Renewable energy

Expansion volume slumps

In recent years, the expansion of renewable energies has been dramatic thanks to a comprehensive regulatory framework. Major adjustments and changes to these regulations have contributed to the now sharp decline in expansion volumes and the developments of new energy projects in Germany.

Since the beginning of 2019, there has been a serious slump. As a result of the reduced expansion volume, suppliers and manufacturers – in particular those of wind power plants – are experiencing increasing price pressure. For minor suppliers it will, therefore, be difficult to stay in the market.

Insurance market for renewable energy is extremely competitive

Many older projects, for which regulated tariffs will be cancelled after 20 years, are being decommissioned and demolished. Limited expansion volumes often mean that even repowering is impossible at these locations. The lack of new, additional projects means that the insurance market for renewable energy is extremely competitive. Taking into account the limited development opportunities in Germany, a number of insurers are increasingly turning to other European countries. Due to low tariff conditions on the German insurance market, policyholders in neighbouring countries in particular should benefit from this.

Trends in the individual business segments:

Onshore Wind Energy

The record number of new wind farms in 2017 was followed by another strong increase in the number of new wind farms in 2018. Since the beginning of 2019, however, only a few new plants, for which permits were issued under the new tender system, are being built. What is more, no significant increase in new construction is expected for the rest of the year. Future projects will require a new concept that combines a maintenance contract and insurance solutions. As a result of cost pressures, the scope of coverage of previous regular, full-maintenance contracts – this constituting a major part of operating costs – will be called into question.

windenergy-onshore windenergy-onshore-rotors

Future-orientated: Combination of maintenance contract and insurance solutions

Full-maintenance contracts with clearly limited scopes of coverage are already being offered. Insurance policies usually cover unexpected damage that is not covered by full-maintenance contracts. As a result of the changes to maintenance contracts, insurers are being required to develop meaningful new products. Older wind farms, for which the state-guaranteed feed-in tariffs will expire, also require new insurance products. Based on the products currently available on the market, their continued operation will barely be possible.

Policies combining comprehensive insurance and hull insurance, including – if required – a well-conceived spare parts strategy, are sensible solutions for unsubsidised operation. Sufficient capacities will also be available in the future. Prices therefore remain stable, at a relatively low level. Major plant portfolios may hope for further improved conditions. However, as cost pressures on the loss side have recently increased for individual providers, a detailed analysis of the advance loss experience is vital for any tenders.

Offshore Wind Energy

In the offshore wind energy sector, the new tender system has led to a situation where project development and the construction of wind energy plants are largely dominated by major groups. This is preventing a variety of parties from coming into play as frequently desired by project developers and manufacturers of wind power plants. Project developers are under massive pressure to innovate in order to realise projects efficiently even where revenues are low. New plant dimensions and new foundation concepts are being developed. Plants are already reaching capacities of ten megawatts (MW). Insurers always have to be ready to provide coverage for new, insufficiently tested technologies.

windenergy-offshore windenergy-offshore-rotors

Innovations require answers from insurers

The number of projects to be implemented in Germany in the years to come is fairly limited. Many international groups have, therefore, already relocated their activities abroad. Insurance markets for offshore wind farm projects are global ones. Coverage inquiries are usually made in the local markets or through the London market. In the past few years, new capacities have been created by insurers who are prepared to underwrite offshore projects. Recent tenders have seen very good results for insurers, despite already favourable conditions.

Annually installed wind energy capacity in Germany

Total new capacity (MW)
Onshore installations
Offshore commissioning
1,660 MW
3,170 MW
2,025 MW
2,330 MW
3,400 MW
5,120 MW
6,010 MW
5,440 MW
6,580 MW
3,370 MW

Source: IWR, Data: BWE, DE- WI,IWR, WindGuard
* preliminary (As of 02.01.2019)

Biogas

Only a few new biogas plants are being commissioned in Germany. Once they become outdated, the provision of coverage for existing plants becomes difficult. In such cases, terms have to be negotiated on an individual basis, in accordance with a complex risk allocation procedure. Whenever the coverage of insurance policies is to be adjusted, operators have to expect thorough plant checks before new coverage is granted. In some cases, the granting of insurance coverage is subject to specific requirements or much less favourable terms.

biogas

High capacity, but hardly any large-scale projects in Germany

Photovoltaics

The German photovoltaics market is being shapeded by a high number of minor projects (below 750 kWp), accounting for a major share of renewable energy production. Insurance products that cover photovoltaic systems are well-developed and available at favourable conditions. Sufficient capacities are available. Large-scale photovoltaics projects are currently being implemented in other European countries as well as in countries outside Europe.

As for their insurance cover, German insurers are fully involved; here, too, the insurance sector is increasingly becoming a global one.

solar
Geothermal Prospecting

There are currently no new geothermal projects being implemented for power generation in Germany. The insurance market does not provide sufficient cover, in particular when it comes to drilling and exploration risks. Companies' lack of equity and the resulting need to raise capital from external sources mean it is often impossible to implement projects without insurance coverage.

geothermal
Energy Storage Technologies

The insurance industry can play a major role in the development of storage technologies by being open to new concepts. Renewable energies naturally have no (or only very limited) baseload capacity. As a result, storage technologies will occupy a key position in the future energy system. None of these technologies (such as power-to gas) has yet successfully established itself as the economically most viable solution.

storage-technologies

Insurers can provide major support for innovations

Network infrastructures

Another major challenge in relation to the energy revolution is the expansion of onshore and offshore electricity grids. Electricity from renewable energies is often generated far away from consumers, as in the case of offshore wind. This is why large quantities of generated electricity are not yet being used economically. The required expansion of offshore and onshore electricity networks will involve major investments on the part of the relevant grid operators in the years ahead.

net-infrastructure