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Green energy risks take centre stage at Lloyd’s event

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TLloyds-of-London-AAS-225x300hursday 18 April 2013 – Insurers will play an important role in sustaining the growth of the renewable sector across the UK and Ireland

(source: Lloyds of London)

Green energy is set for big growth across the United Kingdom and Ireland, prompting Lloyd’s to hold its All Island Renewable Energy Conference today at the iconic Titanic Belfast complex in Northern Ireland. Speakers representing stakeholders from across the sector will explore the important finance, investment and risk management issues confronting the renewable energy business.

The recently unveiled Energy Bill set out a roadmap for the UK’s switch to a low-carbon economy. The expansion of investment in infrastructure includes a switch to clean energy that will cost £110bn over the next ten years, partly funded by an increase in the green levy that energy companies can charge.

Scotland is already making a big contribution to the UK’s renewable output, generating 7% more renewable electricity in 2012 than it did the previous year, data has shown. The Department of Energy and Climate Change report said 14, 600 Gigawatt hours were generated in Scotland from renewables such as wind and hydro. The Whitehall department said this represented more than a third of the UK’s total renewables output in 2012.

In Wales, local government planning guidance sets a goal to generate 2, 000 Megawatts of electricity from onshore wind turbines by 2025, with most of it available by 2020.

All systems go

Northern Ireland is also ramping up its capacity with more than £44m for renewable energy in Northern Ireland approved by the Utility Regulator. The investment will increase access to the electricity network for wind energy infrastructure in the north and west. As well as wind power, biomass generation is taking off in the province with Kedco’s 4 Megawatt facility in Newry successfully exporting electricity in 2012. This will be followed in 2013 by the development of ERE’s 16 Megawatt facility in the port in Derry, likely to start in the next few months.

Meanwhile, Irish politicians are so confident of increasing the country’s renewable capacity that Ireland could start exporting excess green electricity, mostly wind power, to Britain in a few years. Both countries’ energy ministers have signed a memorandum of understanding in Dublin, agreeing to assess the costs and benefits of trading renewable energy.

EU rules require each member state to meet its own legally binding renewable energy target, but nations can import green electricity to meet their targets. Importing excess green power from Ireland would help the UK meet its EU target of generating 15% of its energy from renewable sources by 2020.

“In terms of wind energy, Ireland has the resource potential to generate far more wind energy than domestic consumption demands; while on the other hand, the UK is not expected to meet its targets without buying substantial amounts of wind energy from Ireland, ” according to Eamonn Egan, Lloyd’s country manager for Ireland. “A number of ambitious projects are already in progress exploring these export prospects and insurance will inevitably have a key role to play in bringing these developments to fruition.”

Where the wind blows

Jatin Sharma, business development leader with GCube Underwriting at Lloyd’s and a speaker at the Belfast conference, agrees. “With an ample wind resource and steadily increasing investment from large scale utilities in Ireland at present, showcasing it’s potential makes sense, especially now with the potential for a real push into offshore wind, ” Sharma said. “This coupled with increasing interest in the export of energy between Ireland and the UK make the sector more attractive from an investor standpoint.”

The most important risk issues around renewable energy relate to technology, resource and credit. The “bankability” of all forms of renewable energy projects depends on their predicable output, Sharma explains. “Technology failure, interruptions in supply whether lack of wind, sun or feedstock and the dwindling balance sheets of suppliers and contractors increase volatility in returns for investors, ” he says. “The insurance industry can help to achieve investment grade renewables by addressing these three risks.”

Lorena Gallagher, class underwriter with Chaucer, believes that insurance brings tangible benefits to clients involved in different alternative energy projects ranging from offshore windfarms, biomass generators, photo-voltaic plants to small hydro stations.

Gallagher, another speaker at the conference, explains that insurance helps open up investment/funding for the project because it can lower the overall cost of finance by taking the risk of delays and interruptions. Clients can also benefit from technical advice at the planning stage as well their insurer’s experience with regards to best practice and knowledge of industry standards, for example marine warranty surveyors.

With unprecedented focus and investment in the renewable energy area across the UK and Ireland particularly, Lloyd’s is an attractive platform for energy risks, Lloyd’s Eamonn Egan said. “Events such as our All Island Renewable Energy Conference in Titanic Belfast enable us to showcase what the Lloyd’s market has to offer to an industry audience and also emphasise the significant role which insurers have to play in delivering a successful project.”

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