Power Sector Faces Challenging, Unchartered Waters as “Trilemma of Tension” endures, says WTW
Understanding and managing key risk drivers is essential to navigate the global polycrisis, says WTW’s latest Power Market Review
LONDON, Nov. 08, 2023 (GLOBE NEWSWIRE) -- WTW (NASDAQ: WTW), a leading global advisory, broking, and solutions company, highlights the enduring “Trilemma of Tension” in the global power sector in its It suggests risk managers should invest in horizon-scanning to assess their own unique risk profile, and to work with partners to enhance their awareness and better inform and guide suitable risk mitigation, management, and transfer strategies.
The Trilemma, encompassing stress between energy security, affordability, and sustainability, has led to continuing volatility in the power sector. The uncertainty is amplified by the global polycrisis, including the rising global cost of living, supply-chain disruptions, and geopolitical tensions. With potential recession looming and sustained inflation, the power sector faces the risk of assault on multiple fronts, the report explains.
The Review highlights the changing panoply of risks challenging the power sector. It includes insightful articles which discuss:
- ways to optimize risk strategies as budgets tighten and premiums rise;
- the often-overlooked vulnerability of water supplies;
- potential risks involved in asset life-extension strategies;
- complex dynamics in the cyber insurance market; and
- the potential benefits of parametric insurance for power risks.
Power Market Review also considers the current state of the insurance market. Data and commentary covers areas including:
- Profitability in the power insurance market: Guest contributor Ian Green, Head of Power at Rokstone Underwriting, considers the future of the current hard market, which follows 15 years of sliding rates and widening terms.
- Property risk pricing: The balance of positive and negative influences over prices suggests that the best programs will see a 2.5% to 5% rating increase, compared to a flat 5% rise last year.
- International liability: The market appears more focused on rate adequacy than rate movement, with prices stabilising for favoured risks, and average rate increases falling to mid-single digits.
- Construction: Two decades of falling rates and broadening coverage have since solidified into a hard market. Construction-risk pricing is now stabilising, but project-specific geographical, economic, political, sociological, contractual, and technical risks mean power construction projects face increased insurer scrutiny.
Graham Knight, WTW’s Head of Global Natural Resources, said: “The challenges we reported in 2022 – the Russia-Ukraine conflict, global inflation, energy transition, and climate change – are ever-present. We’ve seen some positive developments, though. Wholesale gas markets have eased, and supply has shifted away from Russia. There’s signs of global inflation easing as economies respond to higher interest rates, and growing momentum behind the energy transition.
“On the other side of the equation,” he continued, “the crisis in the Middle East, precipitated by the Israel – Hamas conflict, combined with the very real potential for a global recession, creates further uncertainty for generators and markets. High levels of natural catastrophes are also driving major losses across the continents, and they’ve showed no sign of returning to lower historical norms. Meanwhile, transmission networks are coming under pressure from a higher reliance on intermittent power, as re-commissioned coal plants are turned off and gas-fired output is deployed to balance the system.
“All of these issues are creating uncharted waters for the power sector, as generators of all types, conventional and renewable, seek to balance competing demands for energy security, affordability, and sustainability. That trilemma is as challenging as ever.”
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