8 Focus Areas for the Renewable Energy Sector

8 Focus Areas for the Renewable Energy Sector
June 13, 2024 12 mins

8 Focus Areas for the Renewable Energy Sector

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As more companies seek to reduce their carbon footprint, the renewable energy sector continues to grow, presenting both opportunities and red flags for organizations with renewable energy growth plans.

Key Takeaways
  1. Global renewable energy capacity is expected to grow by 2,400 gigawatts between now and 2027. That’s an amount equal to the entire power capacity of China today.1
  2. Emerging red flags could threaten this momentum — from talent issues, inflation and cost fluctuations to geopolitical risks, supply chain restrictions and more.
  3. Organizations should carefully consider these key risks and benefits to help them make better decisions around their renewable energy strategy.

The global transition to renewable energy will be vital to mitigate CO2 emissions and reduce our reliance on fossil fuels.

In 2023, 50 percent more renewable capacity was added globally year-over-year. The next five years are expected to see the fastest growth in the past 30 years to achieve COP28’s goal of tripling global capacity by 2030.2

But while the renewable energy sector continues to grow, there are a variety of emerging obstacles that could threaten its momentum.

Focusing on these key areas can help organizations make better decisions around the promises and challenges of their renewable energy programs.

Quote icon

The business case around renewables is still very strong. Although there are pressures around inflation, supply chain and, in some areas, the regulatory environment, there are huge amounts of innovation and development happening.

Mark Potter
Power and Renewables Industry Practice Leader, EMEA
  • 1. Increased Legislation

    As world leaders work to limit the effects of climate change, a variety of laws and regulations have emerged that impact renewable energy projects, including:

    • The landmark United Nations Paris Agreement, a legally binding international treaty on climate change, went into force in 2016 to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels.3
    • In early 2023, the International Sustainability Standards Board issued its IFRS S1 and IFRS S2 standards. Effective January 2024, these aim to harmonize corporate environmental disclosures across the globe.4
    • Under the Inflation Reduction Act (IRA) in the U.S., roughly $370 billion in tax incentives and renewable energy tax credits are available to developers and owners of renewables, including but not limited to, wind farms, solar farms, green hydrogen and carbon capture.5 “It’s really been a catalyst for renewable energy growth because it lowers overall project costs and encourages investments in emerging technologies, like green hydrogen,” says Carol Stark, managing director and Renewable Energy practice leader in North America.
    • Canada enacted Clean Fuel Regulations6 and established the Clean Fuels Fund,7 the Emissions Reduction Fund,8 and the Hydrogen Strategy for Canada9 with the intent of achieving its net-zero emissions by 2050.
    • The European Green Deal10 in the European Union (EU), strives to make Europe the first climate-neutral continent, with net-zero emissions of greenhouse gasses by 2050.
    Insights to Consider:

    The IRA in the U.S. is having a profound global impact on transactions, including M&A deals. Since the law was passed in August 2022, $110 billion has been poured into clean energy projects — 60 percent of which came from foreign companies.

    These results are increasing other countries’ appetite to implement their own regulation with similar levels of inbound investment. It’s possible that tax credits — now more accessible under the IRA — will become a global phenomenon.

    The transfer of tax credits enables corporations to purchase tax credits from renewable energy sponsors and developers through simple purchase and sale agreements. “Tax credit insurance is helping get deals done,” says Corey Lewis, Co-Head of Aon’s North American Tax Insurance Practice and Tax Credit Insurance Practice Leader. "It encourages investments and the purchase of credits, especially where clients are looking for additional certainty.”

  • 2. Operational Resilience

    2023 saw $380 billion in economic losses from all global natural disasters. Just $118 billion was insured, reflecting a significant global protection gap. However, there is an opportunity to close this gap and build operational resilience.

    Insights to Consider:

    A total project lifecycle risk advisory approach can help organizations better understand and manage risk, while minimizing business interruptions related to the changing climate. This framework uses three strategies — assess, quantify and manage — and provides an iterative and holistic approach to financing current and emerging risks. Aon’s Climate Modeling team plays a critical role in assessing and quantifying climate risk. They have invested heavily in refining the modeling associated with NatCat and severe convective Storm. Up until this investment, the industry models did not accurately assess the severe convective storm risk, which has negatively impacted renewable energy asset owners, along with other industries.

    Managing risk could also include innovative alternative risk transfer solutions such as parametric insurance.

  • 3. Shareholder Pressure

    Shareholders across industries have called for stronger transparency on energy financing and other climate-related issues. This includes increases in climate disclosures and alignment of business strategies to climate goals. The use of renewable energy sources is critical to this process.11

    To proactively address climate-related risks and opportunities, organizations can use advanced analytics. Doing so will help build resilience and provide deeper insights around renewable energy, while also supporting energy transition investment.

    Insights to Consider:

    There is no one-size-fits-all approach for shareholders when considering climate change investing. Investors considering climate change as investment are encouraged to use this five-step approach to help them assess which strategies work for them.

  • 4. Greenwashing

    Greenwashing is a tactic some companies use to deliberately deceive stakeholders about their environmental, social and governance (ESG) commitments, which can include renewable energy strategies. While it’s not a new phenomenon, stakeholders (investors, employees and customers) are increasingly expecting companies to not only make commitments to ESG topics, but also hold them accountable when commitments are not met.

    Insights to Consider:

    There is a solid connection between good governance and fewer, less severe losses in directors’ and officers’ (D&O) insurance. Companies therefore benefit from highly engaged D&O insurers that offer competitive options in exchange for competent governance. Even further, incorporating a company’s environmental and social impact will improve ratings and D&O policy renewal discussions, in addition to helping avoid red flags.

42%

In the UK, renewable energy now supplies 42 percent of generated electricity, up from 3 percent in 2000.

Source: World Economic Forum

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  • 5. Carbon Taxation and Credits

    Carbon tax directly and accurately puts a price on carbon emissions released from the burning of fossil fuels. This pricing aims to incorporate the costs of pollution and climate damage into market prices to incentivize reduced emissions and drive the adoption of clean energy alternatives across economic sectors. Carbon credits have a tradeable component and are issued to organizations representing their emissions limit. If a company can limit emissions below its cap, for example, its surplus of credits can then be retained or sold to other companies that may have exceeded their emissions cap.

    Insights to Consider:

    The developing carbon market offers unique opportunities for businesses and insurers. Carbon credits could help companies meet their emissions goals. “There is a recognition that purchasing carbon credits can be a legitimate part of a decarbonization strategy — especially in cases when companies have done everything within their power to reduce their emissions and only apply these credits to residual emissions that just simply cannot be removed or reduced through operational efficiencies alone,” says Natalia Moudrak, managing director, climate resiliency leader at Aon’s Public Sector Partnership.12

  • 6. Clean Technology

    The goal of limiting global warming to 1.5 degrees Celsius requires a global clean energy investment of nearly $4.5 trillion annually by 2030. In 2023, renewable energy spend totaled $1.8 trillion.13 Much of that investment will be made in smarter, new clean technology to capture CO2 emissions.

    The rate of technological innovation is a key enabler for the renewable energy sector. With new technology comes the need to understand risk, exposures and potential options for risk transfer.

    To keep up with the rapid pace of innovation, renewable energy developers may also use new clean technology with little historical experience.

    Insights to Consider:

    By capitalizing on state and private investment opportunities to undertake research and development, businesses in the renewables sector can more rapidly deliver projects to market with efficient and reliable technologies. Innovations, such as sodium-ion batteries and electrolytic hydrogen-based direct reduction processes, demonstrate how renewable energy investment is helping businesses reduce capital costs, improve safety and reduce project risk, while at the same time creating a cleaner, greener future for the planet.

    The insurance industry can also unlock capital for clean technology. The industry should consider longer policy terms than the usual annual renewal cycle. New clean technologies, for example, are usually not investable at scale. This impedes financing for green projects as the long-term insurability of assets comes into question. It also places more risk on investors who may not finance certain projects. Ensuring stable and predictable insurance coverage over longer periods could help free up capital flows.14

  • 7. Talent Shortage

    With global renewable power capacity expected to grow exponentially, attracting, upskilling and retaining talent is critical for operational sustainability.15 However, there are many workforce challenges organizations are facing:

    • Talent Shortages: There are currently 12.7 million global energy jobs, an increase of more than 5 million since 2012. By 2030, the clean energy transition will generate another 10.3 million new jobs.16 Additionally, just one in eight workers has one or more green skills.17
    • Rising Human Capital Costs: The inflationary environment has driven up fixed costs exponentially. This has been further compounded by organizations having to pay salary premiums, sign-on bonuses and other perks to hire for in-demand skills in the sector.
    • Talent Sustainability: An aging workforce, robust competition for talent and the shifting of social values are changing the recruiting landscape.
    Insights to Consider:

    To meet growth plans and fill the surge in emerging roles, the renewables sector should commit to building a sustainable and resilient talent strategy. Companies should ensure they have strong employee value propositions in place with meaningful work and development opportunities to help attract and retain their talent in a highly competitive environment.

  • 8. Supply Chain Logistics

    Ongoing supply chain challenges in the renewables sector can impact both new project development and operational assets. Despite a global commitment to accelerate the development of renewable energy infrastructure, supply chain vulnerabilities pose a threat to the pace of renewables development. These challenges can be even more acute for international projects, where supplies are sourced from a range of countries.

    A lack of critical plant and equipment, such as suitable installation and maintenance vessels for the offshore industry, has also slowed supply chains, lengthened project schedules and made some developments nonviable. Exposure to supply chain bottlenecks for existing assets can lead to operational downtime, compounding losses that may have occurred during the development phase.

    “We are still dependent on foreign manufacturers for renewable energy components,” adds Stark. “There is pressure to accelerate the green energy transition and the big economic powers are competing for the same assets. That in itself is creating supply chain issues.”

    Insights to Consider:

    Corporate clients who operate or develop portfolios of assets can explore the feasibility of spare part pooling and framework agreements with suppliers to mitigate supply chain risks. Standardization of technology in the sector can also increase additional flexibility to meet supply chain needs.18

36%

U.S. utility-scale solar capacity additions outpaced other generation sources in H1 2023, up 36 percent against the same period in 2022.

Source: 2024 renewable energy industry outlook | Deloitte

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Aon’s Thought Leaders
  • Corey Lewis
    Managing Director, Co-Head North American Tax Insurance Practice, Tax Credit Insurance Practice Leader
  • Euan Nicolson
    Chief Commercial Officer, Global Energy
  • Daniel Ocampo
    Senior Risk Consultant, Natural Resources, Global Risk Consulting
  • Mark Potter
    Power and Renewables Industry Practice Leader, EMEA
  • Carol Stark
    Managing Director and Renewable Energy Practice Leader, North America

1 Renewable power’s growth is being turbocharged as countries seek to strengthen energy security
2 Massive expansion of renewable power opens door to achieving global triple goal set at COP28 | IEA
3 The Paris Agreement | UN Climate Change
4 ISSB issues inaugural global sustainability disclosure standards
5 Capturing Carbon on the Critical Pathway to Net Zero | Aon
6 Clean Fuel Regulations
7 Minister Wilkinson Announces up to $800 Million in Project Funding to Advance Canada's Clean Fuels Sector
8 Greenhouse Gas Emission Reductions in Canada’s Onshore Oil and Gas Sector.
9 Hydrogen Strategy for Canada
10 European Green Deal
11 Shareholders Demand Greater Climate Transparency | Sierra Club
12 Decarbonizing Your Business: Finding the Right Insurance and Strategy | Aon
13 IEA: Clean energy investment must reach $4.5 trillion per year by 2030 | WEA
14 Insurance Plays a Key Role in Transitioning to a Low Carbon Future | Aon
15 Renewable power’s growth is being turbocharged as countries seek to strengthen energy security
16 How many jobs could the clean energy transition create?
17 Global Green Skills Report 2023 |LinkedIn
18 Cutting Supply Chains: How to Achieve More Reward with Less Risk | Aon

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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