Brokers brace for surge in Canadian renewable investments

Renewable energy investments are falling in the U.S., and that could create more momentum for already fast-growing investments in Canadian renewable energy projects, says one insurance expert.  

This growth brings fresh opportunities to the insurance market, but also sheds light on gaps in risk management practices, as well as challenges for insurers trying to keep up with the fast-moving sector, one expert told Canadian Underwriter at the RIMS Canada Conference in Calgary last week. 

Though possibly accelerating, renewable growth in Canada started years before declining investments south of the border.  

“If we go back a couple of years, Alberta was the harbour of renewable energy developments — lots of wind, lots of solar,” says Joanne Silberberg, national energy and power leader, Canada at Marsh.  

“Alberta has now shifted away; we’re expecting to see a lot less renewable development here. Part of it was because the grid really wasn’t set up to support how much renewables were built in a short period of time,” Silberberg said. “In this part of the [country], we’re seeing a bit of a return to traditional energy and looking more at carbon capture type projects, and gas is clearly back on the agenda.” 

However, other provinces, including British Columbia, Ontario and Quebec, have all started to see more uptake in renewable energy options, she said.  

“Those provinces, in particular, for wind and solar, but also we expect — right across the country, including Alberta — a massive growth spurt for battery energy storage systems (BESS),” she said. “I think we’re going to see an acceleration of those projects as a result of less investment going into the U.S.” 

Silberberg said Marsh has placed more BESS projects in Canada this year than the last five years combined.  

Insurance capacity for renewables is rife 

Increased renewable energy investments in Canada are being closely matched by insurers’ interest in covering these clean energy projects. 

“Over the last five years, we’ve seen a huge influx of capital and a lot of insurers accelerating renewables from their growth strategy perspective,” said Silberberg. “If anything, we have too much capacity these days.” 

The overflow of capacity is, of course, great for buyers because it keeps coverage broad and deals competitive, she said. 

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Plus, Canada’s domestic market for renewables is a lot stronger now than even a few years ago. “You can almost place the majority [of coverage] 100% in Canada if you wanted to, without too much trouble,” said Silberberg.  

Covering the risks 

There’s one caveat though, she explained. As a nascent market, insurers may struggle to keep up with the quick speed at which renewable energy is developing.  

“The technology is developing so fast and is outpacing the typical time it would take to understand performance of different models of wind turbines, for example,” said Silberberg. “We’ve seen a shift from 1.6-megawatt turbines up to 10-megawatt options. Nowadays nobody builds anything less than four-and-a-half or five [megawatts]. 

“Because typically insurers shy away from prototypical or new developments,” she said, “we’ve had to spend a lot of time educating the market around that and trying to get them to understand that sometimes it’s not a completely new model. It’s an evolution of a historical model.” 

Plus, when compared to traditional energy and power sector insureds, some renewable energy companies appear as less sophisticated insurance buyers — particularly in their risk management and risk transfer approach.  

“It’s kind of a whole new ball game when it comes to renewables,” Silberberg said. 

The financing mechanisms for renewable projects also add challenges.  

“A lot of these projects have been dictated by lender financing, joint venture partners, or government bodies that are requiring more insurance than is probably needed for projects of this scale,” she said. “Which has also made it challenging for the market to get their head around the expanse of coverage and dealing with companies they might never have heard of before, that didn’t exist five years ago.” 

“When you think about standalone projects or smaller companies, typically, they’re very focused on what the lenders and finances require, and [what] the insurance requirements they need from us is, [and] how can we procure the most cost-effective program that meets compliance. And that’s very critical,” she added. “It’s why a lot of what they need from us is much more than just buying insurance. It’s making sure that contracts are put in place in a way that they can deliver.” 

Traditional power companies with portfolio assets in renewables, however, might yet have a more sophisticated approach to meet their financing requirements, “whether it be captives or renegotiating some of those original coverage requirements from when contracts were originally signed,” she said.  

That’s where brokers have the opportunity to step in as trusted advisors on those newer projects.  

“We’ve tried to shift the industry thinking a little; don’t bring us in just when you need to procure insurance, because getting that original contracting risk position correct in the first place is critical to even being able to comply from an insurance perspective,” Silberberg said.  

Alyssa DiSabatino

Alyssa Di Sabatino has been a reporter for Canadian Underwriter since 2021, covering industry trends, market developments, and emerging risks.