War in Ukraine hits solar and wind power sources
The conflict in Ukraine has the potential to become a defining event for the global renewable energy re/insurance industry. In addition to estimated industry-wide insured losses from wind farms reaching at least $800 million in total, solar power-related insured losses may also begin to arise. While it is still difficult to assign an industry-wide estimate of insured losses, the role of solar power in Ukraine’s renewable energy sector and the extent of reported damage suggest profound implications for renewable energy re/insurers.
Solar energy background
An analysis of Ukraine’s National Energy Strategy, published in 2017, illustrates how the country views renewable energy. Although it offers a nod to climate change, the focus is really on energy independence and security. Ukraine’s stated goal was to increase its reliance on renewable energy to 25% of its energy mix by 2035. Ukraine’s energy mix includes a high proportion of fossil fuels, particularly coal and natural gas, followed by nuclear energy, which accounted for almost a quarter of the energy mix in 2018. In 2020, renewables increased from 5% of the country’s mix in 2018 to 12.4%. This is significant progress, especially for a country identified as one of the world’s top ten renewable energy producers in 2019 and one of the five fastest growing in 2020. At the end of 2020 , solar energy dominated Ukraine’s renewable energy mix with a 78% share, followed by wind. at 20%, according to some loose PCS research and calculations.
The region of Ukraine where the conflict is centered is also where most of the country’s renewable energy capacity is located. In fact, 66% of Ukraine’s renewable energy is found in: Odessa, Zaporizhzhia, Mykolaiv, Kherson and Dnepro. In addition, 60% of solar power capacity is in conflict hotspots, representing 3,770 MW of installed capacity. Thirty-eight of the 42 wind farms are located in the region stretching from Odessa to Luhansk. As a result, downside risks in the renewable energy sector have been pronounced, and already it appears that kinetic activity has led to potential industry-wide insured loss activity.
Risk and damage review
According to Kosatka.Media, the damage to Ukraine’s solar energy sector from the conflict has been extensive, beyond what PCS separately estimated for both the renewable energy sector and the wider conflict. The energy news and information site warns of the risk of widespread bankruptcies among renewable energy companies in Ukraine and the deep difficulties in reviving the sector, based on both the damage suffered so far. present and the economics associated with exploitation during conflict. For the global re/insurance industry, significant loss activity is expected.
Commercial solar power in and around the Donbass region has suffered damage, with an estimated 30-40% of exposed capacity believed to have been damaged so far (1,120-1,500 MW of installed capacity). Additionally, those that were not damaged were instructed to “limit generation during daylight hours to ensure the viability of the energy system.” The reliability of the estimates is limited by the lack of access to affected sites, due to ongoing fighting. Kostaka.Media reports that other solar power damage comes from private domestic installations, which account for about 1.2 GW of capacity, of which about 24% is believed to have been damaged.
However, PCS does not believe this will significantly increase insured losses industry-wide, given that personal insurance penetration is believed to be low and only contributes around 100 million in insured industry-wide losses from the dispute (so far).