Insurance Contributesto the Energy Transition

Nuclear Energy: a Challenge

Russia’s aggression and the resulting restrictions on the supply of fossil fuels have accelerated the energy transition. In Poland, for example, the debate on investment in nuclear power has been reopened. This discussion has been underway since the 1970s. Unfortunately, to no avail: although the map of Europe shows more than 100 reactors in 13 EU countries, none of them are located in Poland. It is hard to imagine a nuclear power plant construction project that does not involve insurers from the get go. According to industry engineers responsible for risk assessment, this means as early as site selection and design of the facilities and related infrastructure. Addressing the issue of insurance too late can hinder obtaining coverage.

It is a global standard to set up special pools when insuring nuclear power plants. Such pools may comprise insurers, nuclear power companies, and governments. Pools from different countries set up reinsurance schemes to distribute the risk. Only under these conditions is it possible to provide insurance coverage for power plant assets and liability for damage resulting from their use. In line with the Vienna Convention on Civil Liability for Nuclear Damage, Polish regulations require third-party liability insurance of around PLN 1.8 billion. Coal-fired power plants are to be replaced not only by large-scale nuclear power plants but also by small modular reactors (SMR). According to the PEP2040, nuclear power is to generate 14 percent of total energy in 2040.

More Offshore Wind Farms

Offshore and onshore wind power, photovoltaic installations, biogas plants and other low- and zero-carbon sources are also to be developed. The share of renewable energy sources is to increase to 40 percent in 2040 from 22 percent in 2020. The share of energy generated by offshore wind farms is expected to increase significantly. Currently at a very early stage in Poland, this segment is to contribute 14 percent of energy in 2040. The insurance industry has developed an offer of special clauses for offshore wind farm construction projects: WINDCARs. They provide coverage for damage to equipment, machinery, materials, furnishings, and other construction-related damage, whether sustained during installation work, storage or transport. Insurance also covers liability risks to third parties and their property, as well as loss of profits.

Both the construction and subsequent maintenance of a facility involve the risk of very expensive damage. The most common type of damage affects the cables that connect the turbines and transmit power onshore. It is also the most costly type of damage. To repair them, specialist units must be deployed at a potential cost of over EUR 200,000 per day. Looking ahead to 2040, 11 percent of energy is expected to come from onshore wind power. Consequently, wind power plants located offshore and onshore will account for around 25 percent of energy supply.

Ever More Popular Photovoltaics

There has been much talk recently of a boom in photovoltaics. However, the development of this energy source is yet to come. Photovoltaics generated around 2 GWh of energy in 2020 with projections of an increase to almost 15 GWh in 2040. This suggests that 7 percent of energy is to be provided by photovoltaics. This is a challenge for the insurance market but also for customers (both individuals and companies) and installers of photovoltaic systems. First-hand experience with damage is already available, including fires in such systems. This shows that the faulty installation of photovoltaic systems on the roof of a building and the lack of or inadequate choice of surge protection significantly increase the risk of fire.

Proper installation and regular maintenance are equally important. In the case of large photovoltaic farms, insurers carry out a professional risk assessment that takes into account, for example, the location, capacity and surface area of the system and the manufacturer of its key components. It is also important to consider whether equipment installed on the farm was brand new or previously used at another location. The location of the installation - whether on a roof, façade or the ground - and how the panels are mounted are also important elements. Insurers look at the maintenance contracts concluded by the customer, in particular the extent and frequency of maintenance. Insurance may cover not only the panels but also transformers, transmission lines, fire and surge protection, the structures or buildings on which the panels are mounted, and all components of the system.

Climate Change Means More Damage

Energy transition is necessary in order to mitigate the effects of climate change. The natural elements are becoming increasingly adverse, as is evident both in Poland and around the world. The Polish Chamber of Insurance PIU has for the past three years been conducting a survey of Poles’ greatest concerns, including with respect to natural threats. According to the latest survey in February 2022, the largest percentage of respondents (68 percent) said that they were worried about strong winds and hurricanes. Interestingly, the share was 59 percent and 54 percent, respectively, in the previous surveys of 2020 and 2021. Why is the recent score so high? Poland was hit by strong winds resulting in damage in January 2022, and these events were fresh in their minds. Meanwhile, there was an increase in both the value and number of claims paid in risk category 8, which includes property insurance against damage caused in particular by fire, storms and other elements, landslides or sinkholes. In Q1-Q3 2022, insurers paid out almost PLN 1.9 billion for 484,000 claims, compared to PLN 1.5 billion and 450,000 claims a year earlier. Poles increasingly understand that insurance works, and the number of policies is on the rise. Nearly 9.9 million category 8 insurance policies were taken out as at the end of Q3 2022, compared to 9.3 million a year earlier.

Governments Must Engage

In the long term, climate change may lead to an increase in the frequency as well as the scale of damage. It may then become more difficult to obtain insurance coverage against the effects of heavy rain, strong winds, hail or storms. It will also be a challenge to keep the cost of such coverage at a level that is affordable for citizens or companies. This is why it is so important for state authorities to take action that, for example, improves the security balance through proper spatial planning.

Today, we see that, in parallel with drought, we are being affected by the effects of heavy rainfall. About 60 percent of natural disasters in Poland are precipitation floods, with an increasing risk of flash floods, currently one of the most serious risks in cities. However, river floods, such as those of 1997 or 2010, which are larger in extent and potentially of greater magnitude, cannot be underestimated. Such events require central and local government action, such as investment in retention systems, and the creation of green belts instead of concrete squares, which on the one hand reduces the risk of flooding and inundations, and on the other helps to lift groundwater levels and alleviate droughts. ©℗

watch the video on gazetaprawna.pl