captive Aggregate Retention Limit
$7.5m stop loss
aggregate, to be The annual aggregate retention of $15m
activated 1 year in 10. is expected to be fully exhausted once Value for money of insurance
every 4 years.
Extreme Losses “1 in 200”
Potential dollar swapping with the insurers Insurer’s expected annual
– claims are ceded every year. claims forecast as $36.12m
0.5% probability that total losses Could consider increasing its aggregate
could exceed $566.76m. limit to $40m.
Source: Willis Towers Watson
Figure 1 – The risk analysis process
Analysis Solution Choices
Retention
Balance Sheet
Captive
Transfer
Resilience Strategy
Implementation
To Insurers
To Capital or
Understand Define Risk Model Loss Quantify other Markets
Client/ Tolerance Frequency Total Cost of
Industry Risks and Appetite and Severity Risk
and Exposures
Mitigation
Data gathering, preparation, and provision

Avoidance
Risk financing options Risk management options
Figure 3 – Indicative indication of what can be done (2) - Reducing the

cost of risk through investments in resilience
3.5 Optimize the Risk Financing Strategy

using Analytics & Smart Investment in Risk Mitigation
3 Premium
Cost of Volatility
Retained
2.5
Cost of Risk Mitigation
1.5
2
M USD
1 The Comprehensive
Cost of Risk is reduced
1.5
because of smart risk
0.5 mitigation investment
and an analytically
0.3 optimized risk transfer
1
programme
0.5
1
0.5
0.44
0
Option A Option B

Determining the most efficient risk Considering all the insurable risks
financing strategy of a power company as a combined
portfolio allows them to determine a
An efficient risk financing strategy credible selection of alternative risk
of a power company must align retention and insurance strategies,
with the company’s risk appetite each of which is on the “efficient
and risk tolerances. Typically, there frontier” for a given budget and level
will be more than one strategy of residual retained risk.
which satisfies these criteria, so the
challenge is to identify the “optimal”
strategy – i.e. the most efficient risk
financing structure.
For large power companies, risk Over the past year, we have seen
analytics is becoming an essential several power companies trying to
strategic resource and a corporate establish robust risk governance
governance necessity. As more frameworks with clearly articulated
companies adopt this approach, so organisational structures. This is
the body of risk data and quality of necessary to enable organisations
advice is developing and improving, to to improve the risk adjusted decision
the benefit of the industry. making and comply with general
accepted risk management standards
such as the updated COSO and the
Managing enterprise risks
new ISO. Figure 5 is an example of
Analytics and insurance can help a well-articulated Enterprise Risk
quantify and transfer risks; however, Management (ERM) framework, and
there is also a need to manage the its elements, that power companies
broader non-insurable business risks. frequently use.
Figure 4 - Risk optimizer and the “efficient frontier”
Current Strategy Liability WC Fiduciary DNO Cyber EPL Product Property

Re..
Premium spend $11.47m
Product Lines
Avg Ret Loss $35.63m Retention $500k $100k $250k $1m $1m $100k $1m $100m
Expected Cost $47.1m Limit $37.5m --- $50m $300m $50m $100m $150m $700m
Residual Value $140.37m Premium $1.9m $539k $450k $2.81m $531k $1m $3.81m $435k
220m 99th VaR
200m
180m
160m
USD[$]
140m
120m
100m
80m
45m 45.5m 46m 46.5m 47m 47.5m 48m 48.5m 49m 49.5m
Expected Cost of Strategy [$]

Figure 5 – Example framework for the power industry
1 Risk
culture
2 Risk appetite
Stakeholder
3 definition &
communication
4 Group objectives & strategy
5 Risk governance and policies
Risk identification and quantification
Risk articulation, treatment and

improvement
9 People and risk

10 Infrastructure and
based reward technology
8 Monitoring
1 The organisation’s ethics and 5 A well articulated corporate
expected behaviours are governance structure, that
defined in the context of risk follows the 3 Level of Detail
and regularly updated reports/ (LoD) model, detailing Terms of
dashboards get communicated References (ToRs) and
to the Board. Transparency and accountabilities, underpinned
communication about risk is by a comprehensive risk
expected and monitored. management policy that
explains the key elements of
2 Quantitative and qualitative the organisations’ risk
statements that clearly management strategy.
articulate Group’s tolerance by
fully reflecting its business 6 Identification and quantification
strategy and financial goals (i.e. of the principal risks (both
reframing risk in terms of current and emerging) faced by
performance). Group’s the firm. Established processes
tolerance should be cascaded and metrics in place to
and allocated to various aggregate, prioritise and report
business units, using metrics risks on an individual and
and language that are enterprise level.
consistent with Group risk
appetite. The BU’s tolerances 7 The vulnerabilities, triggers,
should be monitored and any patterns and consequences of
breaches should be escalated, the risk drivers are defined and
and where appropriate documented. Prioritisation of
influence Group’s strategy. risks, based on residual impact,
and action plans with clear
3 Stakeholders are identified, ownership are in place and
prioritised and documented frequently reviewed.
and their focus/influence on
the organisation is understood 8 Effective and efficient
and incorporated in the risk management reporting ,
appetite statement. The loss enabling the timely monitoring
events and near misses are of the key risks through early
clearly communicated via well warning indicators.
defined internal and external
communication channels. 9 Embedded and effective risk
culture by having the right
4 Group objectives and strategy people in the right functions and
are documented and incentivising them appropriately.
communicated to employees.
Risk is explicitly considered in 10 Appropriate infrastructure in
the strategy and it covers, at place, to support the ERM and
least 2 dimensions; risk to increase its efficiency.
strategy and risk of the strategy.

Figure 6 – Achieving ERM objectives
Current Status Improvement Planning

Timeframe
Framework Element 1 Basic 2 Average 3 Advanced 4 World Class Priority Resources
(Months)
1 Culture, Communitment & Mandate 2 Medium 1 year+ 1 Low
2 Stakeholder Definition 1 Low 1 year+ 1 Low
3 Group Risk Appetite Definition 1 Low 6 to 12 months 1 Low

Clarity of Group Objectives and
4 1 Low 1 year+ 3 High
Strategy
5 BU Risk Tolerance Specification 3 High 0 to 6 months 2 Medium
6 Risk Policy 1 Low 1 year+ 1 Low
7 Risk Governance 1 Low 1 year+ 1 Low
8 Risk Identification 2 Medium 6 to 12 months 2 Medium
9 Risk Articulation 1 Low 1 year+ 1 Low
10 Risk Quantification 1 Low 1 year+ 1 Low
11 Risk Treatyment & Improvement 2 Medium 1 year+ 1 Low
12 Monitoring 1 Low 1 year+ 1 Low
13 Communication 1 Low 1 year+ 1 Low
Establishing such a framework can be establishing financial and non-

a challenging process and it requires financial limits and tolerances against
a clear action plan with improvement which their exposure to the major
points and defined timelines. To do classes of risk can be controlled,
that, an assessment of the current measured and reported.
status of each ERM element against
the desired - “fit for purpose” one and Cascading a high level risk appetite to
the global standards is required. A more granular tolerances and allocating
widely used framework from power those to the different business units
companies that achieves the above is a challenging process and the
objectives is demonstrated in Figure effort and time commitment that is
6 above. required to complete this should not be
underestimated. The outcome of this
Power companies around the process however, enables organisations
globe are trying to set appropriate to link risk with their strategy and
risk appetites and tolerances that assess which business decisions are
reflect their strategy, their business best aligned with their appetite and do
model and the environment in which not breach their tolerance.
they operate. In doing so, they are
Figure 7 – Cascading the risk appetite and tolerance
Data Required:
KPI choice XXX Group
Risk Registers or
Risk Type subjective allocation Operational Strategic Reporting Compliance
Management account
Business reports Domestic Overseas
Unit OpCo A OpCo B OpCo C
KPI choices Operation Operation
Deep-dive analysis
Risk registers,
Risk Event actuarial modelling or Risk 1 Risk 2 Risk 3 Risk ...
LossPIQ
Insurable & Actuarial modelling Uninsured Uninsured Uninsured Uninsured

LossPIQ or input from
Uninsurable XXX to develop subj.
Events Insured Insured Insured Insured
assumptions
Conclusion
Hristo Markov is Senior Catastrophe

It is becoming increasingly important
Analyst, Strategic Risk Consulting,
to adapt to the new realities and
Willis Towers Watson
manage change brought by adverse
or favourable events. Analytics and
Jen Ning Tan is Partner, Strategic Risk
risk management can help power
Consulting, Willis Towers Watson
companies to become knowledgeable
risk takers, support the financially
Ioannis Michos is Partner, Strategic
efficient transfer of risks where
Risk Consulting, Willis Towers Watson
appropriate and forge bolder business
visions and resilient organisations.
Charles Barder is Senior Partner,
Strategic Risk Consulting, Willis
Towers Watson

Part Two:
key industry issues

M&A and Private Equity (PE) investment in
renewable energy: increasing the pace
M&A activity in renewables:

market trends
2016 witnessed a record installation of
renewable energy capacity across the
globe of 138 gigawatts (GW) - nearly
11 GW more than in 2015. Growing
capacity installation has been followed
by increasing numbers of mergers
and acquisitions (M&A) taking place
in the renewable energy sector, with
transaction volumes rising for a third
consecutive year – reaching more
than US$110 bn in 2016, up by 17%
compared to 20151.
Confirming historical patterns, last year

M&A growth in renewable energy was
mainly driven by solar power, which
increased by 43% to reach US$44 bn.
This was followed by a more moderate
12% growth in wind energy. Figure 2
shows us how historically wind and
solar have dominated the renewable
energy deal space, accounting for
around 60% and 40% respectively of
the total transaction values.
The Americas and Europe Middle-

East Africa (EMEA) attracted the
vast majority of M&A activity in the
renewable energy sector in 2015 and
2016. However, the Asia Pacific (APAC)
region has recently witnessed rapid
growth in investments, registering an
impressive growth rate of 27% in 2016
reaching a total of US$15bn in new
investments. According to forecasts
made by Bloomberg New Energy
Finance, it is expected that China and
India will receive renewable energy
investments of over US$2tn and
US$800bn respectively up until 20402.
1
Unless separately cited, all other sources for the statistics quoted in this article are from Bloomberg New Energy Finance New Energy Outlook 2017
2
BNEF New Energy Outlook 2017
Figure 1 – Global M&A Transactions in Renewable Energy
120
110.4
110.4
wth
Gro
100 67% 94.0
94.0
76.5
80 76.5
66.1
66.1
US$ Bn
60
40
20
0
2013 2014 2015 2016
Source – Bloomberg New Energy Finance, UN Environment. Figures in circles are the total M&A transaction values
Figure 2 – Global M&A transactions in Renewable Energy by Sector
110.4
120
94.0 3.3
100 76.5
6.77
5.2
80 66.1
63.3
60 10.6 56.63
57.6
US$ Bn
40 34.8
20 43.8
30.6
20.7 23.7
0
2013 2014 2015 2016
Solar Wind Others

Figure 3 – M&A Transactions by Region
60
50
50
40 45
43
40
30
US$ Bn
20
10 15
43.8
11
20.7
0
2015 2016
Americas EMEA APAC
Source – Bloomberg New Energy Finance, UN Environment
Corporates, alongside public market somewhat muted development in

exits, were the main drivers behind 2016, data from Bloomberg New
growing M&A numbers during Energy Finance reveals that PE/VC
2016, surging 58% to US$28bn activity has witnessed a surge so
and tripling to US$7bn respectively. far in 2017, with investments already
However, at the same time project more than double those made in
acquisition & refinancing and Private 2016. Conversely, other investor
Equity (PE)/Venture Capital (VC) activity has either dropped or
buyouts remained mainly unchanged remained unchanged.
compared to 2015. Despite this
Figure 4 – Renewable M&A transactions by Investor type
120 110.4
94.0
100
76.5
80
66.1 72.7
US$ Bn
60 71.3
59.2
40 47.4
6.7
3.4
1.8
20 1.7 1.7 3.4
0.5 4.2 27.6
16.5 17.5
11.4
0
2013 2014 2015 2016
Corporate M&A PE buyout Public market investor exits Project acquisition & refinancing
Renewable energy and Private investment into renewable energy

Equity: so far, not a story of stood at US$3.4bn – a mere 2%3 of
true love total capital invested. Historically too,
PE/VC investments has been quite
The story of Private Equity (PE) / low, amounting to around 3-5% of
Venture Capital (VC) investment total M&A value. Instead, the majority
in the renewable energy industry of PE/VC investments in power have
has so far not exactly been a story traditionally focused on fossil fuel-
of true love. In 2016, total PE/VC related assets4.
3
Global Trends in Renewable Energy Investment 2017 - Frankfurt School-UNEP Centre/BNEF (http://fs-unep-centre.org/sites/default/files/
publications/globaltrendsinrenewableenergyinvestment2017.pdf)
4
Private Equity in Clean Energy Transformation – Imperial College (https://www.imperial.ac.uk/business-school/intelligence/centre-for-climate-
finance-investment/private-equity-in-the-clean-energy-transformation/)

Figure 5 – risk/return of PE funds
Figure 9.by type (vintage
Risk/Return 2004-2014)
of Unlisted Energy Funds by Type (Vintage 2004-2014)
18%
Risk Standard Division of Net RR
16% Mix
Renewable Energy
Conventional Energy
14%
12%
4% 6% 8% 10%
Return – Median Net
Source – Preqin
A number of reasons have been achieved their target Internal Rate

mentioned to date to explain the of Return (IRR) over investment
lukewarm relationship: periods of 14-16 years, which hasn’t
matched the traditional PE/VC

Low returns: many renewables- sweet spot of 5-7 years.
focused PE funds have generated
Regulatory exposure: over time,
returns below median5 (see Figure the investment case for renewable
5 above). As an example, the recent
energy in most countries has been
performance of CalPERS Clean
significantly affected by the granting
Energy and Technology Fund
and withdrawal of government tax
shows negative returns on 12 of its
credits or subsidies. For instance,
14 investments6.
feed-in tariffs prevalent in Europe

Long time horizons: furthermore, and production tax credits in the US
renewables-focused PE funds have incentivize investments in renewable
5
Private equity retreats from renewables ‘fad’ (https://www.ft.com/content/ef1b2248-94bb-11e3-9146-00144feab7de)
6
https://www.calpers.ca.gov/page/investments/asset-classes/private-equity/pep-fund-performance/fund&id=5
energy. However, as investment forward. Firstly, as expected PE returns
periods are relatively long, the may fall below the usual 20% mark
stability of policy and regulations is a from increasing competition, renewable
risk that cannot be ignored7. energy investments are likely to

Output volatility: renewable become more competitive. Similarly, as
energy output greatly relies on longer investment periods materialize
the presence of wind, water overall, renewable energy investments
flow, thermal heat and sunshine. become comparably more attractive.
Unpredictable weather has resulted Furthermore, institutional investors
in unwelcome output volatility, are also adapting their expectations
negatively affecting returns. – lengthening the time perspective of
their investment portfolios.

Uncertainty of operation and
maintenance costs: weather Investments directed at wind and solar
unpredictability has been further
underlined by sometimes unreliable At the same time, the renewable
performance of the technology energy sector itself has undergone
established to extract value from some significant developments.
renewable energy assets, creating Moving on from biofuels, which were
questions about operation and popular in 2006-2010 but generated
maintenance costs. significant losses, most PE/VC
investments today are directed
PE/VC investments in towards the solar and wind sectors
renewable energy going forward which have proved more successful.
However, the world of PE is changing. In parallel, there are risk management

Record levels of raised yet un-invested solutions available that could support
capital (so-called “dry powder”) is further PE/VC investment into the
pushing up asset prices globally while renewable energy space:
putting question marks next to the
sustainability of current return levels.
Political risk insurance can be
This effect is further exacerbated by used to mitigate the policy risk
the growing number of PE funds who associated with the granting
are competing for the same available and withdrawal of government
assets. As a consequence, it is highly subsidies. For example, in the US,
likely that investment horizons will OPIC extends the coverage of
lengthen from the traditional 5-7 years its political risk insurance to offer
to 10-12 years in order to allow fund protection against such risks for
managers enough time to make their renewable energy investments8.
hurdle rates.

Parametric risk solutions are
an effective method to mitigate
Renewables investments to become
the potential weather volatility in
more competitive
power output. They limit the impact
unpredictable weather could have
These overall developments of the
on output, thus making expected
PE industry might actually fuel PE/VC
cash-flows and returns more certain.
investment in renewable energy going
7
Private financing of renewable energy – A guide for policymakers (https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/
Energy,%20Environment%20and%20Development/1209_financeguide.pdf)
8
IRENA - Unlocking renewable energy investment (https://www.irena.org/DocumentDownloads/Publications/IRENA_Risk_Mitigation_and_
Structured_Finance_2016.pdf)

A number of insurers are now As the renewable energy industry “As the renewable energy
willing to take on the technology matures, it will become increasingly
performance risk associated with attractive for PE investors, given
industry matures, it will
renewable energy assets, thereby their focus on financing more mature become increasingly
helping to facilitate investment. businesses that are seeking to grow attractive for PE investors,
These solutions are discussed in and develop. Currently there is high
further detail in the next article of demand from institutional investors given their focus on financing
this publication. such as pension funds to purchase more mature businesses
operational projects. According to the
that are seeking to grow and
Overcapacity will lead to more latest figures from Bloomberg New
M&A transactions Energy Finance, PE/VC investments develop.”
have more than doubled from 2016
Global renewable energy capacity and stand at around US$8bn by Q3
is expected to nearly quadruple 2017. With the renewable energy sector
from 2,082 Gigawatts (GW) in 2016 poised for growth, we expect private
to 7,856 GW in 2040. Moreover, equity deals to surge even further.
renewables are expected to surge
from 31% of the energy mix in 2016 to Silvi Wompa Sinclair is responsible for
61% in 2040. With installed capacity Willis Towers Watson’s Private Equity
rising, the sector is soon likely to face client development across the UK,
a challenge of overcapacity resulting EMEA and APAC.
in consolidation – leading to a rise in
M&A transactions.
Private Equity investment in renewables:
a role for insurance?
Introduction Two reasons for
In the previous article of this Review,
underperformance risk in
we concluded that Private Equity (PE)
renewable energy
and Venture Capital(VC) investment For renewable energy assets,
in the renewable energy industry has any potential underperformance
so far not exactly been a story of emanates from two main factors:
true love. A key factor constraining
investment by PE/VC firms, as well as 1. Unpredictable weather. More
their own investors, is the perceived specifically, investors are
performance volatility of the industry. concerned with the variability of
While the investment community power output which relies on the
is excited about generating more availability of wind, water, thermal
green energy, it is simultaneously and solar.
concerned about the cash-flow 2. Variability in power output. This can
volatility that such assets may be due to the underperformance of
experience. Investors are cautious as new technologies that are put to use
they evaluate projected cash-flows in these assets. Risks associated
and worry about assuming the risk of with technology performance
potential underperformance. In this can take many shapes. Will the
article, we discuss how innovative technology perform as designed?
insurance solutions might help Will it withstand the operating
mitigate these concerns. conditions where it is erected?
What could impact the expected
operating life of the asset? As
long as such questions remain
unanswered, they will keep a lid on
potential investments.

Figure 1 – Infrastructure deals by primary industry, 2014 -2017 YTD
Source: Prequin Infrastructure Online
Answering questions related sovereign wealth fund’s acquisition

to expected performance of a portfolio of Asian wind and solar
energy projects from Singapore-based
Owners and developers of renewable Equis Pte Ltd for US$3.7bn, confirm
energy assets will provide prospective that there is now a growing in-house
investors with in-depth studies that expertise and comfort level to judge
contain performance data (historic, and evaluate the performance-related
from lab tests and field studies), risks, which is enabling decisions
third party engineering reports and to invest – indeed, data from Preqin
detailed financial models that include Infrastructure Online confirms this
extensive scenario analysis. PE trend. As a result, compared to the
investors are growing in sophistication three previous years an increased
in terms of evaluating these data sets number of investments in the renewable
and in judging project feasibility. energy industry in 2017 can be
observed, as shown in Figure 1 above.
Recent transactions, such as the Global
Infrastructure Partners and China
“So where PE and other
How insurance can support Insurance solutions
renewable energy investors investors may shy away,
Addressing these concerns, a insurers are looking to
Parametric solutions couple of large insurers have
accelerated their offering in respect participate in order to
Even with sophisticated ways to of technology-related risks. There facilitate stable cash-flows
evaluate projected performance, there is now a concentrated group of
may still be risks that the investment and overall investment.”
insurers that are willing to underwrite
community would rather not assume. the technology performance risk for
In the 2016 Power Market Review9 renewable assets and help facilitate
the Alternative Risk Transfer team at the financing of such projects.
Willis Towers Watson outlined how
parametric solutions could be used
to limit potential volatility in power Leveraging insurer expertise
output due to weather. This mitigates to build comfort with
one of the concerns of the investment technology performance risk
community by creating more certainty
Insurers that are willing to take on
around output – thereby making
technology performance risk in
related cash-flows more predictable.
the renewable energy industry will
leverage their internal expertise
However, the potential
to contribute to the due diligence
underperformance of new technology
process. They will engage risk
remains a significant concern for
engineers who specialize in
investors – a key short-term road
renewable energy technologies,
block to more PE investment.
underwriters with experience in
the field and risk management
For example Gianluca Loria,
consultants in order to evaluate the
Managing Director, Cenciarini & Co
risk. Just like sophisticated investors,
has recently commentated:
they will underwrite the technology
risk based on historic performance
“…the uncertainty generated by the
data (including lab and field testing
potential impact of these events
data), engineering reports, actuarial
together with the small amount of data
models and financial models.
available on the actual performance
of these emerging technologies, may
So where PE and other investors
explain why they constantly account
may shy away, insurers are looking to
for less than the 7% of the total
participate in order to facilitate stable
number of Infrastructure deals and
cash-flows and overall investment.
even less in terms of value.”
9
Willis Towers Watson Power Market Review 2016

Share risk with parties most An insurance solution can help “Insurers can provide
comfortable to absorb it facilitate deals by creating additional
the crucial link between
certainty for more risk-averse
Insurers can provide the crucial investors and consequently help investors, owners and
link between investors, owners drive the growth of renewable energy.
and developers of new renewable
developers of new renewable
We look forward to helping our
energy technology. Owners and PE partners structure these alternative
energy technology. Owners
firms, as well as other investors, risk transfer deals in the months and and PE firms, as well as other
now have partners to help facilitate years ahead.
investment. These partners are investors, now have partners
willing and comfortable to evaluate Silvi Wompa Sinclair is responsible to help facilitate investment.”
the technology risk and lend their for Willis Towers Watson’s Private
balance sheets to help absorb Equity and Corporate M&A client
specific risks relating to technology- development across the UK, EMEA
related underperformance. and Asia Pacific.
Willis Towers Watson is excited to Jens Peters is a member of Willis

work with insurers as they move to Towers Watson Alternative Risk
fill this gap, remedying an inefficiency Solutions.
that is currently holding back
investment in renewable energy. We
strongly believe that this move can
encourage more PE capital to enter
the renewable energy industry. PE
firms looking to acquire renewable
assets, those who already own
renewable assets and those looking
to divest can all benefit.
Battery storage: shaping the future
of renewable energy
Introduction - the Lithium In many jurisdictions around the
revolution world, prices for energy derived from
the renewable sectors have started
To increase reliance on renewable to decrease. In the UK for example,
energy, we need to find ways to offshore wind energy has moved from
store it. Will the new range of battery being one of the most expensive
energy storage systems provide what forms of renewable energy to, in some
the world needs? cases, being cheaper than nuclear.
Private investment is growing and
Jamestown, South Australia is a blip
government legislation is encouraging
on the map; 200 kilometres from
the move.
Adelaide and home to fewer than
2,000 people (as well as a lot of Wind and solar, as well as the longer
sheep). It’s an unlikely place for a established hydro, have been part of
world first. But it is the site for the the renewable landscape in Australia
world’s largest Lithium-Ion (Li-Ion) and around the world for a significant
battery, built by US technology giant period. The issue with wind and
Tesla for French company Neoen’s solar to date has been the inability to
Jamestown wind farm. This 100 store the energy from these forms of
megawatt battery represents the generation, at a high enough level, to
evolution of a technology that will ensure stable supply.
shape the future of renewable energy.
BESS - the storage solution
Promoted on a number of occasions
by techpreneur Elon Musk, the The answer is Battery Energy Storage
battery represents a quantum leap Systems, or BESS. Technology has
forward for governments pushing come to the fore to develop such
greater uptake of renewable systems, but it has not been a linear
energy. This project is part of South progression; indeed there have been
Australia’s ambitious A$550 million some spectacular failures that have
push to solve the state’s energy blunted the risk appetite for some
woes. Willis Towers Watson is proud players in the insurance industry.
to be the insurance advisor and Despite that, renewable energy
broker to the Tesla project. insurance provider GCube estimates
that, within the next five years, up
Renewables become economic to 4,000 MW of these systems are
expected to be constructed10. There is
Power is being transformed: the
clearly a growing market opportunity
energy and technology sectors are
for insurers.
driving the transition from a carbon
past into a green and clean future. But Li-Ion technology appears to be
Electrical energy from renewable developing at the fastest rate, driven
sources provides great potential to by implementation costs that have
meet today’s and tomorrow’s energy been falling around 70% every 18 to
requirements in a sustainable manner. 24 months11. However, in future the
cost saving is expected to slow.
10
http://www.gcube-insurance.com/en/news_en/understanding-the-practicalities-of-battery-energy-storage-systems/
11
https://www.greentechmedia.com/articles/read/stem-cto-weve-seen-battery-prices-fall-70-in-the-last-18-months#gs.l_3FQuY

Is BESS a bad risk? increased production volume, the
strive towards improved energy
The Kahuku legacy
density and naturally a drive towards
ever reducing costs per MWh of
Insurers have a long memory and the
output. However, quality assurance
fire disaster at the Kahuku wind farm
concerns remain in what is still a
on the Hawaiian island of Oahu in
fragmented and relatively immature
2012 led many to believe that battery
market of suppliers and installers
technology is a bad risk.
with varying levels of expertise,
professionalism and financial standing.
That incident – the largest single
loss recorded to date globally for a
“Moreover, BESS is increasingly
BESS – concerned a legacy-style lead
prevalent in areas with weaker grids,
battery rather than Li-Ion technology.
notably remote locations or island
Nevertheless, it has put risk
based projects that present limited
management under intense scrutiny.
specialist labour pools, longer lead
replacement times and, often, higher
GCube research
natural catastrophe risk. Ever since
experiencing a very large BESS fire
GCube research shows the
loss in 2012, GCube has been working
sector is now approached from
closely with technology manufacturers
two standpoints; ensuring that
and developers to deliver a well risk
installations are designed and
managed, suitably protected and
constructed with the best fire
ultimately an insurable BESS format
protection practices in mind and
for projects around the world.”
identifying factors that contribute to
BESS failure, looking specifically at
Recent advances
preventive measures.
Michael Stuckings, operations vice
Charlie Richardson, Senior
president, group manager, field
Underwriter at GCube comments
engineering for FM Global, one of
that “whilst BESS is not new as a
the world’s largest commercial and
concept or indeed as a storage reality,
industrial property insurers, says
it still presents a substantial risk for
there have been many advances in
developers, investors and insurers
battery management systems that
alike. The unprecedented growth
control the operation, safety and long-
of renewable energy projects has
term reliability of the BESS.
more recently been coupled with an
increased demand for grid stability,
“Lithium-ion battery energy storage
power on demand and energy storage
systems have been leading the market
capability in order to maximize grid
in new installations of the past few
availability, to address demand cycles
years and continue to grow in market
and to prevent power outages.
share,” Stuckings said. “Most systems
we see now use this technology, and
“This demand has driven a far greater
a lot of effort has been undertaken by
interest in the sector from technology
the industry to understand the risks
manufacturers and therefore of
posed by BESS.”
Understanding the Li-Ion risk part of Australia with a low population
base. In short, any battery system has
FM Global has extensively researched a risk of fire, but understanding what
Li-Ion technology, coming up with a may trigger a problem and designing
property loss prevention data sheet for to avoid catastrophic situations such
electrical energy storage systems. As as in Oahu are paramount.
with any new technology, it is critical for
the insurance industry to understand There are many different types
the type of system being constructed of energy storage systems.
and develop knowledge of the Electromechanical systems include Li-
differences in failure modes associated Ion batteries and the still developing
with different types of batteries. technology of metal-air batteries (an
electrochemical cell using an anode
The Tesla battery is a giant, made from pure metal and an external
modularised Li-Ion battery. While Elon cathode of ambient air). Thermal
Musk, ever the showman, describes storage systems include the molten
it as something ‘sculptural’ and likely salt system seen in thermal power
to become ‘a tourist attraction’ for plants. A pumped hydro system is an
Jamestown, there’s no surprise that example of mechanical storage.
the installation is in a largely remote

Thermal runaway reactions and cells – the cell and case material, the
key variables number in a module or rack, and the
proximity of racks to each other. “The
Without commenting on the design heat associated with a battery fire is
of the Tesla project specifically, intense, meaning if a large number
Stuckings says the key difference with of cells are close to each other a fire
Li-Ion batteries from a risk perspective could destroy a large portion of the
is that they are susceptible to “thermal BESS,” Stuckings said. “That is why
runaway reactions”. data sheet 5-33 ‘Electrical Energy
Storage Systems’ recommends
“These may be caused by appropriate segregation between
mechanical damage of the cells, over BESS enclosures, or groups of
voltage, over temperature but also enclosures, and buildings or critical
under temperature,” Stuckings said. site utilities, provided by either a
“During a thermal runaway event, minimum space separation of six
the cell produces gas that builds up metres or thermal barriers such as
within the cell enclosure, and without concrete block walls.
prompt action, thermal runaway can
cascade from cell to cell, causing “In any event, to assess a site’s
much more damage. risk quality we would have one of
our specialist engineers visit and
“That said, regardless of the review factors such as construction,
technology there are a number of battery management systems and
key variables to consider when safety devices, fire protection, asset
evaluating the risk profile of a BESS. integrity management programs,
Obviously the equipment protection contingency planning and natural
or safety devices are a key element hazard exposures.”
to ensure a safe shut down in the
event of an upset condition, and
Making energy storage happen
there should be no single point
of failure. For Li-Ion batteries the
- and the risks involved
handling is much more critical to Battery storage systems can be
avoid any mechanical damage.” either a standalone installation or
a hybrid system connected with
Fire exposure dependent on complementary technologies such as
technology wind turbines or solar installations.
Implementing an energy storage
According to scientific research system has complex deployment
conducted by FM Global, the fire considerations intertwined with its
exposure is dependent on the own unique risk characteristics.
technology and arrangement of the
Recent developments underwriters of solar and wind risk
would have also been impacted by
Storing energy is still a missing link for losses and there are insurers who
most renewable power installations have since opted out, only willing to
across the world, but there are rapid put their capacity to traditional thermal
developments in the US and Europe or hydro-electric generation. Hydro
as well as research and start-up may be considered a renewable but it
companies who may fill that gap. is a mature technology.
FM Global’s Andrew Stafford, vice
president, client service manager,
Conclusion: working together
says it’s important for the industry
to understand the strengths and FM Global’s Stafford believes it
weaknesses of any type of BESS: is important for insurers, brokers
and clients to work together to
“An additional factor to be considered understand the risk associated
is the long-term reliability and with this developing technology – “Storing energy is still
availability of these systems, which, enabling the end-users to ensure a missing link for most
given the recent rapid developments, appropriate mitigation strategies are
has obviously not been proven. I am used in their projects: renewable power
confident that the market will adopt installations across the
the appropriate technology to meet “While we really can’t speak for the
world, but there are rapid
the end-users’ needs in Australia.” insurance sector as a whole, we have
a history of research and collaboration developments in the US and
Track record issues with key industrial organisations. When Europe as well as research
translated into sound loss prevention
The lack of a good track record is practices at a client’s facilities, this
and start-up companies who
also an issue for insurers. While some knowledge should help prevent and may fill that gap.”
insurers “got burned” with the Oahu mitigate loss and ultimately build a
disaster and part of the industry is still more resilient business - the end
second guessing itself on this sector, result being the ability to provide a
Li-Ion technology has had sufficient tailored, cost-effective insurance and
growth over the last five years to give risk financing solution.”
the industry some confidence that it
will be able to perform in accordance Martyn Thompson is Australasia
with its specifications. Regional Industry Leader, Natural
Resources, Willis Towers Watson
It should be remembered that
renewable energy technology itself
carries a significant level of risk; early

Hot rocks: the rise of geothermal energy
Introduction - the heat of the and heat that the earth possesses.
earth Geothermal power is witnessing a
rapid growth worldwide - 14,165MW
The flow of heat from the earth’s is currently in development and this
interior to the surfaces is immense; number could more than double in the
it is estimated to be around 47 coming years.
terawatts (TW). Despite solid
geothermal energy potential in The nature of extracting heat from
90 countries, obstacles such the ground is a complex and risky
as policy uncertainty, licensing endeavour. One of the major hurdles
delays, high upfront costs of drilling that the industry faces is commonly
and exploration risks has limited seen in the oil and gas sector -
development to just 24 of those exploration and drilling risks, searching
countries and a combined installed for the resource and ultimately tapping
power generation capacity of just into it. These activities are deemed
13,270 MW12. below ground risks, an area for which
the insurance sector has been hesitant
If you have ever seen the geysers to provide cover.
in Rotorua (New Zealand) and
Yellowstone Park (USA), you will
appreciate the immense power
Think Geoenergy , “Overview on installed geothermal power generation capacity worldwide,” [Online]. Available: http://www.thinkgeoenergy.com/
12
overview-on-installed-geothermal-power-generation-capacity-worldwide/. [Accessed 31 October 2017].
Figure 1 – 2016 Geothermal installed capacity in megawatts (MW) and Gigawatts (GW)
The US has the largest geothermal capacity followed by the Philippines Indonesia
and New Zealand
2016 Geothermal Installed Capacity, in Megawatts (MW) and Gigawatts (GW)
Russia – 82 MW
Western America:
1.6 GW
Iceland – 665 MW
Austria – 1 MW
North America: Germany – 17 MW

3.6 GW France – 17 MW
Italy – 916 MW
Japan – 544 MW
USA – 3,596 MW Portugal – 29 MW
Turkey – 775 MW
China – 27 MW
Mexico – 907 MW
CEEMEA:
Guatemala – 48 MW Asia:
1.5 GW
El Salvador – 204 MW 4.1 GW
Nicaragua – 160 MW Ethiopia – 7 MW
Philippines – 1929 MW
Costa Rica – 208 MW Kenya – 676 MW
Indonesia – 1590 MW Papua New Guinea – 56 MW
Latin America: Australia – 2 MW

1.3 GW Australasia:
1.0 GW
> 500 MW Installed capacity
100 – 500 MW Installed capacity New Zealand – 971 MW
< 100MW Installed capacity
Source – BP Statistical Review of World Energy 2017
Source: BP Statistical Review of World Energy 2017
The geothermal market both volume and value, with almost

60% of these projects in Indonesia.
At 0.3%, the geothermal share of Both California and Indonesia lie on
global power generation is very the Pacific “Ring of Fire”.
small, but in certain countries it
plays a significant role in the power The growth in new capacity will most
supply - for example Kenya (44% of likely come from Europe, East Africa,
power), Iceland (27%), El Salvador and the South Pacific. Overall capital
(26%) and New Zealand (18%). The expenditure on Geothermal in the
United States is the single biggest next 13 years could range between
geothermal power producer as US$100bn and US$300bn* (based
a country, with just over 3,500 on world energy council estimates &
megawatts of installed capacity, ~ USD 5,000 per KW). Opportunities
although this only contributes primarily exist in developing economies
around 0.3% percent of the nation’s such as Indonesia and Kenya,
power - over 80% of this is installed where energy demand is rising and
in California. Asia has the largest geothermal resources are plentiful.
number of projects in the pipeline by

The Kenyan government aims to have energy. It can provide a continuous,
1,500MW of geothermal capacity uninterrupted supply of heat for
by 2019 and 5,000MW by 2030. a range of uses, including power
Indonesia’s geothermal industry is generation and directly property
set to grow rapidly over the coming heating, district heating, agriculture
decade, as the strong project and laundries.
pipeline of geothermal facilities is
gradually commissioned. There is Geothermal energy is available at all
around 2GW of geothermal capacity times of the day, which means that
in various stages of development in a Geothermal plant has the ability
Indonesia, with over 30 developers. to produce power at a much higher
However, these markets are facing a capacity factor than wind or solar. In
number of difficulties in geothermal other words, geothermal produces
development due to lack of sufficient significantly more electricity per
funding and insurance. MW of capacity13. According to EIA
data, the annual capacity factors for
Clean sustainable energy geothermal sites is around 74%; this
is in contrast to Wind, which produces
Geothermal energy is the energy at around 34% of its theoretical
stored in the form of heat beneath the maximum whilst solar PV comes in
earth’s surface, so the intensity of this at around 26.5%14. This advantage
heat increases with depth, on average can be useful for bulk power supply
by 25-30°C/Km, the geothermal in similar way to a coal power plant.
gradient. Therefore the deeper you When operational, the running costs
drill, the greater the energy potential are generally low and predictable,
but also the greater potential for which means when selling at a set
drilling complications. price the plant can offer a guaranteed
return on investment.
This energy source is a carbon free,
renewable and sustainable form of
13
BP , “Geothermal power,” [Online]. Available: https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/
renewable-energy/geothermal-power.html. [Accessed 31 October 2017].
14
U.S. Energy Information Administration , “Capacity Factors for Utility Scale Generators Not Primarily Using Fossil Fuels, January 2013-August 2017,”
[Online]. Available: https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_6_07_b. [Accessed 30 October 2017].
Figure 3 – Capacity factors for utility scale generators
100%
90%
80%
70%
Wind
60%
50% Solar Photovoltaic
40%
Geothermal
30%
20% Solar Thermal
10%
Conventional Hydropower
0%
Jun-16
Jun-15
Oct-16
Jun-17
Feb-16
Dec-16
Oct-15
Dec-15
Apr-16
Aug-16
Feb-17
Aug-15
Apr-17
Aug-17
Nuclear
Source: EIA data

Power from the earth - Binary Cycle
methodologies
When temperatures are too low to
The most common way of capturing ‘flash’ water into steam, the heat
energy from geothermal sources of water must be transferred to a
is to tap into naturally occurring different liquid (a ‘working fluid’ with
hydrothermal convection systems. a lower boiling temperature). The hot
Cool water seeps into the earth’s water is brought to the surface and
crust from the surface and rises back passed through a heat exchanger; this
up as steam of heated water. When transfers the heat from the geothermal
this reaches the surface, the heat is water to the working fluid. The working
captured and used to drive a turbine fluid will vaporize into a gas to drive the
connected to a generator, thereby turbine producing electricity.
producing electricity. This can be done
with Flash Steam and Binary Cycle Engineered Geothermal Systems
systems; however, when there is local (EGS)
heat but no natural fluid deposits,
synthetic geothermal systems can be For geothermal hotspots where
engineered. This is done by injecting there are limited or no underground
pressurised water deep underground, reservoir fluid deposits, an engineered
known as Engineered Geothermal geothermal system (EGS) can be
Systems (EGS). created. An EGS typically involves
three key steps15.
Flash Steam
1. A borehole is drilled into the
This is system is generally associated fractured rock to a depth where
with higher temperature geothermal high temperatures can be found
sources (>180°C). As the pressure (150-200°C).
of the sub-surface environment is
2. Water is then injected at a high
much greater than at the earth’s
pressure to ensure fracturing, or to
surface, water can exist as a liquid at
open existing fractures.
much higher temperatures. This high
temperature, high pressure water can 3. The original borehole now becomes
be drawn to the surface, and when the injection well whilst a second
it enters a low pressure chamber is borehole in then drilled into the
‘flashes’ into super-heated steam. reservoir to act as the production
This steam is passed through a well. The water is recovered as the
turbine, which then spins to generate surface as hot water/stream and
electrical power. used for electricity generation.
15
British Geological Survey , “Geothermal energy — what is it?,” [Online]. Available: http://www.bgs.ac.uk/research/energy/geothermal/. [Accessed 31
October 2017].
Insurance Shortfalls A lifecycle solution? “We are building a product
Finding a viable resource Munich Re has made an attempt to
to cover the lifecycle of
plug this hole in insurance provision a geothermal product,
The key area where the insurance
by creating an exploration risk from the drilling to the
industry currently falls short
product; however, with limited insurers
is geothermal exploration risk.
available to commit capacity we have construction, operation and
Exploration risk is the risk of not
seen this product under-utilised. decommissioning in the
finding a viable resource with firstly an
output, and then secondly the desired coming decades.”
Willis Towers Watson is proactively
output; this makes for a complex looking to fix this; we are building
risk profile and volatile planning. If a product to cover the lifecycle
geothermal resources are not found of a geothermal product, from
and/or do not deliver a useable output, the drilling to the construction,
all investments in the project can be operation and decommissioning
lost. External research has shown us in the coming decades. This will
that the approximately 1 out of 3 3MW mitigate both exploration and project
wells fail, while about 25 % of wells lifecycle risk through a combined
below 1MW are dry - this presents a insurance solution. The product
huge hurdle before construction even will reduce financial planning
begins. Drilling costs represent around uncertainties thereby attracting the
30% of total investment and can be traditional capital markets, private
higher in ECG projects. and institutional investors to the
geothermal market by improving risk-
Financing challenges
adjusted returns.
The uncertainty surrounding the

Steve Munday is Head of Renewable
success and substantial costs of
Energy, Willis Towers Watson Natural
geothermal reservoirs has made
Resources
many good-quality geothermal
projects difficult to finance, with Anastasia Ioannou and Myles Milner
lenders being unwilling to lend and are members of the Renewable
developers often having insufficient Energy team at Willis Towers Watson
equity to finance the projects. Natural Resources

Critical materials risk in the low
carbon supply chain
Renewable energy and low carbon and how their price has changed over
technologies address environmental time. We have found that concerns
and resource concerns when they have been raised about the supply of
produce electricity. They produce these critical materials; this supply
hardly any greenhouse gases, or vulnerability/risk primarily stems
radioactive waste compared to from a variety of political, economic
conventional power generation and social factors. These are risks
methods. They obtain “clean energy” that our clients and the wider sector
from sustainable wind, sun or should be thinking about.
oceanic sources.
Increased demand
How green is green?
So what are the critical materials and
But how clean is it really? How green why do they matter? These are a mix
is green? Willis Towers Watson has of rare-earth metals (REMs), other
been researching this sector to non-rare-earth metals and minerals.
understand the critical raw materials These have applications in permanent
in the supply chain for low carbon magnets of wind energy generators,
technologies. Our research has photovoltaic cells in the solar industry
shown that our current generation and in both utility and electric vehicle
of renewable energy technologies battery energy storage systems. As
relies on a set of critical materials. the low carbon sector continues to
We looked at these in depth to grow, the demand for these is only
understand where they come from, expected to increase.
how they are taken out of the ground
Figure 1 – Critical metals and associated carbon technology
Critical metal Associated low carbon technology
Rare Earths: Neodymium (Nd), Wind turbines and electric vehicles

Dysprosium (Ds), Praseodymium
(Pr), Cerium (Ce), Samarium (Sm),
Lanthanum (La)
Gallium (Ga) Thin-film solar panels
Tellurium (Te) Thin-film solar panels
Indium (In) Thin-film solar panels
Lithium (Li) Lithium-ion batteries
Cobalt (Co) Lithium-ion batteries
Germanium (Ge) Thin-film solar panels
Selenium (Se) Thin-film solar panels
Platinum group metals Hydrogen fuel cells

China - political intervention So if you are an industry reader of
this Review, is your supply chain
China has been the primary producer prepared for such a sudden rise in
of REMs (84% of global production in raw material costs if more restrictions
2016); however, political issues have are implemented?
posed a threat to their global supply
over the past few decades. These Growth of the industry
were principally driven by concerns
about reserves and future supplies, Among other factors, future demand
emerging environmental protection for critical materials is expected to
policies and measures against greatly depend on the deployment
illegitimate rare earth metal mining. In levels of low carbon energy
the late 2000s, the sector’s reliance technologies, as well as the material
on China as a supplier was brought intensity of these technologies17.
the industry’s sudden attention when Demand for solar PV, wind energy
prices began to rocket as a result of and electric vehicles (EV) is
declining export quotas16; this change expected to maintain an upward
in approach has already caused trajectory up to 2025.
shocks within the market. The price
of Neodymium (which is used in
magnets) rose nearly 400% between
2010 and 2011.
Figure 3 - Global prices of rare earths from 2009 to 2013

Figure 2 - Rare earth production in 2016
per country
REMs production in thousands metric tons

900
Malaysia 0.30
800
Dysprosium oxide (US$/kilogram)
United States 0.00 700
Terbium oxide (US$/kilogram)
Price (in thousands)
600
Europium oxide (US$/kilogram)
India 1.70
500
Samarium oxide (US$/metric ton)
Australia 14.00 400

Neodymium oxide (US$/metric ton)
300
Praseodymium oxide (US$/metric ton)
Brazil 1.10
200 Cerium oxide (US$/metric ton)
100 Lanthanum oxide (US$/metric ton)

China 105.00
0
2009 2010 2011 2012 2013
World total 125.40
Year
0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00
Source: Statista Source: Statista
16
Karen Smith Stegen, 2015. Heavy rare earths, permanent magnets and renewable energies: An imminent crisis. Energy Policy 79 (2015) p.1-8
17
Sources:
1. UKERC, 2014. Materials availability for low-carbon technologies: An assessment of the evidence
2. IEA, 2011. Critical materials strategy
Figure 4 - Growth of solar PV and wind energy generation from 2010 to 2025
120
PV additions
100
Onshore wind additions
80 Offshore wind additions

Gigawas
60
40
20
0
2010 2015 2020 2025
Year
Source: Statista

Demand for neodymium and have been noted regarding the
dysprosium is expected to sky-rocket countries producing Lithium. There
in the next 15 years due to their is a diverse portfolio of potential
application in generator magnets. producers, but at present Australia
These are key components in a (14,300 TN) and Chile (12,000 TN) are
type of wind turbine generators and the largest producers21.
electric vehicles18. Will Chinese export
quotas inhibit this growth? If you are from the industry: have your
suppliers planned to increase output to
Supply chain bottleneck account for this? If demand outstrips
supply, the price will only rise.
The industry faces a supply chain
bottleneck, with a lack of alternative Demand for tellurium, indium and
sources for these elements, and gallium used in solar conversion
demand is unlikely to lessen unless technologies, such as thin-film
technological innovation supplies photovoltaics (PV) is expected
alternative solutions. The current to peak around 2020 and start
low price levels are acting as a declining by 2030 onwards. The fall is
deterrent to exploration for further expected to result from competitive
sources outside of China; a number technologies acquiring market share,
of European energy firms are already as well as a move towards more
looking at alternative suppliers to efficient designs needing smaller
reduce their exposure to the supply quantities of the materials.
risks. Long term risk management
measures can involve diversification Society and our environment
of the supply chain and investments
in R&D to reduce the use of critical If you are from the industry: does
materials in low-carbon technologies the country that you get your raw
where possible19. materials from matter? As long as it
is good value is a common retort, but
Lithium demand increasing this may be short-sighted. Our culture
and society as a whole is dictating
Lithium demand is also expected that we should move towards
to increase with the deployment of cleaner energy sources; shifting
hybrid and electric vehicles, while demographics, the development
in respect of smart grids expansion of our communities, technology
Li-Ion batteries will play a vital role uptakes and population growth will
towards the integration of renewable undoubtedly push up our energy
technologies to the grid20. Indeed, demands to ever greater heights. This
capacity of Li-Ion batteries is is going to strain our critical material
projected to reach 3,130 MW by 2020; supply chain.
until now, no major supply bottlenecks
18
Wiebke Rabe,Genia Kostka, Karen Smith Stegen, 2017. China’s supply of critical raw materials: Risks for Europe’s solar and wind industries? Energy
Policy 101 (2017) p. 692–699.
19
Massari and Ruberty, 2013. Rare earth elements as critical raw materials: Focus on international markets and future strategies. Resources Policy
38 (2013), p. 36-43.
20
European Commission, Joint Research Centre (JRC), 2016. Substitution of critical raw materials in low-carbon technologies: lighting, wind turbines
and electric vehicles
21
https://investingnews.com/daily/resource-investing/energy-investing/lithium-investing/lithium-producing-countries/
REM toxicity in the artisan and small scale mining
operations. Digging of soil and mines
Mining and extraction activities in can cause soil degradation and
general tend to be polluting for water spread of harmful materials such as
supplies, and REMs are considerably lead. As a result, excess chemicals
toxic for soil and water when often pollute adjacent waterways,
extracted and processed, which could thereby entering the food chain
potentially render water unsuitable for through the fauna of the rivers. Apart
drinking and irrigation purposes. from the environmental downgrading,
child labour and a large number of
Nowadays, more than 60% of fatal accidents in artisanal mines are
cobalt comes from the Democratic just two other outcomes of poorly
Republic of Congo; cobalt’s demand regulated mining activities.
is expected to undergo a 30-fold
increase by 2030 so as to supply the The rest of the product life cycle
rapidly growing market for electric processes, from smelting to
vehicles22. Extraction of minerals transportation, can involve a great
from the Congo has been notorious deal of emissions23. The energy
for being improperly regulated production phase may not produce
and causing serious social and emissions, but any pollution to get
environmental problems, especially there cannot be discounted.
https://www.bloomberg.com/news/articles/2017-06-08/cobalt-upstarts-eye-glencore-s-turf-for-244-billion-ev-spoils
22
Jiabao, L.,Jie,L.,2009. Rare Earth Industry Adjusts to Slow Market, ChinaDaily. China Daily, China.
23
Kanazawa, Y., Kamitani, M., 2006. Rare earth minerals and resources in the world. Journal of Alloys and Compounds 408, p. 1339–1343.
Paul, J., Campbell, G., 2011. Investigating Rare Earth Element Mine Development in EPA Region 8 and Potential Environmental Impacts. In: US
Environmental Protection Agency (Ed.), EPA, USA, p. 35.

Do you understand your supply chain? Social and environmental implications “Manufacturers of low carbon
Manufacturers of low carbon energy As corporate social responsibility energy technologies must
technologies must be vigilant of the becomes a strong communicator of be vigilant of the potential
potential impact critical materials the firm’s commitment to sustainability,
impact critical materials risks
risks can have on their supply manufacturers should also think of the
chain. Where do my raw materials social and environmental implications can have on their supply
come from? How reliable are my of critical materials. Should you chain. Where do my raw
suppliers? Am I investing enough in transact with suppliers who place
materials come from? How
ensuring the reliability of my supply limited environment and social
chain? Looking into the future of low consideration on their practices? All reliable are my suppliers? Am
carbon technologies, will there be these factors will eventually affect the I investing enough in ensuring
enough supply of critical materials to security of the supply chain either in
meet the future demand? How can the long or short run.
the reliability of my supply
technological innovation protect my chain?”
supply chain? These are some of Our final questions to readers from
the questions manufacturers of such the industry: do you fully understand
technologies should think about and your supply chain? Is it truly
act accordingly. sustainable? A supplier may be good
value but what about other risks?
Choice of technology
These are all questions which you
If you are from the industry: consider should be asking and are questions
the choice of technology and which Willis Towers Watson can help
supplier of your renewable energy to answer.
components. Changing wind turbine
magnet type can reduce the amount Steve Munday is Head of Renewable
of a critical material by 75%, thereby Energy, Willis Towers Watson
limiting your dependence. Natural Resources
Anastasia Ioannou and Myles Milner

are members of the Renewable
Energy team at Willis Towers Watson
Natural Resources
Floating offshore wind:
challenges & innovation
Deeper water & greater technology is uneconomically
reward attractive beyond depths of 30metres.
To reach the industry’s ambitious
The offshore wind industry in Europe targets, it needs a means of deploying
is following an upward trajectory; turbines into this deep-water resource
installed capacity has risen from and the increased ocean acreage that
5GW at the end of 2012 to 12.6 GW in will be available.
201624 and is predicted to hit 40GW
by 2020 and 150GW by 203025. 80% So how can this deep-water resource
of the offshore wind resource in be tapped into? The industry looked
Europe is located in waters deeper at proven technology from the oil
than 60 meters and has a potential and gas sector, and the current
capacity of 4,000GW26. understanding from bottom fixed
offshore wind. Floating offshore wind
Previously these waters were turned out to be the answer.
considered too deep; monopile
Credit: Fukushima Offshore wind Consortium Hexicon Dounreay Tri Floating Wind turbines
24
Wind Europe, 2017. The European offshore wind industry – key trends and statistics 2016. January 2017.
25
Wind Europe Reports, Deep Water. The next step for offshore wind energy. July 2013
26
Wind Europe News, 2017. A breakthrough for offshore wind: world’s first floating wind farm opens in Scotland. Available at: < https://windeurope.
org/newsroom/news/a-breakthrough-for-offshore-wind-worlds-first-floating-wind-farm-opens-in-scotland/ >

Unlocking deepwater sites - 2 pilot offshore wind turbines supported
farms on grounded monopile foundations
deployed in UK waters (e.g. Burbo
Floating wind technology can unlock Bank Extension), and the industry is
deep water sites located close moving forward. The challenge for
from shore; port-based installation the industry is not just proving both
and major O&M process can yield prototypically and commercially a
significant cost savings in relation to 10MW (and greater) turbine, but
the bottom-fixed counterparts. Up proving this on a floating foundation.
until today, we have seen instances of
individual floating wind projects with 10MW and beyond?
different floating foundation designs,
mainly being built for demonstration Floating offshore wind structures,
purposes. However, we are only now combined with high capacity turbines,
beginning to see pilot multi-turbine are the critical next steps in the
wind farms appear. industry’s attempts to harness energy
from the wind. Scale and competition

WindFloat, a pioneering 2MW have been the key drivers of falling
floating prototype design, was energy prices from fixed monopile
deployed in 2011 off the coast wind farms and the same is true for
of Portugal. The innovative floating wind. EU-funded projects
features and design enabled wind have been working on the design of
turbines to be sited in previously 10-20 MW wind turbine concepts for
inaccessible locations where water some time; however, the challenge is
depth exceeds 40m and wind to demonstrate and now construct a
resources are superior. full scale turbine greater than 10MW

The Hywind project in the North and provide proof of a significant cost
Sea off the coast of Scotland has reduction potential.
the principal objective to verify
new scaled-up designs on a But what happens when the industry
multiple wind turbine basis in order pushes over 10MW? Are there other
to demonstrate the viability of a considerations that should be made?
future commercial scale farm. This With smaller prototypical designs
development will have 5 turbines of such as Hywind and Kincardine, the
6 MW each, giving a total capacity insurance industry has often adopted
of 30MW. a cautious approach, and the same
would be true for larger designs.
Both of these demonstration The market normally dictates that
projects will provide important they want to see proof of a design
lessons in terms of design, or product before they consider
fabrication, installation and insurance options; however, the
operation. However, what happens market is a place for innovation and
when we scale up the turbine Willis Towers Watson is ready to
size? There are currently 8 MW approach this challenge head on.
The risk transfer challenge Transition to a commercial
optimized model
An apprehensive insurance market
From the industry’s perspective,
Generally speaking, underwriters
the challenge would be to lower the
will not intend to provide cover
costs that have been invested so
where the developer is involved in
far on expensive demonstrators by
a demonstrative project or a pilot
making the transition to a commercial
park – that risk is the developer’s to
optimized model which will benefit
take. Underwriters require adequate
from economies of scale.
commercial reference on which to
base their opinions; however, this Academic and research institutions
does not mean that the markets are can contribute to the acceleration
averse to such developments. In the of this transition by focusing their
area of renewable energy, a host of research on key priority areas which
specialist brokers and underwriters could yield significant savings in
have developed products that focus the cost of energy. Innovations in “In the area of renewable
on risks in the offshore wind industry. the electrical system should involve
These underwriters can relish the
energy, a host of specialist
increasing the reliability of high
challenge to be involved in such voltage dynamic cables and ensuring
brokers and underwriters
innovative and challenging projects, the lifetime integrity of the cabling. have developed products
with the additional intention of being This is a significant risk consideration
be involved in the insurances of any that focus on risks in the
area since cable-related incidences
future commercial rollout. are currently responsible for most offshore wind industry.”
claims in offshore wind. Furthermore,
Bankability
the design of novel mooring designs
and their installation procedures,
The UK ORE Catapult in 2015
along with the scaling to larger
recognized a series of 10 technical
turbines, the integrated design and
challenges for floating wind technology,
the logistics on the major repair and
one of which was bankability. They
assembly operations, will be some
identified a lack of innovative methods
of the key R&D priorities for this
to improve bankability of floating wind
emerging technology.
projects through new risk management
approaches and insurance. Risk
mitigation and the survivability of the
features unique to floating technology
will eventually drive investors’ appetites.

The role of Certification Bodies Step up in turbine size
The role of Certification Bodies will The next challenge to address is the
also be pivotal. Design Standards of interaction between the floating sub-
floating wind turbine structures are structure and the significant step-up
already in place (e.g. the DNV OS- in turbine size attached to the floating
J103 Offshore Standard); certification sub-structure. The development of large
of the feasibility of a novel design can scale turbines of greater than 10MW will
only increase market’s confidence. have intrinsically complex challenges
Bespoke standards will support the regarding design, fabrication, handling
assessment of the turbine design, (storage, loading and transport),
manufacturing, installation and installation, operation and maintenance
commissioning of floating wind and finally decommissioning.
structures, as well as the upscaling
of wind turbines to higher than 10MW These challenges are all interlinked
concepts (thereby enhancing the and cannot be tackled alone. So the
bankability of novel designs). insurance market must be highly
ingrained into the process early on
to ensure that such projects get off
the ground.
Figure 1 - a selection of Floating Offshore Wind risks

New and bigger
Transportation
Supply chain risk
Delay risk
turbines

Certification
Site conditions
Construction
Defects in
risks design

Cable installation
The interface been
Vessel capability
The environment
contractors

Weather risk
Decommissioning
Operation and
Lack of Wind
maintenance

Mooring
Anchor design
arrangement
Figure 2 – Floating Offshore Wind Risk Packages
Construction Operational
Cover Stakeholders Responsibility Cover Stakeholders Responsibility
Construction All Risks Principal, all Principal Operating All Risks inc. Principal, Maintenance Principal
(CAR) including Marine contractors technical Machinery breakdown contractor, lenders
Transit and Terrorism advisors, lenders
Business Interruption (BI) Principal, lenders Principal
Third Party Liability (inc. Principal, all Principal/
Marine Liability) contractors technical Contractors
advisors, lenders
Third Party Liabilities Principal, Maintenance Principal
Deby in Start-up inc. Principal, lenders Principal contractor, lenders
Marine D&U and Terrorism
Additional
Cover (s)
Cover Stakeholders Responsibility
Characters’ Liability Liability related to the Charactering party

charactering party
Contractor’s plant & equipment Own interests only Contractor
Employers’ liability/Workers Own interests only Each party

compensation
Hull & Machinery Vessel owners’ property Vessel Owner
Motor Own interests only Each party
Plant & Equipment Own interests only Contractors
Production & Indemnity Vessel owners’ liabilities Vessel owner
Professional Indemnity Own interests only Designers
Vessel construction Hull Constructor Shipyard or Owner

The solution A risk solution can be designed to
offer the greatest protection to the
Marine renewable projects have often
project possible through proper
been reliant on engineering expertise
risk management protocols and the
developed in the offshore oil and
transfer of risk where possible to the
gas industry; this is conventional
insurance market. Your broker will be
technology used in a new way and
fundamental in identifying areas of
has its own unique risk profile.
high risk/concern and addressing in
a timely manner. This identification
Early engagement with insurers
process will help give greater
critical
certainty to the underwriting process.
“Challenges will be faced
and lessons learnt but by
Offshore wind farms are highly
The recipe for success –thorough engaging the insurance
sophisticated developments that
project design underpinned by
require careful planning and thorough
competent project participants
market early in the project
risk evaluation before they are
planning phase, we can
implemented. We suggest the early
A thorough project design with
engagement of the insurance market see more projects get off
well-defined and continuous risk
into the process, which will avoid cost
management, underpinned by the ground and ensure
and time overruns. Commercial banks
remain risk averse and are hesitant to
competent and expert project the ultimate growth of this
participants is fundamental to the
invest in an industry where there are exciting sector. ”
success of a project. We can learn
few precedents and the banks may
lessons from the oil and gas sector
not have an established procedure for
but the interaction between deeper
evaluating the risk reward profile of a
water, floating and larger wind
potential investment. By addressing
turbines brings its own challenging
risk in a proactive manner, we are in
and unique risk profile. Challenges will
a prosition to potentially improve the
be faced and lessons learnt but by
viability of a project.
engaging the insurance market early
in the project planning phase, we can
Taking the risk to market
see more projects get off the ground
and ensure the ultimate growth of this
We can help a project team
exciting sector.
understand the full lifecycle risks
that they will face and design
Steve Munday is Head of Renewable
solutions to address them. Prior
Energy, Willis Towers Watson Natural
experience has demonstrated that
Resources
for a developmental project the
developer would typically have to
Anastasia Ioannou and Myles Milner
retain more of the risk than would
are members of the Renewable
it be a commercially implemented
Energy team at Willis Towers Watson
design. We will examine and
Natural Resources
discuss the impact of this across
the project with all stakeholders.
Solar farm case study: Muhammed bin
Rashid Al Maktoum Phase III goes frameless
Background Canadian Solar is the supplier of the
panels, with solar photovoltaic cells
This project is part of Dubai’s arrayed between two layers of glass
Integrated Energy Strategy 2030, which are therefore called glass-on-
the aim of which is to supply 7% of glass panels. The glass on the rear of
Dubai’s electricity from renewable the panel has to be a little thicker to
sources by 2020 - increasing this provide structural integrity to the panel.
share to 25% by 2030 and 75% by
2050 under the Dubai Clean Energy Frameless solar panels advantages
Strategy 2050.
This frameless technology has the
The project is structured as a following advantages:
standalone Independent Power
Project (IPP) and is being developed
The design reduces the impact of
on a Build Own Operate basis (BOO). potential-induced degradation (PID)
– enabling a longer lifespan
Willis Towers Watson’s Global
Longer warranties with encapsulation
Renewable Energy team are privileged
to be the appointed insurance advisor,
Frameless solar panels do not
broker and risk consultant to Shuaa suffer from problems with corrosion
Energy 2 as the Developer and Owner. of the frames and are also more
We provided in-house expertise on durable and easier to robot clean
risk engineering as well as advice
No need for grounding of the frame
on transformer management and
There is a fire safety rating
emergency power solutions for the improvement because there is no
electrically driven trackers. polymeric back sheet
Evolution of frameless solar panels

Modules achieve high voltage at
1500V DC, so less current
While traditional solar panels have
One of the common concerns with
aluminium frames, frameless solar a silicon module is a micro-cracking
panels have evolved over time and - having a glass panel, front and
are now considered a cost effective back, gives better mechanical
solution with superior qualities. protection during transportation
When the DEWA 800MW solar and installation
park was designed, the concept of
using frameless solar panels was an The solar park benefits from having
attractive option, and the Park became a tracker system which allows the
the largest solar project of its kind. azimuth angle to alter in an east west
axis. The safe mode is with the panels
horizontal which provides a minimum
profile during wind events.
Roger Hughes is an engineer

specialising in renewable energy at
Willis Towers Watson Natural Resources
Source: Abu Dhabi Future Energy

Company PJSC (Masdar)

Part Three:
the global Power and
Renewable Energy
insurance markets

Introduction: the risk management
challenges facing the global power market
Despite the investment of time and Apart from the ‘traditional’ natural
resources in risk management and perils, climate change is likely to
operational safety, the global power impact production in the coming
sector has continued to suffer decades. Increasing instances
machinery breakdown incidents, of drought or water shortage will
damage by natural perils and other impact hydropower stations and
losses, from an increasing variety thermoelectric plants, which are
of causes. heavily water dependent. In many
countries the summer months are
Technology periods of high power consumption
and demand, but this is the season
The technology involved in when droughts and higher water
the industry is becoming more temperatures are most likely to
complex and highly interlinked; with occur, making it harder to operate
environmental concerns in particular power plants which rely on water for
driving demand for different sources their cooling.
of power generation, plants designed
for base load operation may have Changing weather has seen flash
to be operated intermittently while floods in the Middle East and
others are often in continuous use - extreme heatwaves in Europe
variants which impact the life cycle of (among many regions). These
the equipment. unpredictable weather patterns
have compelled the affected power
Weather facilities to either reduce or suspend
their generation, forcing those
The power sector is not immune to companies with contracted output to
the weather. Floods can affect not buy on the spot market and purchase
only power plants themselves but additional power to meet their
also the equipment and premises of contractual obligations.
customers or supplier. Windstorms
can affect a power station’s
operations by damaging transmission
and distribution networks.
Dependence on unit cycling 2. Turbines are complex machines
which operate under stress and
With the varied power requirement as a result have, over the years,
imposed by the national power presented insurers with a large
authorities, many in the generation number of machinery breakdown
market have increased their claims. Corrosion, fatigue, rubbing
dependence on unit cycling and and vibrations are a few examples of
decreased their base loading repeated occurrences. In addition,
generation. This has put additional contaminants such as calcium and
stress on equipment, causing a metal have resulted in a build-up of
number of effects such as: deposits within these machines.
3. Compressors are susceptible to
1. Generator failures include
changes in the atmosphere. For
overheating, cracks, engine failure
example, a saline or dusty industrial
due to lack of oil or coolants, and
environment can result in corrosion,
short circuits, which can occur from
so it is important that compressors
internal or external effects:
are adapted to the environment.

Internal effects include breakdown
4. B oiler failures can be caused
of equipment or transmission lines
by corrosion, cracking and
from deterioration of insulation in a
degradation. Adherence
generator. Such issues may be due
to the original equipment
to ageing of insulation, inadequate
manufacturers’ (OEM) operating
design or improper installation.
and maintenance is often a

External effects include condition of claim coverage or a
insulation failure due to lightning warranty, but some claims have
surges, or overloading of emanated from poor maintenance
equipment causing excessive or operational practices.
heating and resulting in
mechanical damage.

Design Failures Age
With the continued stresses applied Many power generation machines

to generating equipment, and the are reaching the end of their life
commercial need to meet contractual cycles, ensuring a continued focus
supply obligations or demand from on maintenance schedules and
the local power authority, machinery availability of spares.
may not always have been sufficiently
tested in ‘real life’ operating Many of these facilities have utilized a
conditions before entering operation LTSA (Long Term Service Agreement)
in order to allow any design faults to which can be described as follows:
be identified and corrected.
“LTSAs typically commit the original
These days, insurers are very aware equipment manufacturer (OEM)
of the risks arising from equipment to providing, on a relatively “fixed-
that has not been fully tested, and priced” basis, maintenance services
frequently apply a Testing and for the very equipment that they
Commissioning (‘T&C’) clause to manufacture (e.g., gas turbines,
policies covering plants entering steam turbines, etc.). Commercially
operation after their construction speaking, LTSAs can offer many
phase. These clauses make it a advantages to Owners, including
condition of the attachment of cover the predictability of relatively fixed
under the operational policy that long-term maintenance costs
a specified range of testing and and contractually guaranteed or
commissioning activity has been incentivised OEM support. However,
successfully carried out. In some these very complex agreements can
cases the generation company may often contain pitfalls for the unwary
not be able to completely satisfy the equipment Owner – pitfalls that can
T&C clause, sometimes for perfectly cause an Owner to bear an inordinate
legitimate engineering or other amount of risk, or may result in costly
reasons; when these are explained to and time-consuming disputes with
insurers, underwriters will often agree the OEM.”
to accept the plant under the policy
notwithstanding that the inability to Richard E. Thompson II and Jason B.
fulfil all the terms of the T&C clause. Yost, Troutman Sanders LLP1
As in any industry, there is ongoing The benefits of these LTSAs include:

pressure for the newest and fastest
models, such as the demand for 1. Awareness of the maintenance cost
faster start turbines to meet the 2. Information on new technologies
growing energy consumption introduced into the plant and
requirement. OEMs strive to deliver training for equipment and its
ever more efficient models; the operation and maintenance
pressure to supply this may result in
3. Proper maintenance reducing the
other components being neglected or
possibility of failure occurring and
not upgraded.
identifying alternative sources to
use as backup
1
http://www.power-eng.com/articles/print/volume-107/issue-2/features/long-term-service-agreements-top-10-contractual-pitfalls-and-how-to-avoid-
them-part-i.html
Figure 1 – large claims and causes of loss
Large Claims - Cause of Loss:

A) Faulty Operation C) Faulty Design E) Explosion G) Other Causes
B) Faulty Material and D) Fire F) Natural Hazards
workmanship
US$ Mill
350
300
250
200
150
100
50
0
A BCDE FG A BCDE FG A BCDE FG A BCDE FG A BCDE FG
2012 2013 2014 2015 2016
All figures are based on information supplied to IMIA by its Member countries. It should be in mind that these figures may not always
contain IBNR provisions, and that premium patterns may vary between reporting member countries.
Source: IMIA
Many machines have bespoke parts, supervision, or misunderstanding

which would otherwise result in long information provided. Figure 1 above
lead times before spares can be shows a sample of large losses by
obtained and transported to site. cause over the last few years.
Facilities would be given the choice Although there is no clear pattern in

to have spares available at alternative these numbers, it is possible that the
sites and may sign an agreement decrease in explosion-related losses
with other owners in the same region, is the result of better maintenance
thereby decreasing the time to obtain processes now adopted by many
a spare in an emergency. power generation firms.
Human Error New causes of loss in the power

industry may result from increased
Despite the increased use of automation and reliance on
technology and machines to technological control, which may be
streamline and increase the targeted by increasingly sophisticated
automated process, losses attributed cyber-attackers aiming to disrupt
to human error or faulty operations operations.
still regularly occur.
Manvinder Phul is a Divisional
It is often found after such incidents Director, Claims Advocacy and Client
that correct procedures were not Claims, Willis Towers Watson P&C
followed, which can be the result of
poor training, lack of inspection or

London: Property
Introduction – same old, significant influx of new capital to
same old? the global insurance market, driving
premiums down through the
In recent years it has been difficult to supply / demand dynamic.
keep finding new ways to describe
the insurance market environment,
Despite the effect of low interest
both for the Power sector and for the rates on their financial investments,
wider market in general, and across all insurers were still able to deliver
the main classes of insurance. Since positive underwriting results and
the last truly ‘hard’ global insurance acceptable combined ratios. This
market, which followed the 9/11 was largely been due to:
terrorist attack in the US in 2001 and
Low levels of cat losses in
lasted for a couple of years before historic terms, which for property
starting to soften again, insurance underwriters effectively subsidised
buyers have enjoyed an extended the ‘risk’ or non-cat element of
period of soft global insurance market insurers’ books of account
conditions – despite significant
Insurers’ ability to release old
natural catastrophe (‘cat’) loss events claims reserves to bolster profits
such as Hurricanes Katrina, Rita and
Wilma (2005) and Sandy (2012) in

Insurers were forced by market
conditions to improve their
the US and Caribbean, the Japanese
underwriting discipline, becoming
earthquake and tsunami (2011), and
more selective about accepting
the Thai floods (2011).
risks with significant past losses
Why had the market stayed soft? and/or with an inferior risk
management programme in place.
There have been a number of At the same time, most large
contributing factors to this prolonged insurers have put advanced risk
soft market: modelling programmes in place,
and these programmes require

Low interest rates spurred that clients and brokers provide a
investors to seek opportunities significant amount of risk details
outside traditional interest-bearing to the insurers in order to secure
investments, which resulted in a optimal terms and conditions.
Figure 1 – insured loss estimates for various natural
catastrophes, 2017
Insured Loss – Modelling Company Low Estimate Insured Loss – Modelling Company Low Estimate
160 Mexican EQ
US$ Billions
160
US$ Billions
3
140 140
Mexican EQ
1
120 120
Maria
85 Maria
100 100 30
Mexican EQ
2 Mexican EQ
80 1 80
Maria
Maria 15 Irma
60 40 Maria 60 55 Maria
30 30
Irma
40 35 40 Irma
Irma 50
Irma Irma
32 25 25
20 20 Harvey Irma
Harvey Harvey Irma Harvey 35 35
Harvey Harvey
Harvey 10 25 15 23 16 Harvey 10 15 16
0 0
AIR Risk Karen Clark CoreLogic Property AIR Risk Karen Clark CoreLogic Property
Worldwide Management and Company Claims Management and Company Claims
Solutions Service (PCS) Worldwide
Solutions Service (PCS)
(RMS) (RMS)
Harvey Irma Maria Mexican EQ
Harvey Irma Maria Mexican EQ
Source: Willis Re, October 2017
Q1-2 2017: market softening slows an imminent hardening of the market

environment, but rather that large rate
By the first half of 2017 it was clear or premium reductions for already
that the pace of market softening competitively priced programmes were
had begun to slow. One reason becoming more difficult to achieve.
was that there were no longer any
significant old reserves to release, However, there is no doubt that the
leaving insurers solely dependent particularly active 2017 Atlantic
on positive pure underwriting results hurricane season, combined with
to deliver acceptable returns to other second-half events such
shareholders. Some underwriters were as the earthquake in Mexico and
commenting on the need for improved Californian wildfires, has changed
pricing, as their margins thinned in the market mood.
the soft market. This did not signify

Although there remains huge of Lloyd’s syndicates were looking “It is noteworthy that the
uncertainty over the quantum of to take advantage of the expected
losses from hurricanes Harvey, Irma, favourable pricing conditions in 2018
scale of rate changes being
Maria (collectively referred to as with significant planned increases in mooted in response to what
‘HIM’), there seems to be a growing stamp capacity. could yet turn out to be
consensus that insured losses will
exceed US$100bn and effectively However, it is noteworthy that the the worst year for insured
wipe out a whole year’s premium for scale of rate changes being mooted cat losses in history, is
many carriers. in response to what could yet turn out
relatively modest... whether
to be the worst year for insured cat
Although these loss events are losses in history, is relatively modest. underwriters will succeed
primarily a matter for insurers and This arises from the likelihood that in achieving a sustained
reinsurers of Property and Business the combined ‘HIM’ loss will be an
hardening in market
Interruption risks, their impact earnings rather than a capital event
extends to other insurance classes, for the insurance market. Readers conditions is therefore
as discussed below. may recall that our 2016 Power uncertain.”
Market Review included an analysis by
Rowan Douglas, CEO of Willis Towers
Q4 2017: immediate post-
Watson’s Capital Science and Policy
hurricane response
Practice, of the measures that the
Property and Business Interruption global insurance sector had taken to
underwriters in the Power and Energy increase its resilience since 1992, when
sectors reacted in the immediate Hurricane Andrew propelled a number
aftermath of the ‘HIM’ events by of insurance companies into insolvency.
refusing to countenance any rate The proof of this greater resilience is
reductions at Q3/Q4 renewals even that the 2017 ‘HIM’ claims will be readily
for claims-free accounts. Reinsurers absorbed by the insurance industry,
appear united on the need to drive and will not constitute a true market-
through higher rates at the 1 January changing event.
2018 treaty renewals; on 13 October
the ratings agency S&P predicted A long term market hardening?
flat to 5% increases for global
reinsurance at 1 January, with rates Whether underwriters will succeed
in regions and business lines directly in achieving a sustained hardening
affected by the cat losses expected in market conditions is therefore
to see double-digit increases. uncertain. The last major hurricane-
affected year (2005) triggered a spike
Reinsurance rate rises to be in insurance rates for 2006, but prices
passed on started to come back down after a
relatively short time. Global insurance
Increases in reinsurance rates can be and reinsurance markets remain
expected to feed through to the direct heavily over-capitalised and ultimately
insurance market, as insurers will have market conditions will be driven by
to pass higher reinsurance costs on supply and demand.
to their direct buyers. It was reported
at the end of October that a number
Power insurance market dynamics for utility companies that generate up
to 30% of their energy from coal, and
The insurance market arena for risks “enhanced risk screening” for those
in the power and utilities sector is a that generate between 30% and 50%
specialist area of the wider insurance from coal2.
market, and has its own dynamics. In
addition their liability for ‘cat’ claims, Zurich’s stated motivation for this
Power sector insurers continue to be policy is that:
hit by attritional machinery breakdown
and other claims, as described in the “Insurers can play a role in facilitating
previous article of this Review. [the] generational transition towards
cleaner energy by increasingly
Environmental considerations are reflecting the climate-related risks
also having a direct impact on power inherent in thermal coal in their
insurance market capacity. As this underwriting and investment policies.”
Power Market Review was being
finalised, Zurich Insurance Group In making this decision, they are
announced that it intends to: following AXA and SCOR, which
earlier this year became the first
“stop providing insurance or risk insurance companies to announce
management services for new that they would no longer underwrite
thermal coal mines or for potential significant coal projects (although in
new clients that derive more than half SCOR’s case this applies specifically
their revenue from mining thermal to lignite plants3. In addition, Swiss
coal, and also for utility companies Re and Lloyd’s will reportedly
that generate more than half of announce new policies on coal in the
their energy from coal,” as well as coming months4.
divesting from equity holdings in
such companies. It will also apply This is therefore a developing picture,
“strong ESG [environmental, social with potentially serious implications
and governance] risk management” for major coal generators.
2
https://www.zurich.com/en/knowledge/articles/2017/11/insurers-can-facilitate-the-transition-to-a-low-carbon-future)
3
https://www.scor.com/en/media/news-press-releases/scor-announces-further-environmental-sustainability-initiatives]).
4
http://unfriendcoal.com/2017/11/15/leading-insurance-companies-divest-20b-from-coal-and-end-underwriting/)

Early engagement essential!
Regardless of whether it turns out to

be short-lived or of longer duration,
the change in insurance market mood
comes at a bad time for those power
companies that have presented
their insurers with significant claims,
whether through ‘cats’ or other
types of loss – particularly if these
companies have significant coal-fired
power plants. Underwriters who will
have previously been constrained
by market dynamics from applying
terms for such companies that they
consider appropriate will be more
able to carry rate increases and/or
changes in deductibles and other
terms and conditions in the current
market environment.
It is therefore important for insurance

buyers in this situation to engage
with underwriters early in the renewal
process to share the lessons learned
from their claims, and work with their
brokers and insurers to develop viable
and sustainable options for their
insurance programmes.
David Reynolds is an Executive

Director, Downstream Natural
Alex Findlay is a Divisional Director,

Downstream Natural Resources,
Willis Towers Watson
London: Terrorism and Political Violence
Flatter market conditions reflect of terrorist plots against the power

overall Property landscape industry have been foiled; for example,
the perpetrators of the Belgium
Although not directly affected by airport and subway attacks in 2016
the 2017 Atlantic hurricane season, had plans to attack a power plant,
most Terrorism and Political Violence while a self-described neo-Nazi from
underwriters have strong ties into Florida, who was arrested in 2017, had
their “All Risk” Property counterparts, plans to blow up power lines in the
often with either linked or shared Everglades and launch explosives into
treaty reinsurances. As a result, the a power plant.
second half of 2017 has seen much of
the market renewing business at flat Political violence risk escalates
rates, albeit with small rate reductions
still being available in some cases. Along with terrorist attacks and both
global and localised conflicts, the
Recent terrorism and police threat of strikes, riots, civil commotion
violence activity and protests remain as an ever-
present risk to the power industry.
The last three years have seen steady For example, US President Donald
increments in the number of terrorism Trump’s pledge to revitalise the coal
and political violence events globally, industry is likely to face opposition
with actual attacks against the power from environmental activist groups,
industry being mostly seen in the while many new construction projects
Middle East, Africa and Central Asia, around the world will continue to
where the legacies of ongoing conflict face environmental activism and local
perpetuate themselves. opposition, including those where land
disputes and population displacement
Attacks in Europe and North America may arise.
have mostly been in city centres,
targeting mass casualties rather
than infrastructure, but a number

Insurance considerations – is your Do you have the appropriate cover?
current programme still appropriate?
Insurance buyers should also
While the Terrorism and Political continue to consider whether the risk
Violence market and the corresponding transfer products they currently buy
risk landscape continue to change, are appropriate for the changing risk
insurance buyers in the power industry environments they may operate in.
should continue to consider whether For example, in recent years events
their current purchase is appropriate. in Egypt and Turkey have highlighted
This could include whether buying how quickly insurance needs and
through government pools provides buying habits can change rapidly.
sufficient coverage or if either a full Towards the end of 2016 and start
standalone Terrorism and Political of 2017, many buyers in Turkey, both
Violence policy or Difference in inside and outside the power industry,
Conditions/Difference In Limits/Excess were trying to renew their insurance
policy would provide more appropriate policies, increasing their coverage
coverage for their needs. from Terrorism only to include full
Political Violence.
This can also include altering limits
and deductibles, compared with “All During this time the market faced a
Risk” coverages, for example where very challenging period of managing
recent losses and different risk demand (for both current demand and
factors may force higher retentions to hold reserves for expected demand
or lower limits in order to balance in the year ahead) against available
premium spend. However, this may capacity and basic economics states
not be quite so impactful upon rating that this would also affect pricing.
and pricing within the Terrorism and
Political Violence market.
Do you understand your exposures? Impairment of Access “With the threat of strikes,
Our advice is that insurance buyers In response to this, Willis Towers
riots, civil commotion and
(as much is reasonably possible given Watson and a leading Lloyd’s protests remain being
what are often unforeseeable events) Syndicate have recently collaborated an ever-present risk, it is
should continue to use everything to offer a new policy wording
available to them to try and foresee covering Impairment of Access. This important that insurance
their potential exposures and ensure Impairment of Access coverage buyers review what coverage
their insurance program is sufficiently uniquely responds:
they may or may not have.”
designed around their findings, and not
just wait until their traditional renewal
whether or not physical damage
period to review their position. has occurred from an act of
protestors, riot, strike, civil
Have you considered other coverages commotion, malicious damage,
that you currently don’t purchase? sabotage and/or terrorism; and

whether or not the Impairment of
Finally, with the threat of strikes, Access was due to an act at the
riots, civil commotion and protests insured’s site or within a pre-agreed
remain being an ever-present risk, it is radius or access route (whether or
important that insurance buyers review not the insured was the intended
what coverage they may or may not target of such act).
have. While many buyers may have
some form of coverage in their “All Lyall Horner is an Account Executive,
Risk” property policy or a standalone Terrorism and Political Violence
Terrorism and Political Violence policy, division, Willis Towers Watson
this will most likely not include any
coverage for Business Interruption
due to site access being prevented or
hindered by strikers or protestors in
the absence of physical damage.

London: Construction
Introduction – “As you were...” Introduction of enhanced gas

turbine power plants
Competitive market conditions
continue to dominate the Power The last couple of years have seen
Construction insurance market. With the introduction of a number of
no deterioration in available capacity, enhanced and large scale gas turbine
most, if not all, Construction markets models which have moved from
consider the power industry as one comprehensive validation programs at
of their primary focus areas. The numerous locations around the globe
leading reinsurers remain the major to being presented to the insurance
markets such as AIG, Allianz, Chubb, market as the main component of a
Munich Re, SCOR, Swiss Re and the new risk.
Lloyd’s Construction Consortium,
but many of the others have gained There has been a continued
another year of valuable experience development in the “H” class of units,
and have cemented themselves as with General Electric now moving to
viable lead options. validate the latest version of its Higher
Efficiency Air-cooled (“HA.02”) units
More than enough capacity for in their fleet and Siemens continuing
any project to enhance their own “H” class model,
which has resulted in even larger
Furthermore with significant capacity units now being presented to insurers
being available from other local and and their engineers. The testing
regional markets, available capacity and validation of the GT 36 unit by
should be more than adequate for any Ansaldo Energia across 2016 and
project, other than nuclear and large 2017 signals their entrance in to the
hydroelectric projects being built in “H” class technology market whilst
exposed natural catastrophe areas. Mitsubishi Hitachi Power Systems
continues to develop the “Enhanced
While rate reductions continue to be Air Cooling” technologies of their
available, the pace of reduction has large frame J class machines.
slowed somewhat during the course
of 2017. 2017’s natural catastrophe Rate of technological advancement
events are likely to further decelerate increases
this decline and we even suspect
that this may lead to some individual With virtually the full range of earlier
rate increases in exposed locations. and more established units such
However, it remains too soon to make as the “F” class and “G” class also
a firm prediction of where rates will go undergoing continued enhancement,
in 2018. the rate of technological
advancement shows no sign of
Technology issues remain at the slowing down.
forefront of underwriters’ minds.
The continued advancement Regular updates by the main gas
of gas turbine technology and turbine manufacturers assist the
developments in super and ultra- power focused underwriters within
super critical boiler designs are the construction insurance market
constantly monitored by insurers. to monitor the development and
progress of such enhanced and larger
machines prior to their introduction as
a risk to be evaluated.
Insurer conservative stance they expect to be in place. Insurers
maintained do not see their role as covering the
risk of design and manufacturing of
However, despite the continued such new and enhanced machines,
dialogue between the insurance and where possible continue to limit
market and manufacturers, the scope of the cover they provide
underwriters and their engineers to what they perceive to be the
still tend to take a conservative “construction” risk when covering
approach when evaluating a new such projects.
gas turbine plant being presented
to them - utilising a model that has Coal fired plants – newer and more
not achieved the milestone of 8,000 exotic materials
Actual Operating Hours, regardless
of the soft nature of the general Continued development in super and
construction insurance market over ultra-super critical boiler design using
recent years. higher temperatures and pressures
than earlier sub-critical designs has
Market holds firm on deductibles resulted in the need for newer and
more exotic materials to be used in
With bigger machines potentially certain sections of the boiler.
meaning a higher replacement value,
insurers are keen to maintain a The early experiences of such exotic
minimum threshold when it comes steels (such as T-24) were a cause
to the level of deductibles to be for concern for insurers. As a result,
applied to large frame gas turbine the design and composite make-up
and generator sets, while at the same of the boiler is often the first question
time seeking reassurance on the asked when a new risk is presented
robustness of the warranty from the for consideration.
Original Equipment Manufacturer that

Coal fired plants – what insurers are comply with for a power plant under
looking for construction in addition to what
the permanent system will be once
It is therefore crucial that new coal commissioned. “Adherence to internationally
fired Construction risks are presented
to insurers in a way that enables the Although such detail is often flushed
recognised industry codes,
underwriter to gain confidence, not out during the first or second risk standards and guidelines
only in the way that the project has inspection carried out by insurers’ in relation to fire protection
been designed but also how it will be engineers, by this time the opportunity
managed through the construction may have been missed to impress on measures will also be at the
and commissioning phases. the insurer the more positive aspects top of the underwriter’s list
of the risk itself when negotiating the
when first evaluating the
Insurers will want to see evidence terms and conditions. As always with
of a robust and comprehensive QA/ major construction projects, a well risk.”
QC programme, including a focus presented and detailed underwriting
on Positive Materials Identification submission, supported by a proactive
(PMI). We would also expect that flow of information between insured
underwriters will want a detailed and insurer (managed by the
understanding of the planned insurance broker) only enhances the
inspection programme for the project, chances of a more positive response
including details of the Owner when negotiating terms for major
Engineer’s role in the QA/QC process. power plants under construction.
Similarly, adherence to internationally Nuclear – slowdown in the UK

recognised industry codes, standards
and guidelines in relation to fire The expected nuclear revival in the
protection measures will also be at UK has slowed down somewhat
the top of the underwriter’s list when following the Government’s
first evaluating the risk. In addition to announcement to go ahead with
the final design to be incorporated Hinckley Point C early in 2017. This
into the plant once completed, slowdown has been caused by a
Construction insurers will also pay number of factors which include the
close attention to measures in place failure of some major nuclear OEM
during construction prior to the suppliers, a difficulty in attracting
permanent system being set up, with the required levels of finance,
a key focus on the availability of any concerns over Brexit and the rapid
temporary fire water supply and the changes in nuclear technology that
detection and prevention measures are currently taking place including
around main the components of the the development of SMR’s (Small
plant. Again, this applies to codes to Modular Reactors) and other forms
of alternative power generation, ably make it easier for the London market
assisted by the ongoing development insurers to cover such projects
of battery storage technology. whilst there are also plans to make
the current market primary policy
However, any possible nuclear revival exclusions for nuclear risks more
will require the support of a growing user-friendly.
insurance market capacity to help
drive the need of an industry that has LMA’s Wording Manager, Alison
generally seen good experience in the Colver was quoted as saying: “Our
western hemisphere. intention is to future-proof the
market’s nuclear exclusions and to
Nuclear – new Exclusion Clause give Lloyd’s underwriters more options
to underwrite nuclear installations
A new Nuclear Exclusion Clause under construction. As a specialist
LMA5628 has been developed, the market, we need to ensure that our
aim of which is to produce a “cold model wordings allow underwriters
zone variant” of its model exclusion to provide the cover needed with
wording which should make it easier the expected increase in interest in
for underwriters to cover construction nuclear over the coming years5”
projects in the nuclear sector.
Conclusion – London market retains
The London market’s standard its flexibility
exclusionary language largely dates
back to the 1950s. Since that time Technical changes advance at pace,
we have seen a number of major capacity remains readily available (at
technological developments in the the time of writing) and the London
nuclear industry, with major incidents market continues to prove itself
recorded such as the Fukushima as a flexible thought leader for the
disaster in 2011 and the more recent most challenging of risks. Quality
fire at the Flamanville nuclear plant in information and time for engineering
February 2017. reviews will continue to allow the
broker to secure optimal coverage
It is anticipated that new nuclear and perhaps with the technological
projects will require insurance during advances a keen eye needs to remain
the construction phase for the with regards warranties and insurability.
ancillary buildings, cold zones and
the HRZ long before any radioactive Phillip Callow is an Executive Director,
material is actually introduced to the Construction division, Willis Towers
site. The addition of a new model Watson
nuclear wording therefore aims to
5
http://www.lmalloyds.com/LMA/News/Releases/PR_2017/Insuring_the_nuclear_future_14March2017.aspx
London: Liability
Capacity – up again in 2017
Figure 1 – Liability market capacity, 1994 - 2017
Global Liability Capacity (USD bn)

3.5 USD 3.3bn
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2009
2010
2011
2012
2013
2014
2015
2016
2017
2008
Over the past twelve months the remained constant in the face of
size of the global Liability market has adversity and the market continued to
continued to increase and has now be described by commentators and
reached a total of around US$3.3 participants alike as ‘soft’. However,
billion, although realistically for any following a long period of relative
one buyer the available capacity will stability the Liability market has begun
be closer to half this amount. to demonstrate a palpable hardening
in underwriting conditions. There
This is generally considered more have been two significant triggers
than sufficient for liability programmes which have served as the catalyst for
in the Power sector, which can vary change, namely:
considerably in size, from modest limits
to limits that test the total capacity
The series of 2017 hurricane events,
available in the market. This variance which affect the Liability market
is driven by a number of aspects because Liability portfolios are
including the location of risk, type of often consolidated with Property
plants being insured and the size of portfolios from an underwriting
assets, with the most significant limits management perspective.
still purchased by European clients in
The adoption by the Lloyd’s
the hydropower industry. Franchise Board of a stricter
approach to syndicates’ business
A whirlwind few months! plans, only approving 2018
business plans that demonstrate
Despite a number of large events
profitable growth.
affecting liability insurers during
2015 and 2016, the liability market
Significant increase in Reinsurance Coverage developments – Failure
Treaty costs to Supply
As a consequence of the declining As we enter 2018, underwriters will

loss ratios, insurers are also facing not only be paying close attention
the prospect of significant increases to rates, but also to coverage.
in their treaty reinsurance costs Failure to Supply coverage remains
which will have a direct impact on a key aspect for underwriters who
their rating models for 2018, although continue to exclude the Pure Financial
to date upward rate pressure has Loss aspect of such cover unless
been mitigated by new insurers substantial information – and often
entering the market and the ‘sideways premium – is proffered to enlist
expansion’ of existing capacity. underwriters’ agreement.
The International landscape Markets are also prudent when

it comes to transmission and
Over the past few years local distribution exposures, with pure
insurance markets have added to the generation risks tending to benefit
inter-market competitive pressure from the most competitive rates.
by offering alternative – and often Separately, insurers are generally
cheaper – solutions to overseas unwilling to remain silent on
buyers, particularly in the Middle Electromagnetic Fields (EMF)
East and Latin America. As the wave exposures and the requirement
of change rises in London, brokers for such cover to be positively
will be closely monitoring whether written into the wording, albeit on a
international markets are now the conditional and somewhat restricted
subject of a ripple effect. To date, basis, is now shared across the
overseas insurers have not reacted London and international markets.
as discernibly to recent events as the
London market which may result in Some underwriters are also pushing
an increase in policies being placed for cyber exposures to be picked up
in the local insurance markets in the under a separate Cyber Liability policy
short term. That being said, it is hard rather than a General Liability policy.
to foresee a situation where local
markets do not eventually harden
their underwriting stance in line with
the London market, although quite
when this will happen is unclear at
the moment.

Conclusion – can the market act in internally and externally. That said, “Whilst renewals may
unison? the abundance of capacity still
available for most limits purchased have become trickier for
Despite the undercurrent of by power companies means that brokers, good deals are still
uncertainty that underpins the whilst renewals may have become
available as some markets
present state of the market, there are trickier for brokers, good deals
still some affirmations that can be are still available as some markets – particularly the relatively
made. Primarily, the liability market – particularly the relatively young young syndicates with high
remains a two tier market, which syndicates with high gross written
effectively means that the position
gross written premium targets
premium targets – may seize the
for an insured with a single-territory opportunity to ‘steal’ business from – may seize the opportunity
exposure requiring a modest limit of competitors struggling to justify a to ‘steal’ business from
liability is quite different to that of an rate reduction. The key question
insured with a multi-territory complex therefore is whether the market is
competitors struggling to
exposure requiring higher limits and/ capable of turning in unison or if it will justify a rate reduction.”
or wider coverage. For the latter be fragmented by the nature of its
the capacity pool remains smaller composition. Either way, the Liability
and premium reductions harder to market appears to be changing
come by, especially as the market and the clients that will be dealt the
begins to turn. From an excess of best deals will be those who not
loss perspective, insurers are also only provide the highest quality risk
increasingly observing a cost of information, but also engage the right
capacity threshold and refusing to broker capable of navigating the
breach minimum rates. changing insurance landscape.
Overall therefore, there is an Matt Clissitt is an Executive Director,

increased requirement from insurers Liability division, Willis Towers
when it comes to risk information Watson, Natural Resources
as underwriters look to justify their
position to a greater extent, both
North America
Introduction – the North Leading the way are California, New

American power market York and Hawaii, all committing 50%
of their power to clean energy by
The Trump Impact 2030. Additionally, major corporations
are prioritizing renewable energy,
Despite President Donald Trump’s
implementing carbon, sustainability
pledge to revive the struggling U.S.
and renewable energy policies, with
coal industry, aging coal plants
some signing long-term renewable
continue to close, with no plans to
Power Purchase Agreements (PPAs).
build new ones. Trump’s attempt
to revive coal includes rolling back Nevertheless, Trump’s steps may help
environmental initiatives implemented more modern coal plants continue
during the Obama administration, such to operate, which would have been
as initiating plans to withdraw from more challenging under Obama’s
the Paris climate accord and to repeal environmental policies.
the Clean Power Plan. However, the
US cannot fully withdraw from the There are further steps the Trump
Paris accord until 2020 (after the next administration could take to support
election) at which time Trump may no coal-fired generation, but experts
longer be President. believe that these will have only
minimal impact, if any. Coal’s demise
Furthermore, some coal-killing has more to do with economics than
programs are not easily unravelled. policy, with older coal plants no longer
States continue to expand their competitive with other technologies.
renewables footprint, with 30 states
pledging an increasing proportion
of energy to renewables over time.

Growth Sectors and wind will become even more
competitive with thermal plants.
Overall, US power usage is down
slightly, such that newly installed The first commercial US offshore
generation predominately replaces wind project, Block Island Wind Farm,
aging and inefficient nuclear and began operating in December 2016.
coal generation being shutdown. Other projects have been proposed
Regulators are taking steps to along the Northeast and Mid-Atlantic
ensure that sufficient baseload coast, though several of these
capacity remains available to meet projects are struggling with funding.
anticipated peak power needs, even
if this baseload capacity is less Prospects for growth of nuclear
efficient than other generating assets; power generation dimmed after the
otherwise, more coal and nuclear V.C. Summer nuclear project in South
generation would likely be shut down Carolina was cancelled. The project
as well. Interestingly, despite the fact was under construction but severely
that nuclear plants have become over budget such that it was cheaper
less competitive, states concerned to abandon the project and build gas
over the impact of plant closures on generation instead.
their labor forces as well as the fact
that nuclear power is a form of clean Energy Storage key to US power
energy, may seek ways to keep these market evolution
facilities on line.
Energy storage is an important
Replacement generation consists of growth area for renewables, helping
flexible combined cycle generation provide power when solar and
fired by natural gas (CCGTs), as wind are unavailable. Lithium Ion
well as utility-scale ground-mounted technology is expected to be the
Photovoltaic (PV) systems and technology of choice for the next 10-
onshore wind. Renewables growth 15 years given its current momentum
is aided both more competitive in this space. Battery storage costs
installation costs versus thermal will drop as China and India begin
plants than in past years and by manufacturing and state renewable
state-driven mandates. Rooftop solar commitments push demand, akin
projects continue to grow as well, to how PV technology cornered the
though utility-scale ground-mounted solar market circa 2008.
projects comprise most PV capacity.
“Behind the meter” energy storage As battery storage grows, the US
projects are growing and, as energy power market will evolve. States
storage capabilities mature, PV solar are promoting increased use of
battery storage with defined MW still considered prototypical, as well as
goals (California 1.6 GW by 2024). the impact of frequent cycling of older
The California energy market will baseload generation assets, as these
significantly change as individuals conditions potentially could result in
arbitrage power by selling power higher frequencies of forced outages.
during peak periods by discharging
their electric car batteries to the Renewables & Energy Storage
grid, and recharging their cars
overnight when power prices are less Insurers are wary about energy
expensive. This will minimize profits storage risks, given threat of fires
to baseload plants that made money involving Lithium Ion battery storage
predominately during peak periods. technology, the most widespread type
Ultimately, California will need to alter used. There are potential supply chain
grid economics as distributed energy mining challenges in the future as well,
becomes more and more common, as there are potential challenges in
potentially reducing needed baseload securing enough magnesium, cobalt
capacity. Individual customers will and lithium, though current supplies
purchase more personal fuel cells for should be sufficient through the 2040s.
buildings for use during peak periods However, some of these materials are
as well (“behind the meter” projects). mined in areas of high political risk,
where supplies may not be accessible
during times of political turmoil.
Insurance trends and
implications Loss control standards for PV Solar
Thermal generation and Energy storage continue to
evolve, and the NFPA plans to issue
The inflow of renewables, including a standard in the near future for
energy storage, into the power protection of utility scale battery
system requires generation assets storage installations. Protection
that were designed for baseload schemes for Energy Storage projects
operation to cycle on and off more are not agreed upon by all parties at
frequently, requiring more attention this time. Lenders still have concerns
and maintenance for these facilities. with Lithium Ion technology, given
Some newly installed, modest the life / degradation issues and
capacity, combined cycle generation its bankability. Lenders will also be
is designed for flexible use to better closely watching the performance of
handle the quicker shutdown and nascent projects such as NextEra’s
start-up environment of today. Insurers Arizona projects.
are wary of newer generation assets

Onshore Wind – Warranty Expiration a Category 3 hurricane, the strongest
hurricane strength to make landfall in
G-Cube estimates that approximately New England in recorded history.
1/3rd of all wind turbines globally
are reaching the end of original Design standards need to be
equipment manufacturer (OEM) addressed to ensure projects can
service agreements and entering withstand anticipated hurricane-
long-term operations and force winds, as was done for this
maintenance (O&M) contracts either project. Insurers also want to see
with their OEMs, non-OEM operators such projects successfully withstand
or, in the case of large project owners, hurricane-force winds, as designed. “Prudent project owners
self-operation. These programs Additionally, insurers have concerns
vary in length as well as scope - with potentially extended repair
ensure that inspections
scheduled only to scheduled and periods as the project locations are are completed near the
non-scheduled contracts. Typically, less accessible, and getting cranes to end of the warranty period
insurers carry higher risk of loss once the locations to facilitate repairs can
OEM warranties expire. Where the be challenging and expensive. detailing repairs needed,
post warranty O&M contracts exclude so that the OEM can make
unscheduled maintenance, insurers Wildfires
any necessary repairs
look to increased deductibles.
Prudent project owners ensure that Insurers paid billions in 2017 for before warranty expiration.
inspections are completed near the wildfires in California and the Pacific Unfortunately, such
end of the warranty period detailing Northwest. Given the greater
repairs needed, so that the OEM can frequency, greater unpredictability and
inspections are often missed,
make any necessary repairs before greater severity of such fires, insurers such that project owners
warranty expiration. Unfortunately, are hesitant to continue to provide and their insurers become
such inspections are often missed, wildfire coverage. Clients with this
such that project owners and their exposure will pay more to maintain the responsible for such repairs.”
insurers become responsible for coverage they have, and some may
such repairs. Insurers see an uptick struggle to secure coverage.
of losses once warranties expire,
including issues with gearboxes, Cyber
blades and other equipment.
Cyber threats in the US continue
Offshore Wind to grow, with several firms severely
impacted by the Petya virus.
US Offshore wind projects present a
challenge to insurers as wind turbines While Petya and other cyber events
are subject to damage from heavy did not significantly impact the US
winds commonly found along the east Power industry, utilities and the
coast. These areas have favourable electrical grid remain potential targets
conditions for wind generation, to hackers and cyber-criminals.
but carriers are hesitant to provide Generators are spending more time
coverage for these projects due to the focusing on this exposure, and many
hurricane exposure. The Block Island are purchasing cyber insurance.
Wind Farm was designed to withstand
Capacity performance/pay for events lasted less than five hours.
performance- dynamic pricing Most of these events occurred in
periods of extreme temperatures,
In the winter of 2014, approximately with 42% in temperatures above 90°F
22% of capacity committed to grid and 22% in temperatures below 20°F.
operator PJM’s Regional Transmission No PAHs have occurred since the CP
Organization (RTO) was unavailable requirements were developed7.
due to cold weather-related problems
(interruption to gas supplies, etc.)6. Improved reliability
Consequently, PJM and Independent
System Operator ISO New England As a result of CP requirements and
introduced Capacity Performance penalties, generators have taken
(CP) and “Pay for Performance” steps to improve their reliability to
(P4P) requirements, respectively, minimize the likelihood of a Forced
for generators feeding their grids, Outage event that might trigger
to ensure that these organizations these penalties, by modernizing
could meet peak load requirements their equipment, securing fuel
under emergency conditions. Under supplies and adapting their facilities
the new rules, failure to generate to use different fuels. In addition, to
in an emergency when called can minimize their risk of penalties, many
result in significant non-performance generators are altering how they
penalties. These penalty payments bid into the grid-operators capacity
are sent to generators that provide markets, and by pooling with other
the energy that those called upon generators. Generators can also
could not. This approach serves as an purchase replacement power on the
insurance policy for the grid operator, spot market, should they sustain an
to prevent power outages. outage, to minimize their penalty risk.
Generators have few exceptions Mandatory penalty structure

for not performing including pre-
approved maintenance or planned While the rules were written in 2015,
outage, or the site has been the penalty structure becomes
dispatched down for economics, mandatory for these generators
based on cost based offer or beginning in 2018. By June, 2020, CP
reliability reasons. will become the only capacity product
in PJM. While there have been no
Emergency Conditions emergency conditions triggering
potential penalties since 2014,
Emergency conditions are rare. A generators remain concerned that
“Performance Assessment Hour” they could potentially lose millions
(PAH) represents each whole or in a few hours. While potentially
partial clock-hour for which an solving the grid operators’ problems,
Emergency Action has been declared. the penalties created significant
From 2005 to 2017, only 164 distinct uninsured risk to generators in the
(PAH) events totalling approximately form of these heavy non-performance
755 hours have occurred within assessments, which property insurers
PJM, representing just 0.68% of all view as penalties.
operating hours. On average, these
6
Tenaska presentation “PJM Capacity Performance”, September 18 2017 (slide 4)
7
Michael Borgatti, Global Associates, “Longview Power Capacity Performance Insurance Product Discussion” - www.globalassociates.com

Special forced outage policies PJM proposed modest changes in
2017 to make up for the mismatch
Special insurance markets, including between fixed costs and marginal
Swiss Re and Lloyds, developed price-based energy markets.
special forced outage policies to Essentially, baseload units never
insure this “penalty” risk. When these intended to work in a flexible
policies were introduced, pricing was configuration are being asked to
steep and take-up low. In 2017, AEGIS do that now. This is because PJM’s
and HSB began offer similar coverage original plan favors nimble low
for this exposure. With this new variable cost, over high fixed cost
competition, and as these insurers baseload resources. Since it was
have become more comfortable with important to PJM reliability to ensure
the exposure, pricing has decreased. that baseload operators, including
Additionally, limited coverage for this coal and nuclear assets, are available
exposure has been creeping into in emergency conditions, PJM is
property policies, subject to high providing them with more favourable
monetary deductibles and modest pricing treatment than lower variable
sub-limits. However, most property cost generators (CCGTs). Effectively,
policies exclude these penalties and the most expensive generation
any embedded coverage provided dispatched by PJM will set pricing
does not meet the needs of most going forward. This change only
clients. Separate forced outage impacts pricing and not dispatch, at
policies still provide the most this time.
comprehensive coverage available,
with a broader coverage trigger and While currently CP/P4P pricing is in
without the day deductibles present place only in ISO New England and
in typical property policies. Still these PJM, other US grid operators such as
stand-alone policies do not offer ERCOT (Texas) and MISO (Midwest
complete protection, as PJM can US) are considering developing similar
assess fees in the event of a grid approaches for their RTOs/ISOs.
outage (outside of the generator’s
control), and the forced outage
policies only respond to events that
occur within the generator’s facility.
Insurance market update market hardening, but we expect
modest firming overall in the sector
2017 North American Power market
through 2018. This market correction
starts soft
could end by the end of 2018, given
the abundance of available market
Throughout 2017, the US Power
capacity and the possibility that
Generation Market, along with the
projections of insurer storm losses
Energy market overall, was softer than
might be overstated. Results for each
the general US Property marketplace.
client will vary, depending on loss
Key markets for the thermal power
history, CAT exposure, and which
sector in North America remain
insurers are involved.
Associated Electric & Gas Insurance
Services (AEGIS), AIG, Liberty
Differing underwriting stances
International, Munich American, Swiss
Re, FM Global, and Zurich. Insurers Some insurers such as AIG and Swiss
writing thermal power generation also Re sustained heavier CAT losses in
entertain renewable energy risks, 2017 than the others. As such, these
along with HSB and AXIS, as well as insurers began pushing for rate
MGA’s GCube and PERse. increases in September. Conversely,
AEGIS and FM Global, who sustained
Cat losses stabilize the market -
smaller storm losses, continue to offer
modest firming expected
more competitive terms and push
for growth in the sector. There is still
Following the active hurricane season,
significant domestic North American
both general Property and Energy
capacity available, estimated at over
markets firmed at the end of 2017.
US$3 billion for the right accounts,
The 2017 hurricane season has been
although this drops off significantly if
one of the most active and financially
the risk has extensive loss experience
disruptive in history, with losses to the
or catastrophe peril exposure.
insurance industry expected to exceed
US$100bn8. Power generation risks
Michael J. Perron is Northeast Region
weathered the storms better than
Property Placement Leader – Energy
other industries and ample market
& Engineered Risk, Willis Towers
capacity remains to temper severe
Watson North America
8
Willis Towers Watson Market Place Realities 2017
International
Middle East licensed in the DIFC during 2017.

The majority of this new capacity
The Middle Eastern market, which has
comes from reinsurers who wish to
been a growing hub of reinsurance
“follow” the terms of a technical lead
capacity in recent years, has matured
reinsurer, rather than act as a leader.
at considerable pace to keep up
with its international counterparts in Underwriting philosophies modified
order to become a key reinsurance in light of recent losses
market for complex Property,
Downstream Energy and Heavy The power industry losses in the
Industry risks (amongst others). region during 2017 have acted as
This growth has been accompanied a catalyst for some reinsurers to
by substantial claims activity, with modify their underwriting philosophy
a number of complex property and and approach in the region during
machinery breakdown claims. This Q4 2017. The Middle East market
factor, combined with a much closer is not necessarily going through a
alignment with its international hubs, stage of “hardening” with automatic
as well as global claims activity, has rate increases, but instead is
led underwriters in the Middle East becoming a more “fussy” market.
to review their book of business, It is uncertain at this stage to what
appetite for renewing business extent the reinsurance market will
and the outlook for entertaining remain in this fluid state but, in line
new business. While no issue is with global carriers headquartered
responsible in isolation for a less in the UK and Europe, we can
optimistic underwriting appetite, expect a more comprehensive
2017 has seen a shift in the rhetoric underwriting approach for power
emanating from reinsurers regarding risks in the region and a greater
what the reinsurance market may look focus on risk engineering and
like in the near future. individual claims activity.
Guidelines from Head Office have

influenced many underwriters to limit Australasia
the “broad brush” reductions that Whilst significant capacity continues
have been witnessed in recent years, to be available in the local markets
and it is relatively common for well- in Australia and New Zealand, in our
running business to be renewed at opinion premium rates have started
flat premium rating. to creep up by c.5% - 10% following
the bottoming out of the soft market
Growth of DIFC conditions of recent years. The
market is now being driven by insurer
The Dubai International Finance
results which, for many organisations,
Centre (DIFC), as one of the major
have been less than desirable. The
reinsurance hubs in the Middle East,
larger power companies in Australia
continues to grow during 2017, with
and New Zealand also engage with
a series of MGAs being licensed in
the global insurance markets, and
the last 12 months, as well as further
so are affected by the global trends
international carriers becoming
described above.
Insurers are becoming more selective
regarding the quality of risks for
which they will offer capacity and
some are now willing to walk away
from business that in their view is not
adequately priced.
Lead insurers such as AIG, Chubb,

QBE and FM Global offer significant
capacity locally and remain committed
to clients that continue to meet their
engineering and risk control standards.
AXA Corporate Solutions, Allianz

Global, Berkshire Hathaway, Liberty
International, Swiss Re, XL Catlin,
HDI and Zurich continue to support
programmes in the power sector.
Asia
The Asia marketplace in 2018
Singapore continues to strengthen

as an insurance and reinsurance
hub for power business in Asia.
International insurers with local
subsidiaries operating across Asia
have regional hubs in Singapore,
with full underwriting authority and
no requirement to refer to their
home offices for approval. Likewise,
international reinsurers all have
regional offices in Singapore with the
same degree of authority.
In recent years a number of European

insurers, such as Allianz Global
Corporate Solutions, Axa Corporate
Solutions, Zurich Insurance and
more recently HDI, have increased
their penetration into the Asian
power markets. In contrast, Lloyd’s
companies writing power business
from Singapore have found
themselves squeezed by the company
markets’ capacity and pricing;
the Insurance Insider reported in
November 2017 that Lloyd’s Asia’s top

line fell for the first time in five years Underwriters in the region have
in 2016 (by 5.9%), and that CV Starr generally maintained a disciplined
had closed its Lloyd’s Asia platform to approach to coverage and deductible
new business. levels, a factor differentiating this
longstanding soft market from
Middle East markets with offices in previous soft markets, without which
Kuala Lumpur and Singapore have underwriting results would almost
strengthened their offering in the certainly have been significantly worse.
power insurance sector. Korean
insurers also offer significant capacity However, there is still some
on domestic and regional business, divergence between the requirements
and Chinese insurance companies of international “specialist” or
can not only retain significant shares “technical” power markets for
of most domestic power risks, but minimum deductibles and those of
also offer significant capacity at some local insurers in the region.
attractive terms for power accounts Furthermore, a number of power
in the region where the project has projects entering their operational
Chinese financial interest. phase with “unproven” or even
“prototypical” technology have been
Market conditions in 2017 able to secure relatively low premium
rates and deductibles, compared
The first three quarters of 2017 saw to international norms, as ultimate
continued market softening in Asia, underwriting authority lies in the
as oversupply of capacity drove regional offices in Singapore.
the market ever downwards. This
was despite the sector as a whole To what extent will we see the end
remaining challenging for insurers, of the soft market in 2018…and for
who continue to incur attritional how long?
losses in the face of declining
premium rates. Insurance buyers in Asia are waiting
to find out to what degree the
Risk selection has remained a key hurricanes in the US will affect the
strategy for insurers striving for Asian power market. There are
profitability in this challenging sector, certain factors to consider:
maintaining a high level of competition
for those power companies who
The Power market in Asia is
can demonstrate superior risk dominated by international insurers
management and a good loss and reinsurers, all of whom have
record – these companies will have exposures to the losses in the US
enjoyed another round of respectable and are seeking rate increases
premium savings this year. Buyers across most lines of business and in
with losses and/or a poorer risk most regions of the world as a result.
profile have been judged on their
Power business continues to
own merits, but also have benefited present challenges to insurers’
from a certain degree of leverage profitability, with continued
in negotiating renewal terms in an attritional machinery breakdown
oversupplied market. losses documented year on year
around the globe, including Asia.

The performance of insurers’ power Home Office for authority to break “Much will depend on the
portfolios has been masked to with the corporate message in an
some extent by better performing effort to protect key accounts from
impact that the January
general Property business. This being lost. 2018 treaty renewal season
mask has effectively been removed will have on insurers’ cost
by the catastrophic property losses Much will depend on the impact that
suffered this year, and therefore the January 2018 treaty renewal base, and to what extent
Power, like other specialist Property season will have on insurers’ cost they need to pass increases
classes, will fall under even more base, and to what extent they need
in treaty costs onto their
scrutiny as insurers look to shore to pass increases in treaty costs
up underperforming business lines. onto their own customers, the own customers, the original
original Insureds. Reinsurance treaty Insureds.”
Messages from the international commentators to date have noted
insurers and reinsurers being that it is taking much longer this
delivered in Asia in recent weeks year for reinsurers to offer renewal
range from the strongly expressed terms, so at the time of writing the
opinion that we have reached the likely impact of international, regional
end of the soft market and a market or even local treaty renewals on the
‘correction’ in rates is now required, Asian insurance market in unclear.
to what may be a more realistic view Whilst the general consensus is that
that the levels of rate reduction seen power market conditions will change
in recent years will no longer be in Asia, the reality is that until early
achievable but rate increases will not 2018 we won’t know for sure to what
be at the levels desired by the more extent and even then, for how long.
hawkish underwriters. Perhaps a degree of resilience is
found in this regional marketplace,
Regional and local underwriters which will protect buyers from what
tasked with delivering these others could be facing even outside
messages from their Home Office of the US. The Asian power market,
find themselves in a potentially whilst very much a strain on insurer
difficult position, as carrying out these profitability, remains well capitalized
instructions will most likely result and with a healthy blend of local and
in a fall in existing revenue. Unless international insurers and reinsurers
the market moves as one, attempts remaining committed to this sector.
to increase rates on better quality
business will present opportunities Commentators have speculated
to other insurers to cherry-pick that without a global retraction in
the most profitable accounts. With capital to the insurance market,
no sign of any reduction in capital only a regional catastrophic event
available in the Asian market, the with significant resultant insurance
inevitable consequences of an excess claims would be sufficient to really
of capacity over demand can only turn the market in Asia. Whilst we
dampen underwriters’ spirits further. have experienced numerous natural
disasters in the region, causing
It will be interesting to see the extent economic loss and appalling human
to which regional power underwriters tragedies, insurers have not seen any
in Singapore have to refer to their major insured losses in recent years.

Latin America Latin America´s Power market
has suffered important claims,
The Latin American power industry
especially in Puerto Rico and the
remains on a path for growth, due to
Caribbean due to the hurricanes.
growing demand and commitment
Finally, the emerging risk of cyber
from governments to expanding
and the insurance protection which
generation, transmission and
is available starts getting attraction in
distribution sectors. However, in 2017
Latin America.
the weak economic outlook in Latin
America has dampened somewhat Will Peilow is an Executive Director,
the power investment growth, which Downstream Natural Resources,
is expected to rebound in 2018. Willis Towers Watson
The power market outlook in this Stephen MacDermott is Broking

region can be summarised as follows: Director for Mining and Power, Willis
Towers Watson Australia

Other than hydro, renewables will
be the outperforming generation Steve Jenkins is an Executive
type for new investments. Director at Willis Towers Watson
Attractive government policies and Singapore
falling investment cost/MW for
renewables are important factors in Marc Vermeiren is Power & Utilities
that respect. Regional Industry Leader, Latin

Oil and coal fired are expected America, Willis Towers Watson
to lose share in the generation
portfolio.

Nuclear will retain a stable share
of about 2% in Latin America
as a consequence of planned
investment in Argentina.

Brazil, Mexico and Argentina will
continue to be leaders in terms of
percentage MW capacity in Latin
America. Chile, Peru and Panama
are expected to outperform for new
power investments.
In respect of the insurance market,

Latin America´s insurance capacity
for large power projects remains
the international markets in Miami,
London and Spain. The Brazilian
insurance market remains strong
for Brazilian power risks and is
also expanding internationally (for
example, IRB). Some important global
insurers also have underwriting
capacity from other countries in Latin
America, being Mexico, Colombia,
Chile and Argentina.
Conclusion: is this the turn of the tide?
Although it may appear that the soft 2. The impact of the reinsurance
market conditions of recent years buying season on the direct energy
have come to an end, it is possible market remains unclear. We will need
that they have only been put on hold. to be several weeks into 2018 before
While conditions in Q4 of 2017 and we can determine whether what
Q1 of 2018 will be more testing for we’re hearing now is the first sign of a
insurance buyers, especially those genuine turnaround, or nothing more
with a poor claims experience and/ than wishful thinking.
or located in cat-exposed regions, it
is too early to tell whether the global 3. Overall supply may remain
insurance market for power and stable in 2018. A number of Lloyd’s
energy companies and other buyers syndicates, sensing a hardening
has truly ‘turned’. market environment, are taking
the opportunity to scale up their
We consider that there are three key operations, and they may be followed
factors: by other insurers; this may balance
out any potential withdrawals. And
1. Hurricane losses on their own may if the same amount of capacity
not be enough to turn the markets. It’s continues to be available, simple
clear that in the immediate aftermath economics suggest any market
of these storms, the insurance markets hardening will be difficult to sustain in
have become more challenging for the long term.
brokers and buyers, but maintaining
a hardening dynamic in the face of Even if insurers do succeed in
record levels of underwriting capacity reversing the soft market trend of
will be just as challenging for insurers. recent years, any harder market
Ironically, they may fall victim to the environment may be relatively
global insurance market’s increased short-lived. In the Baden-Baden
resilience (as discussed above) – while Reinsurance Symposium in
a US$100bn loss event would almost October a representative a market
certainly have turned the market a few representitive observed that after the
years ago, it is difficult to see it doing last hurricane-hit year of 2005 there
so today. Insurers may find themselves were “three renewal periods when
in the worst of both worlds – liable for tariffs increased, but no more than
US$100bn+ in claims, but unable to that”. Given that the market today is
lift, and more importantly sustain, their much better capitalized than in 2005,
pricing to the levels they perceive to the timescales for a return to more
be appropriate. benign market conditions could be
much shorter.
David Reynolds is an Executive

Director, Downstream Natural

Part Four:
new perspectives on
people and risk

De-risking supply chain disruption
to wind energy projects
Background – the supply chain and insurance to manufacturing
breakdown headache companies. Interestingly, the majority
of disruptions in the supply chain are
A company’s supply chain is a vital part not attributed to physical damage of
of its operations and usually involves components/materials. Rather, the
complex networks and relationships main causes were reported to be the
with multiple stakeholders. Businesses unplanned IT or telecommunications
tend to ignore or underestimate their outage, the cyber-attack and data
supply chain risks and therefore the breach events, the loss of talent/skills
potential consequences of supply and the outsourcer failure. Adverse
chain disruptions. weather and fire filled the sixth and
seven positions respectively, following
Indeed, according to a survey
the transport network disruption.
conducted by Business Continuity
Institute and Zurich insurance company Harsh consequences
in November 2017 regarding the uptake
of supply chain resilience plans by The consequences for the company
organisations, 65% of companies have can be harsh; around 23% stated that
suffered supply chain disruptions. Yet the incurred cost from the disruption
over 7% of organisations do not identify was above €1million. The most
their key suppliers at all and as many significant consequence according
as 63% stated that they do not use any to the survey was loss of productivity,
technology for analysing, monitoring or followed by the increased cost of
tracking their supply chain1. working (see Figure 1 overleaf).
Causes often non-PD/BI correlated
Respondents came from different

industry sectors, ranging from financial
1
Business Continuity Institute - Zurich: “BCI Supply Chain Resilience Report 2017”
Figure 1 Consequences of disruption
Loss of productivity 55%

Increased cost of working 46%
Customer compliants received 43%
Service outcome impaired 34%
Loss of revenue 32%
Stakeholder/shareholder concern 31%

Damage to brand reputation/image 31%
Delayed cash flows 20%
Product release delay 17%

Expected increase in
regulatory scrutiny 14%
Loss of regular customers 14%
Payment of service credits 11%
Share price fall 9%
Product recall/withdrawal 8%
Fine by regulator for
8%
non compliance
0 10 20 30 40 50 60
Source: BSI, 2017
Wind Projects can be particularly

vulnerable
Figure 2 Onshore wind turbine farm Nevertheless, taking the supply chain
risk out of wind projects remains of
vital importance to financiers. Our
own Willis Towers Watson supply
chain experience with wind project
developers has been established over
the last three years and we are aware
of developers’ increasing concern
regarding the potential for non-
delivery to project sites, given the tight
timeframes that are often involved.
Consequences of disruption
Should a wind energy project

Within the renewable energy sector, experience a supply chain disruption,
the challenges faced in securing the consequences can be severe
resilience of supply chains differ and multifaceted. The wind energy
according to the type of the energy project developer could suffer loss
technology and the size of the project. of government subsidies, liquidated
The supply chain network for wind damages, cost overruns and damage to
energy has grown substantially over reputation; lenders would be concerned
the last few years, with many tiers about not getting compensated for their
involved in the manufacturing of interests as a result of the project’s
nacelles, blades, towers, cables and loss of productivity. Finally, contractors
even raw materials. may not be able to complete the EPC
contract as a result of the project delay.

Typical insurance programs for The Willis Towers Watson/
construction and operation of wind Zurich supply chain solution
turbines do not cover delays
A broader solution across all supply
Typical products covering risks during chain stages
construction and operation stages
of the wind turbines include policies To meet developers’ growing requests
such as Marine, Delay in Start Up, for risk coverage across all stages
Business Interruption, Construction of the supply chain, Willis Towers
All Risks, Operational All Risks and Watson now works closely with Zurich
Third Party Liability for each phase. insurance who have an extensive
However, these covers cannot cover market experience in the design of
a consequential loss from the delay insurance products that would include
in the supply chain, since they only the coverage of supply chain risks,
trigger in the event of physical loss including the manufacturing of the
or damage to property. The key real wind turbine generators up to the
risk of non-delivery therefore remains commissioning stage.
uninsured unless a separate risk
This supply chain solution uniquely
transfer solution is implemented.
includes insolvency of wind turbine
There is therefore a gap in cover which manufacturers and their Tier 2 and 3
can be addressed through a tailored suppliers as well as fire, storm surge
risk transfer solution - namely Willis and IT risks, to name but a few. In
Towers Watson’s Renewable Energy fact, there are numerous risks along
Supply Chain insurance product. the spectrum from the manufacturer
to the project site (as shown in Figure
3 below):
Figure 3 wind turbine supply chain risks
Manufacturing Loading at port Transportation Erection/construction

Physical damage to manufacturing
Loading risks
Shipment delay due to port
Bad weather delays turbine
sites, such as fire, flood,
Shipment delay due to port blockage erection
stormsurge and cyber attack blockage
Equipment damage during
Crane cannot access the site

Insolvency of wind turbine
Labour disputes/strikes transportation
Crane unavailability
manufacturer

Absenteeism/Strike of key staff

Unavailability of turbines
manufacturers hired in plant
leading to failure to manufacture
units
Infectious disease at premises
used for overnight accomodation

Political risks by the service team

IT risks
Supply chain risk coverage – all Although some exclusions apply
risks, inclusive of insolvency to this package (quality recall, war,
terrorism and regional pandemics)
Our combined supply chain solution the product is designed to be an
offers an ‘All-Risks’ business attractive solution for renewable
interruption cover throughout the energy developers and investors alike.
supply chain of the project, from
manufacturing of the wind turbine Willis Towers Watson has developed
generators to site delivery, including the risk solution with Zurich to offer
some unique coverages such as: developers a high value de-risking
solution via a three-step process,

insolvency including an indicative quote, a

targeted cyber-attack supply chain risk assessment and a
firm quotation, as illustrated in Figure

tax liability
4 below.

political risks
Figure 4 - a three step supply chain risk process
1. Indicative quote 2. Risk assessment 3. Firm quote
1. Indicative quotation: This stage calculated, including the Estimated

involves the collection of high level Maximum Loss (EML) and the
information on the company’s part, Probable Maximum Loss (PML)
by means of a short “Health Check” scenarios2.
questionnaire, with the aim to 3. Firm quotation. Zurich will then
determine appetite and criteria. calculate their premium based on
2. Supply Chain Risk assessment: the sums insured using the rating
During this stage, Willis Towers based on the scoring from the
Watson and Zurich produce an full risk assessment of the supply
extensive Supply Chain Risk chain. It allows Zurich to score the
Assessment report covering the supply chain against 26 key factors.
whole supply chain of the project. The risk assessment document
The risk assessment will determine produced from this process forms
the full exposure to the project the basis for the “Firm quotation”
including the vulnerability of the delivered by Zurich.
supply chain. The sums insured are
2
The EML is the largest monetary loss suffered by the insured that maybe be expected to occur as even with specified contingency plans impaired.
The PML scenario is the largest monetary loss suffered by the insured that maybe be expected to occur as even with contingency plans in place,
such as a strike or port blockage.

Figure 5 - a typical supply chain health check three step supply chain risk process
Supply chain health check – How resilient is your project supply chain? Yes No
1. Do you know who the critical suppliers of the wind farm components
are, and how much their failure would impact your company’s profits?
2. Have you fully mapped the critical supply chains of your wind energy
project upstream to the raw material level and downstream to the
customer level?
3. Do you have a risk management process in place for your supply

chain?
4. Do you have routine, timely systems for measuring the financial

stability of critical suppliers?
5. Do you understand your tier 1 production facilities and logistic hub

exposures to natural catastrophes?
6. Is supply chain risk management integrated into your enterprise risk

management approach?
7. Do you record the details of supply chain incidents and the actions you
have put in place to avoid future incidents?
8. Do your tier 1 suppliers have business continuity plans that have been
tested in terms of their viability?
9. Have you provided risk training to your supply chain management

team?
10. Is risk on the agenda at performance meetings with your strategic

suppliers?
As developers become more aware of If you would like to discuss your

this innovative risk solution to de-risk renewable energy project and
their projects, there is a quick way to understand the vulnerabilities of your
‘sense check’ just how vulnerable the supply chain, please contact us!
specific project might be as set out in
figure 5 above. Adam Piper is an Account Director,
Renewable Energy, Willis Towers
Watson Natural Resources
The future of power and energy captives
Introduction – a renewed How are captives being used for
interest from the power and power and energy risks?
energy market?
Power and energy companies
Captives have historically been have typically been enthusiastic
quite prevalent in the power and adopters of captive strategies.
energy sector. The ability to build Captives compliment the strong risk
cash reserves through risk retention, management emphasis of power and
access greater capacity and exert energy companies. Being typically
greater control over insurance large and complex organisations,
programme design has traditionally power and energy companies benefit
appealed to the large and complex from captives’ ability to centralise
power and energy companies. risk and insurance arrangements
through a central ‘hub’, giving greater
However, like everything, the visibility of risk and collecting and
relationship that the power and consolidating risk management data
energy sector has with captives is which can be used to identify risk
subject to change. The extended management improvement initiatives.
period of macro-economic depression
and then uncertainty from 2008 Many power and energy companies
until relatively recently, negatively benefit from healthy balance sheets
impacted captive utilisation across and risk bearing capacity and given
most industry sectors including the the investment in risk control and risk
power and energy sector. management that is typically present
in the sector, captives provide a
More recently, there has been perfect vehicle to take advantage of
an increase in interest in captive both the ability and the confidence to
utilisation. The explanation for this retain risk.
renewed interest can be explained by
the desire for the core risk financing
benefits that a captive can provide,
but also in some new developments in
the captive industry.
How are captives adapting to between loss events, the ability to “Captives are rapidly
a new environment? firstly model the operations risk
adjusting to the new reality of
profile, and then use these insights to
The emerging trends that provide an make financially beneficial retention a more interconnected global
insight into the evolution that captives decisions is of paramount importance.
are currently experiencing is arguably economy, where human
more interesting and exciting. Broader risk profile associated with capital is now, more than
new ways of working ever, seen as the greatest
In general, the two most notable
evolutionary traits that captives have asset a company can have.”
It is not a coincidence that the major
displayed in recent times have been: trends and innovations of the captive
industry in recent years have been in

the utilisation of data to optimize areas such as human capital benefits,
risk financing arrangements; and political risk and cyber liability to

the way in which they mirror the name but a few – these represent the
evolving risk profile of power and fastest growing risks of most major
energy companies accommodating corporates.
a far broader range of risks.
Captives are rapidly adjusting to the
Data and captives new reality of a more interconnected
global economy, where human capital
Data has become valuable currency is now, more than ever, seen as the
in all facets of life in recent years and greatest asset a company can have.
the capacity of captives to act as a
repository for risk management data The emergence of captives as
has grown exponentially as a result. viable insurers of employee benefit
risk is one of the most noteworthy
Through the correct usage of their developments in recent years and
own data, power companies now have exemplifies the evolution of captives
a wealth of insight to inform what and from vehicles for ‘traditional P&C’
how they retain risk and this has led risk to enterprise wide risk solution
to an emergence of captive owners vehicles. The ability for power
who speak in terms of “optimal companies to have more flexibility
retention structures”, “portfolio benefit in employee benefit design and
maximization” and “maximization execution could have profound impact
of return on equity” – a genuine of talent attraction and retention in a
insurance mind set. This has led to period of a well- documented ‘talent
the pursuit of more sophisticated war’ within the sector.
structures such as multi-year, multi-
line programmes, to refine and This broadening of captives’ risk
optimize how corporates finance their profiles has also improved the
risk and provide additional cash flow efficiency of captives through
benefits - something that most mine increasing diversification benefits but
operators would welcome. also ensured that they remain relevant
to the key risks corporates face today.
In a sector with complex and
potentially high severity risks, with
high degrees of interdependencies
Increasing globalization of captives However, it is important to stress that
having a captive in a location where
Another trend which has become corporate tax rates are lower (relative
more evident in recent years is the to the organization average) does not
increasing global spread of captive imply wrongdoing, nor should captive
hubs or domiciles. Historically, owners be unduly concerned.
captives congregated in a handful of
captive strongholds such as Bermuda, Positive preparation
Luxembourg and Guernsey. However
there are now over 60 recognized What is important is positive
captive domiciles with insurance preparation. Although the ultimate
legislation specific to captives. guise of BEPS in all jurisdictions is
still to emerge, there is enough in
This development underlines the the principles covered in the OECD
growing demand for captive solutions guidance for captive owners to be
outside Europe and the US, and is preparing for. A sensible first step on
a reflection of the globalization of the preparation project journey, and
modern business environments. something we are recommending
to captive owners through our
proprietary proposition, RADAR, will
Current challenges to the
be to review the captive’s position in
industry – Base Erosion and
relation to the principle expectations
Profit Shifting (‘BEPS’)
of the BEPS package. Measuring
One of the most significant challenges the captive against key metrics,
facing the captive industry is and documenting where positive
BEPS, which is an Organisation compliance can be demonstrated, and
for Economic Co-Operation and where remedial action is required will
Development (OECD) led taxation allow captive owners to begin thinking
initiative, expected to become a about BEPS in specific terms that are
global taxation standard. This initiative actionable. This can lead to a BEPS
aims to renovate global taxation preparation plan which ultimately puts
frameworks and ‘close the loop’ in tax the captive owner in control of the
legislation which allows multinational challenge and removes much of the
corporates to artificially shift profit to uncertainty that currently exists for
lower tax jurisdictions and reducing many captive owners.
their overall tax bill. Although the
measures introduced by BEPS are
not specifically aimed at captives,
as subsidiaries of large multinational
companies they fall within its remit.
It is likely that many companies in
the natural resources sector will
own captives in locations where the
corporate tax rate is lower than that of
the headquarter jurisdiction, and if this
characteristic applies, so may BEPS.

Implications for the power with the numerous external forces
sector impacting a captive approach, results
in the “shelf life” of a given captive
So what conclusions can the power strategy becoming potentially shorter.
sector draw from these developments?
However, this should not be viewed
Utilization of data to achieve a more as a negative development as the
analytical approach greatest benefit of a captive is its
ability to adapt and transform to meet
A common theme ties the various
the demands of the group as and when
developments observable in the
they change. If reviewed regularly, the
captive industry of today – captives
enhancements to strategy will take the
have continued to keep pace with
form of incremental improvements as
economic and risk management
opposed to any fundamental change in
developments. Big data, cyber
the strategic direction of the captive.
risk, changing work places and
practices, and challenges related to Conclusion: a flexible and dynamic
the governing of an interconnected tool
global economy are all terms that will
be encountered when reading any To conclude: a captive remains a
commentary of today’s economy. flexible and dynamic tool for the
Utilization of data to achieve a more management and financing of
analytical approach, accommodating the traditional risks associated
risks such as employee benefits and with operating a power plant,
cyber, and aligning to regulations but significantly it can also prove
designed for interconnected global an effective tool for dealing with
economies through BEPS suggest emerging risks associated with
that captives have more than kept more sophisticated work practices.
pace and are displaying the ability to The benefits of a captive strategy
‘future proof’ themselves. also now span further than the risks
typically under the remit of the risk
Periodic review and realignment of manager and can be considered on a
captive deployment truly enterprise wide basis.
However, none of these benefits Ciarán Healy is Director of Consulting

will happen automatically. Captive and Development for the Willis Towers
owners who derive the best value, Watson Global Captive Practice
and maintain the greatest relevance
from their captive strategy, employ
a periodic review and realignment
approach to their captive deployment.
The rate of change in the risk profile
of power companies, with changing
work practices, regulations and
commodity price volatility, together
Connected, automated, innovative – the
future of work in the power industry
Introduction – the power
Networked energy management,
industry is transforming! in combination with predictive
data analytics, brings more
Power is key to driving human efficiency and network stability.
progress. With digitalization and Connected buildings, as well as
technology, that progress is smart homes and cities, allow for a
accelerating in power generation, range of improvements in energy
distribution and consumption. management and everyday life. The
“Internet of Everything” has emerged.

New energy sources can be
utilized. Advances in generating
Customers will expect more
and storing renewable energy individualized services. As digital
mean that new market players and technology gives greater control
business models are emerging. over consumption choices,
Wind and solar are growing customers will expect higher and
significantly, but also (for example) more individualized level of services
geothermal, biomass and ocean than in the past.
energy may potentially be bigger in
the future. At the same time, power companies are
facing economic pressure to achieve

Generation is happening on a more greater cost competitiveness which
distributed basis and closer to puts pressure on business models. In
the consumer. Consequently, the other words, the challenge involves
consumer can control consumption “closing the demand gap and providing
through the use of smart-home value for customers profitably”3.
devices, gaining more influence on
energy related decisions.
3
https://www.strategyand.pwc.com/trend/2017-power-and-utilities-industry-trends
Business models are evolving – so Alliances speed up energy
organisations and people need to innovations
adapt
In order to speed up innovations in
Innovation trends, in combination with energy transitions, industry players
regulative legislation, are forcing the are collaborating and creating
industry to adapt or even reinvent partnerships. Some examples:
business models. For example, utilities
are utilizing blockchain to create a
GE Digital has partnered with
decentralized, efficient and reliable several other industry leaders,
energy system; it makes transactions such as Apple, Intel and PwC,
between market participants and innovators to join forces in
easier and less cumbersome. Many advancing the new digital industrial
organizations can collaborate on the era. Working together with Apple,
same blockchain with minimal need they are bringing industrial apps to
for human interaction, resulting in the market that provide predictive
flexibility and great efficiency benefits data and analytics from Predix,
for grid operators and distributors. In GE’s industrial Internet of Things
the future, consumers may be able to (IoT) platform4.
switch power suppliers easily by using
Fingrid is using IBM IoT’s
a blockchain platform. solutions to build a centralized
asset management and big data
Organizations therefore have to analytics platform5.
rethink and adapt operating models,
organization designs and (eventually)

Energy Web Foundation (EWF)6
is a global non-profit organization
the work itself and how it’s done.
focused on accelerating block
We have identified four major
chain technology across the energy
recommendations for HR to help drive
sector. Corporate affiliates, a set
progress, which we outline below.
of key leaders across the energy
sector, are the funders of EWF and
1 - Revisit organizational in return reduce transaction costs
design and create an agile for their processes, maintaining
network organisation their current position.
Organizations are setting up their
structures to adapt even faster to
market changes. There are several
trends in play to create more flexible,
effective organizational set ups:
4
http://www.genewsroom.com/press-releases/apple-ge-partner-bring-predix-industrial-apps-iphone-ipad-284065
5
https://www-935.ibm.com/industries/energy/
6
http://energyweb.org/
(Corporate) start-ups7 increase Corporation is a progressive example
speed to market of such a dynamic network-based
organization; they built a network
Large players in the industry are of entrepreneurial ventures run by
investing in start-ups as a way to employees, whose compensation
understand and test new concepts and is based on the success of their
adopting them into their processes. products in the market12.
Some of the start-ups to watch8:
Customer-centric organization design

Sympower focuses on
synchronizing household energy Market leaders in innovation put the
consumption with renewable customer first and even involve them
resources. in the value creation. For example,

DAJIE is using blockchain to enable Tesla is in the process of setting up
peer-to-peer energy sharing. a shared fleet program that allows
Tesla owners to rent out their cars

Swuto allows you to track and
and make money doing so to pay
compare one’s energy bill and will
off car loans and generate extra
automatically switch you to the
income13. Another example is ReGen
cheaper energy supplier. Villages, planning to apply a model
where residents will use technology
Corporates engage increasingly
to grow their own food and produce
in funding or co-creating start-
energy and water, allowing them to
ups. Accelerators and Incubators
sell excess goods and generate extra
facilitate founding of new enterprises.
income14. They are building the first
Enel’s Innovation Hubs9, E.on‘s
village in the Netherlands, and plan to
:agile accelerator10 and Engie’s
expand into Northern Europe.
open innovation platform11 are
just some examples of corporate In order to become that customer-
entrepreneurship. centric, organisations have to be set
up to design and deliver on the basis
Going agile and customer-centric
of rigid focus on the customer needs
and the customer experience. A
Agile team setups and flatter
customer-centric company strategy,
hierarchies with clear decision
followed by translation into operating
rights empower teams to act
model and organization design,
independently and take accountability
is key. Organizing teams around
for innovation in their respective
customer problems and setting up
area of responsibility. Small,
processes so that customers can be
empowered teams in a network with
involved in product development are
clear collaboration processes and
two examples of operationalization
routines are the right basis for fast
success.
progress and adaptability. The Haier
7
https://www.gepower.com/transform/article.transform.articles.2017.may.energy-industry-start-ups--how-are-they-changing-power-generatio
8
http://www.dexmatech.com/10-smart-energy-startups-follow-2017/
9
http://startup.enel.com/en/bulletin/innovation-hub-en
10
https://eon-agile.com/
11
https://innovation.engie.com/en/
12
https://sloanreview.mit.edu/article/leading-to-become-obsolete/
13
http://uk.businessinsider.com/elon-musk-reveals-tesla-shared-fleet-2016-7?r=US&IR=T
14
http://www.regenvillages.com/ Power and Renewable Energy Market Review 2018 114
2- Reconsider the best way to But even for employees work will
get the work done change, with 25% of employers
expecting to redesign work so that
46% of study respondents in the the tasks performed will require more
World Economic Forum’s Future of skills and 27% of employers expect
Jobs study see the changing nature to redesign work so that tasks will
of work as a top trend impacting require fewer skills, according to our
business models in the energy global Future of Work survey. Many
industry, directly after new energy of these organizations are doing both
supplies/technologies and climate simultaneously.
change/natural resources.
Identifying the tipping points
How work gets done in the future
In our view, it is important to take
Willis Towers Watson recently asked a differentiated perspective and
909 HR professionals around the “deconstruct work”. That means
globe for their opinions on the future identifying what task of a job shall
of work. Respondents expect that best be done by what resource:
three years from now automation
(artificial intelligences, robotic
Is it best to hire someone for a
process automation, robotics, etc.) will longer term?
on average account for 22% of work
done in their organizations.

Or should an external free agent be
appointed on a project basis?
Of course not all jobs face the same
Or does it make economic sense
probability of automation; for instance, to automate that task, for example
there is a 9.7% probability for electrical because it is of a repetitive and
power-line installers and repairers to high volume nature? When this is
be automated, whereas the power done, what makes sense to be left
plant operator has an 85% automation in the job?
probability15. Likewise, traditional full-
And of what’s left, does it require
time employees will still be the norm in more or less skills?
many parts of the industry.
15
https://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf
A “work scan” activity helps to identify the next one to two years in a recent
the tipping points of this change in Willis Towers Watson IT skills survey17.
the workplace. That means identifying
hard to fill roles, premier work and Redefining work strategy and work
jobs that have skill obsolescence or architecture
over supply. Those are the first jobs
to be rethought. What tasks can be These trends show that organizations
automated? What type of worker is have to rethink how work gets done
best suited to do particular tasks that and adapt both their talent and work
are not automated? What are the strategies and their job and work
costs and risks to be weighed? architectures accordingly. Talent and
Work Strategy takes into account not
There are already plenty examples just the supply and demand of talent
of robotic process automation in the and the needs of the future workforce,
industry. From customer records but also the supply and demand of
management and billing, to former work. It answers questions related to:
field technician work (measuring and how will work change with technology,
metering), and quality or safety control and what are the future requirements
jobs, often in high risk environments for the work and workforce? Job and
(e.g. power plants). In the field work architectures account for not
technician work example, if drones, just how jobs are organized in the
robotics and AI take over the routine organization, and their associated
work associated with measuring and scope of work, but also addresses
metering, the non-routine work in the emerging skills required for the
issue resolution may require new skills, work and recognizes where work
performance and training requirements. may be addressed by technology,
creating obsolescent skills. The World
And there are also new jobs emerging. Economic Forum’s Future of Jobs
One example: with increasing data report confirms: 80% of respondents
volumes, utilities are expected to invest believe that future workforce planning
more than US$ 20 billion in analytics (the supply and demand for talent
between 2012 and 2020, expecting a as well as the skills required) should
return of more than US$ 120 billion16. be a leadership priority for the
New roles include Data Scientists, Energy industry; furthermore, 59% of
Data Visualization Experts and Data respondents believe that strategies
Analysts. Big Data Analytics was should involve investing in re-skilling of
identified as the most wanted IT skill in current employees18.
16
http://www.pennenergy.com/articles/pennenergy/2014/05/market-research-big-data-analytics-for-utilities.html
17
https://cms.willistowerswatson.com/en/insights/2017/09/Attraction-retention-and-engagement-of-digital-talent
18
http://reports.weforum.org/future-of-jobs-2016/energy-2/

3- Build a culture of learning is a competency machines do not
and innovation master that well - yet. But the Future
of Jobs report identified that there will
The best structures and job setups be an even bigger demand for social
are worth nothing if employees do not skills. Emotional intelligence, empathy,
accept them and live them. An open- coordinating with others, relationship
minded, collaborative organisational building and cross-cultural sensitivity
culture with focus on innovation and are some of the most important
learning is needed to really thrive in competencies to navigate this new
the future of work. world of work. Leaders and managers
play an important role in preparing and
Continuous learning is especially
guiding their workforce through those
important, as new ways of working
changes. Leadership development
require new skills or even different
needs to be adapted accordingly19.
types of traits and attitudes. In Willis
Towers Watson’s recent Global Future Less than half of leaders actively
of Work Survey 67% of organizations planning
believe applying automation to work
will have a positive impact on workers. Respondents of our global Future
But only 40% of organizations report of Work survey confirm that in the
that their approach to organizational next three years leaders face major
design effectiveness and change challenges: today, only 43% of
currently accounts for the impact of respondents say senior leaders are
work automation. actively planning for and developing
ways to combine and automated
Adaptability, flexibility, willingness work. That will have to change quickly
to learn as 65% expect that leaders will need
to focus more on communicating
Most important will be for every worker
and leading change around the
to be adaptable, flexible, and willing
new combinations of humans and
to continuously learn, upskill or even
automated workers in the next three
reskill. Being able to use the potential
years. 61% think that managers will
of new technologies will be pivotal.
need to educate workers on how
Technical skills will be important if they
automation changes work during this
cannot be done better by machines
same span.
or if they are needed to creatively
develop new solutions – as creativity
19
https://hbr.org/2016/10/as-work-changes-leadership-development-has-to-keep-up
4- Define your Talent Value HR has a leading role to play in this
Proposition – and adapt HR endeavour. At the foundation is a
programs common experience and shared
practices for all workers; a Talent
In essence, the workplace is becoming Value Proposition serves that
more diverse; business as usual purpose. The organization clearly
doesn’t exist anymore. Your co-worker states what it offers every employee
might be a start-up entrepreneur, a and non-employee segment – and
freelancer, might be from another what it expects in return. Different
company – or might be a robot. You talent groups and their specific needs
have to collaborate and work towards are considered in every phase of the
a common goal – most likely involving talent lifecycle.
continuous rethinking and adapting
routines and work habits.
Figure 1 - from Employee Value Proposition to Talent Value Proposition
RECRUTING Mobile
Invited to the phone
company carrier
picnic discounts
O
NG
Behaviour
BO
NI
OI
e want you to
AR
EJ
“W ...”
DIN
OR
Traditional employees Outsourcing

BEF
Free agents
TVP Alliances
NCE
Talent platforms Volunteers

MA
LE
O ffe r ”
“W
e’ l l g i v e y o u . . .
OR
AV
I
RF
NG
PE
DEVELOPMENT
Complementary
Vehicle
access to
maintenance
health
discounts
insurance
marketplace

It starts with effective recruiting and Management (69%). A career
a positive and consistent on-boarding marketplace might be an adequate
experience. In our global Future of measure to match the right talent to
Work survey, only 2% agree that the the right opportunities20.
HR function of their organization is fully
prepared for identifying the emerging Pay programs and Benefits should
skills required for the business. Only also be harmonized. 60% of
2% feel that HR is fully prepared to respondents of our Future of Work
effectively match talent to the new survey agree that “breakthrough”
work requirements. And 30% think approaches and innovation will be
that “breakthrough” approaches will required in pay or benefit programs to
be needed for employer branding and ensure the challenges of automation
talent acquisition (60%) to adequately and digitalization are adequately
address the challenges ahead. addressed. One possible solution is an
online platform to provide contingent
Only 3% think that HR is fully workers with access to benefits, as
prepared for enabling careers our partner Stride Health provides21.
based on a more agile and flattened Modernizing Total Rewards programs
structure. Hence, 60% of respondents should also be a priority22.
think innovation is required in career
management, as well as Performance
20
https://www.willistowerswatson.com/en-TH/insights/2017/04/the-career-marketplace-what-the-future-of-work-looks-like
21
https://www.stridehealth.com/
22
https://www.willistowerswatson.com/en-TH/insights/2017/06/10-practices-to-overcome-outdated-tr-programs
Powering up – creating
Increased work flexibility e.g.
opportunities for the future scheduled hours to get work done
(68% of respondents)
With all developments happening
in the industry and in the broader
Improved collaboration and
business environment, the need for information sharing (63%)
change and innovation is undeniable.
more use of non-employee talent
It brings challenges that will often be a (not directly employed with the
stretch for workers and organisations. company) (50%)
Good communication and change
management will be key here. If Ultimately, it is about seizing the
managed well, new technologies opportunities and navigating one of
and the transformations both in the the most complex transformations the
business and in work structures offer industry has seen. As Peter Druker put
immense opportunities. On the one it: “The best way to predict the future
hand, our global Future of Work Survey is to create it”.
respondents state that the next three
years will bring: Anne-Marie Jentsch is a Senior
Consultant for Talent & Rewards at Willis

Work being deployed to other Towers Watson’s Amsterdam office.
locations (67% of respondents)
Tracey Malcolm is the Global Future of

More pay for certain skills sets (62%)
Work Leader for Willis Towers Watson

Less employees (49%) and based in their Toronto office.
But they also think the changes in Shankar Raman leads the
workforce and workforce activities Technology Industry Group and is a
will bring: Director in Talent & Rewards, Willis
Towers Watson, based in Boston.

Managing cyber risk in the power sector
No immunity, no boundary – the risk case scenario these attacks could

is systemic… result in infrastructure shut down,
triggering economic and financial
Cyber security represents a disruptions or even loss of life and
fundamental challenge for the massive environmental damage. The
power sector and a top priority for total impact to the US economy was
industry leaders. Malicious hacking, estimated at US$243m but economic
ransomware attacks, data leaks and losses could top US$1 trillion in the
electronic fraud are occurring on a most extreme version of the scenario.
global basis, where the motives vary
from financial, political or merely to The power sector remains vulnerable
cause disruption. The recent global to cyber-attacks and breaches from
ransomware incidents WannaCry and many fronts and the convergence
Petya have shown us that: of IT and operational technology,
the uptake of smart devices for

No one is immune. Attacks do not real-time operations management
need to be targeted at a specific and remote operations, and the
company or industry sector. adoption of cloud services are driving

Cyber-attacks lack a geographical significant change. The sector must
boundary. They are easily able to continue to refine and improve it
bridge the geographical boundaries security capabilities with an ongoing
which exist in a physical context. programme of investment and
monitoring to ensure security and

The potential systemic risk which
availability are maintained across the
can arise from a cyber-attack is far
entire IT & OT estate and prevent
from theoretical.
business disruption.
Power sector particularly vulnerable

Transformation of working practices
The power sector plays a critical role

Technology has transformed working
in economic growth, national defense
practices, leading to increasing
and personal safety and as such is
productivity and driving operational
an attractive target for attacks aimed
efficiency and innovation. However,
at disrupting operations. A Business
this increased adoption and
Blackout Report in 2015 by Lloyd’s of
reliance on technology does not
London and Cambridge Centre for
come without increased risk and as
Risk Studies examined the economic
systems become more increasingly
and insurance implications of a major
interconnected and processes more
cyber-attack using the US power grid
digitised, energy companies will
as an example23. The report depicted
need to contend with an increased
a scenario where hackers destabilize
number of network born security
parts of the US power grid plunging 15
threats. Systems that were previously
US states into darkness and leaving
isolated from other networks are now
93m people without power. Experts
connected in both critical and non-
predicted that this would result in in
critical systems. Never has industry
a rise in mortality rates, a decline in
been more susceptible to operational
trade, disruption to water supplies
derailment and ultimate financial loss
and chaos to transport networks as
due to a cyber-attack.
infrastructure collapses. In a worst
23
Lloyd’s Emerging Risk Report – 2015. Business Blackout. Cambridge Centre for Risk Studies. University of Cambridge Judge Business School
It’s not just a technology issue! negligence, accidents or intentional
acts). Our cyber insurance claims
In our recent 2017 Cyber Risk data shows two-thirds of incidents are
Employer Survey24 76% of the direct result of employee behavior
“Never has industry been
companies reported that they have – for example, negligence leading
improved their technology systems to lost devices and malicious and more susceptible to
and infrastructure over the last disgruntled insiders seeking to profit operational derailment and
three years. While this shows that from corporate espionage. When
companies around the world are analyzing the other 33% of incidents,
ultimate financial loss due to
focusing their time, resources and a large portion can ultimately be a cyber-attack.”
budget on technology solutions, most traced back to additional human
companies still perceive themselves errors that can be linked to issues
vulnerable to cyber incidents. such as talent shortage, skill deficits
and employee engagement.
While critical to protecting the
enterprise, technology is only one Information has value
piece of the solution. This is again
evident from our survey, which shows The theft of individuals’ personal
almost 75% of organizations report information and personal financial
that in the next three years, they information has long been a motive
intend to allocate more capital to behind a number of highly publicized
human capital solutions (such as cyber incidents. While this continues
comprehensive training programmes to be an area of focus, cyber criminals
for employees) and business increasingly understand the value of
processes. a much wider range of sensitive data,
whether in terms of an opportunity
Human Resources and CISO for direct monetary gain or in
personnel now playing key roles manipulating business dynamics.
Although IT departments – and to For example, theft of intellectual

some degree, risk managers – are property could be a potential
seen as responsible for cyber risk motive; in a competitive market,
management strategies, other the importance and value of this
functions such as Human Resources information cannot be overlooked.
and Chief Information Security Having a robust information security
Officers (CISCOs) are increasingly programme should not be viewed
playing an integral role in protecting as a cost but rather an essential
the enterprise and creating a cyber- investment and an opportunity to gain
savvy workforce. competitive advantage, generating
increased confidence with customers
The majority of cyber incidents are and investors seeking to protect the
ultimately sparked by employee value of their investment.
behavior (whether through
24
https://www.willistowerswatson.com/en/insights/2017/06/2017-cyber-risk-survey-report

Regulation continues to tighten
Cyber-attacks leading to physical
outcomes (e.g. property damage,
Regulation relating to cyber and bodily injury etc.). In this context,
information security has historically the insurance approach can vary
been focused around data privacy from coverage being specifically
and data protection issues; however, excluded, specifically included
regulatory scope is expanding or silent (i.e. neither specifically
to encompass infrastructure and included or excluded).
providers/operators of essential

Cyber-attacks leading to non-
services. This is a trend which
physical outcomes (e.g. loss of
will continue, particularly with the
data, network outages, extortion
increasingly connected nature of
demands). The insurance market
systems, data and services providers.
has developed broad stand-
As with any regulation, this will
alone product offerings for these
drive the behaviour of organisations
exposures some of which can
to achieve compliance, as the
include added access to added
potential financial and reputational
value services around incident
consequences of not doing so can
response to support recovery
be significant.
post event.
Managing the consequences of an

Our 2017 Cyber Risk Employer
incident
Survey shows that nearly nine in
ten companies have reviewed or
The cascade of events and disruption
will review their cyber insurance
following a cyber-incident can be far
arrangements within the next two
reaching; for example, the financial
years, with a view to identifying gaps
impact on some of the companies
in existing insurance coverage. In
impacted by the Petya ransomware
addition 71% of respondents advised
outbreak is in the hundreds of millions
that they expect to enhance their
of dollars. The insurance market in
insurance coverage within the next
this area has continued to evolve,
two years. The insurance market
particularly for those sectors where
continues to develop its understanding
both IT & OT exposures exist.
of the cyber risk environment through
the collection (and modelling) of more
Risk Transfer solutions
consistent data and this is driving a
willingness to develop new products
From a coverage perspective
and services to keep pace with this
the insurance market draws a
evolving exposure.
distinction between:
What should organisations do? as the people operating and
managing those solutions is critical.
To manage cyber risk effectively Organisations need to engage with
across the enterprise and ensure their IT department and uncover
resilience, organizations need a skills deficits and talent shortages
fully integrated, comprehensive in critical roles to ensure that talent
plan that emphasizes people, strategies align with overall cyber-
capital and technology protections. security objectives. By taking these
Understanding the risk exposure steps, you can ultimately help
across both IT and OT and investing improve your employees’ “Cyber
in the appropriate security is vital IQ”, create a cyber-savvy workforce
to remain ahead of the curve and and ensure cyber resiliency across
prevent financial, reputational and all levels of your organization.
intellectual property risk. In particular
Assume it’s going to happen.
energy companies should remember: The notion that ‘it won’t happen
to us’ continues to be disproved,

Cyber security needs to be
therefore preparation is key. When
managed proactively as a key
a cyber incident occurs, having a
part of overall operations; an
well-developed and well-rehearsed
organisation can’t assume that
cyber incident response plan will
its current cyber security policies
be critical to ensuring a quick
and funding are adequate simply
recovery, thereby mitigating the
because they have not experienced
longer term financial, regulatory and
a successful attack.
reputational damage.

IT solutions can’t be adopted

Transfer the risks you can’t
and implemented in a vacuum.
remove. A robust cyber risk
People and technology need to
management programme will
have a symbiotic relationship to
reduce the probability of an event
ensure cyber security is connected
occurring, but you can never
to the business and not simply
fully eliminate the risk. Cyber
a superficial wall surrounding
insurance risk transfer solutions
an organization. Cyber risk
exist to mitigate the financial
is complicated; as such, the
impact when things go wrong. As a
constantly evolving and dynamic
starting point, check your existing
environment demands agile
insurance coverage; understand
solutions to combat new threats
what cover you’ve got and what
that many organizations may not
options are available.
be tracking.

People risks are the next frontier Glyn Thoms is an Executive Director,
in cyber risk management. Cyber & TMT, Willis Towers Watson
Understanding that technology
solutions are only as effective

Contributors
The following Willis Towers Watson personnel took part in contributing to this Review:
Charles Barder Dick Merbaum
Phillip Callow Steve Munday
Matt Clissitt Jen Ning Tan
Alex Findlay Will Peilow
Ciarán Healy Jens Peters
Lyall Horner Michael J. Perron
Roger Hughes Manvinder Phul
Anastasia Ioannou Adam Piper
Steve Jenkins Shankar Raman
Anne-Marie Jentsch David Reynolds
Graham Knight Martyn Thompson
Stephen MacDermott Glyn Thoms
Tracey Malcolm Marc Vermeiren
Hristo Markov Silvi Wompa Sinclair
Ioannis Michos Heather Wilson
Myles Milner Ray Zhang
Jamie Markos
Editor: Robin Somerville
Sub Editors: Steve Munday

David Reynolds
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transmitted in any form or by any means, whether electronic, mechanical, photocopying, recording, or
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This publication and all of the information material, data and contents contained herein are for general
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management advice, legal advice, tax advice, investment advice or any other form of professional
advice. This document is for general discussion and/or guidance only, is not intended to be relied
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Power and

Introduction................................................................................................................................ 03 Part Four: new perspectives on people

Part Two: key industry issues

M&A and Private Equity (PE) investment in renewable energy:

Part Three: the global Power and

Introduction: the risk management

Power and Renewable Energy Market Review 2018 4

Power and Renewable Energy Market Review 2018 6

The new energy world In a report released in September

World final energy demand by sector

Units: EJ/yr Sector

Source: DNV GL Oil and Gas Outlook to 2020, September 2017

This reduction in demand is forecast to Even more bravely, DNV GL predicts

Power and Renewable Energy Market Review 2018 8

Growth in GDP and primary energy Energy consumption by region

Source: BP Energy Outlook 2017 Source: BP Energy Outlook 2017

Is DNV GL out on a limb? According predicts that the growing world

Game changer number two – Estimates of EV sales, and hence

Power and Renewable Energy Market Review 2018 10

As value improves, investors are Astonishingly, China accounted for

Percentage of China in total manufacturing

Source: Renewables 2017, IEA

Power and Renewable Energy Market Review 2018 12

LNG Supply LNG Demand

Source: BP Energy Outlook 2017 Source: BP Energy Outlook 2017

Game changer number four – It’s just another example of an energy

Power and Renewable Energy Market Review 2018 14

Power and Renewable Energy Market Review 2018 16

Introduction – a catastrophic The impact of the recent hurricanes

Administration and the US Department of Energy

Power and Renewable Energy Market Review 2018 18

Today’s processing power is 

Figure 2 – Indicative indication of what can be done (1) - loss

Current Structure — BU $0.5m, Captive $5m/$15m,

Return Period Total Total Retained by Retained Ceded to Exceed Reinsurers

Source: Willis Towers Watson

Analysis Solution Choices

Data gathering, preparation, and provision

Risk financing options Risk management options

Source: Willis Towers Watson

Figure 3 – Indicative indication of what can be done (2) - Reducing the

3.5 Optimize the Risk Financing Strategy

Source: Willis Towers Watson

Power and Renewable Energy Market Review 2018 20

Figure 4 - Risk optimizer and the “efficient frontier”

Current Strategy Liability WC Fiduciary DNO Cyber EPL Product Property

220m 99th VaR

Expected Cost of Strategy [$]

Source: Willis Towers Watson

Power and Renewable Energy Market Review 2018 22

5 Risk governance and policies

Risk identification and quantification

Risk articulation, treatment and

9 People and risk

Source: Willis Towers Watson

Power and Renewable Energy Market Review 2018 24

Current Status Improvement Planning

2 Stakeholder Definition 1 Low 1 year+ 1 Low

3 Group Risk Appetite Definition 1 Low 6 to 12 months 1 Low

6 Risk Policy 1 Low 1 year+ 1 Low

7 Risk Governance 1 Low 1 year+ 1 Low

8 Risk Identification 2 Medium 6 to 12 months 2 Medium

9 Risk Articulation 1 Low 1 year+ 1 Low

Today’s processing power is