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Engineering & Construction

Special market: renewable energies

Just in time, as remuneration for the first plants dating from 2000 and subsidised under the Renewable Energies Act (EEG) comes to an end, the German government has set out what is now the fifth comprehensive revision of the Act at the end of 2020 – or to be precise, the end of that transitional period – at the end of 2021. In addition to the long-awaited regulations pertaining to the future of plants installed more than twenty years ago, the EEG now contains a number of provisions intended to encourage the further expansion of renewable energies.

In 2021, however, the share of German electricity consumption covered by renewables fell from 45.2 per cent (2020) to 41.9 per cent (2021).

Renewables have steadily lost momentum since the penultimate amendment to the EEG in 2017 and in the wake of an interim boom in 2017 and 2018. After a weak year in 2019 with not even 1 GW of expansion in onshore wind, consolidation continued in 2020: only 420 turbines with a total capacity of about 1.4 GW were newly installed. Based on observations made during the first months of 2021, this trend is expected to continue at about the current level. Important reasons for this stagnating expansion include the tendering model using auctions with capped quantities, legal obstacles such as the Federal Immission Control Act (BImSchG) and increasing resistance from residents (citizens’ initiatives), which, in some cases, lead to considerable delays.

Other countries have been much more successful in their efforts; consequently, the additional capacity of wind power plants worldwide almost doubled to 114,000 MW in 2020. The International Energy Agency expects an annual increase of up to 160,000 MW in solar energy by 2022. In photovoltaics, Germany is also lagging somewhat behind, although there has recently been an increase in capacity in 2020/2021 compared with 2019.

Since last year, a new topic of discussion has gained attention in the public debate on how to achieve climate protection targets: green hydrogen. Although this discussion is still in its infancy and few concrete decisions have yet been made, it is clear that this issue will become a factor of major importance in the future. Against the backdrop of stagnating grid expansion in particular, special storage technologies such as green hydrogen offer alternative ways to use surplus electricity generated during strong wind sustainably, without letting it go to waste.

Electricity generation from renewable energies in Germany 1990 to 2021

In 2021, a total of around 237 billion kilowatt hours of electricity were generated from renewables in Germany. This corresponds to a share of 41.9 per cent in total electricity consumption.

Sources: AGEE-Stat, AG Energiebilanzen; 1/2022

The following trends have been identified in each individual segment:

Onshore wind energy

It proved possible to increase the newly installed wind turbine capacity further from 1.4 GW in 2020 to 1.9 GW in 2021.

Since the newly installed capacity is still at a very low level compared with previous years, the insurance market in the renewable energies sector is still highly competitive. In addition, continued low growth in new and good risks means that the number of ageing plants some insurers have in their portfolios is on the up.

As a result, insurers need to allow for a higher claims burden when adjusting premiums and conditions. It can already be seen that conditions will deteriorate compared with earlier periods, as is also the case in other lines. Insurers, meanwhile, are examining risks much more closely and are adjusting premiums, deductibles and conditions in line with the individual risk situation.

Nevertheless, sufficient capacity, especially for new and good risks, continues to be expected for the time being. Overall, however, operators of wind power plants should prepare for a deterioration in premiums and conditions.

Offshore wind energy

In 2021 no new capacity was built offshore. 132 existing turbines were merely given a capacity upgrade. This is also due to the fact that the expansion cap had already been reached as a result of government requirements. Only in the coming years (from 2025 onwards in particular), can further new installations be expected on German territory.

Since the number of projects to be implemented in Germany in the years to come is fairly limited, many global groups have geared their activities towards other countries. Thanks to new start-up schemes, offshore wind energy is also rather lucrative in coastal sections with very high water depths, such as in Asia and in the Americas.

The insurance markets for offshore wind projects are global. International insurance brokers typically place coverage in German markets as well as through the London market. In recent years, new capacities have been created by insurers who are prepared to underwrite offshore projects. As a result of expanded global capacities, recent tenders have seen very good results for insured parties, despite the already existing favourable conditions.

Forecast development of offshore wind energy

in Germany

Source: Deutsche WindGuard, data base: Deutsche WindGuard, MaStR, FEP 2020

Photovoltaics

The German photovoltaics market is characterised by a large number of smaller projects (below 750 kWp), which, due to their volume, nevertheless account for a large share in renewable electricity generation. The change in overall conditions has seen more positive development for solar energy recently, with the increase in this sector amounting to approx. 5.3 GW in 2021 (as in 2020).

Insurance products that cover photovoltaic systems are highly developed and are being offered on favourable terms. Sufficient capacities are available. Here, too, however, there are already signs of deteriorating conditions and more restrictive behaviour by insurers in some areas.

Large-scale photovoltaic projects are currently being implemented in other European countries and beyond. German insurers are heavily involved in providing coverage for these projects. Increasing globalisation is also evident here.

Biogas / geothermal energy / storage technologies

Only a very small number of new projects are currently being implemented in these lines. They play no significant role for the insurance markets. It can be assumed that storage technology will be able to play a greater role in the years ahead, once the technical and regulatory challenges have been solved by businesses and politicians and operation is economically viable.

Network infrastructures

A major challenge associated with the energy switch in Germany and surrounding countries is the expansion of network infrastructures. This expansion is important because electricity from renewable energies is often generated far from the consumer (offshore wind).

The required expansion of offshore and onshore electricity networks will involve major investments by the relevant grid operators in the years ahead.

With the grid infrastructure currently lacking, large volumes of generated electricity are not being used efficiently at present.