Financing resilient energy infrastructure
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Ahead of the upcoming World Energy Congress, the World Energy Council (WEC), Swiss Re Corporate Solutions and Marsh & McLennan Companies present the findings of their report, The road to resilience: financing resilient energy infrastructure.
The publication summarises three comprehensive studies focusing on key risks the global energy sector needs to manage: extreme weather, energy-water-food dependencies and cybercrime.
These risks impact both the physical structures and the capital returns needed to reach a more sustainable energy future.
Why these risks?
Extreme weather events such as hurricanes, storm surges, heat waves and ice storms, are growing in frequency and severity. Hurricane Sandy or Typhoon Haiyan for example illustrated that energy infrastructure is often entirely inadequate to handle disruptions of such magnitude. In general, insured losses from severe convective storms increased by more than 40 % over the last 20 years.
Ninety-eight percent of the world's power supply depends on water. Food production, in turn, requires both water and energy. In other words, the food-water-energy nexus can significantly impact energy supply.
Finally, the energy sector is highly vulnerable to cyber-attacks. As Ukraine experienced last year, an attack on a power grid can cut off the power from a whole country.
How to cope: recommendations for the decision makers
Modern energy infrastructures are evolving into complex systems with many interdependent parts, and disruptions to any of these can have truly dramatic consequences. Christoph Frei, Secretary General of the World Energy Council, said: "With accelerating energy systems integration, resilience is no longer just about returning single assets to full operation after a disruptive event. When interdependent parts of a system are blacked out, the system as a whole is at risk of being deadlocked."
The new report offers seven recommended action items for governments, business leaders and the finance sector to improve the financing of resilient energy infrastructure.
Juerg Trueb, Head Environmental & Commodity Markets at Swiss Re Corporate Solutions, commented: “We are confident they will help energy companies improve their risk assessment and mitigation and also support them in securing financing. Creative financing and risk management solutions, such as insurance and derivatives covering extreme weather and price risks, for example, will play an increasingly important role in addressing these issue.”
Insurance is key
Throughout the report, the authors emphasise the role of insurance in achieving resilience.
The insurance industry is already helping energy companies cope with the risks identified in the study. Pioneering insurance transactions illustrate that protection against unfavourable weather is available for wind, solar and hydroelectric facilities. Advanced cyber solutions combine comprehensive insurance protection with risk mitigation and remediation services.