Financing the energy transition is a recognized global problem. In his letter outlining COP29, President Designate Mukhtar Babayev highlights the New Collective Quantified Goal on Climate Finance as the "top negotiating priority." Boston Consulting Group estimates there is a $19 trillion financing gap that must be filled if the 2030 climate goals are to be met. Accelerating financing for the climate transition is crucial.
The march of progress is relentless; the Energy Information Administration projects global electricity demand could increase by about one-third to three-quarters by 2050. We need more energy, and we need clean energy. This is a multi-technology, multi-commodity challenge that extends beyond solar and wind to emerging solutions like renewable natural gas, green hydrogen, and sustainable aviation fuel. To meet our constantly evolving energy needs, we must build—renewable energy infrastructure across the value chain to increase deployment. We must also develop new financial products to support this deployment. Long-term, low-cost financing is vital to advancing our clean energy goals.
Murphy's Law tells us that "Anything that can go wrong will go wrong." Predicting the future is difficult, so considering potential risks is essential for successful long-term project financing. These transactions depend on consistent performance by counterparties for 10 or more years. Identifying, mitigating, and appropriately allocating risks is critical. As the energy transition accelerates, intelligent risk management will be vital to enabling low-cost financing on commercial terms.
The insurance industry has traditionally absorbed risks that project sponsors are unable to take or allocate—this has been the case for hundreds (if not thousands) of years. More recently, insurance has been used to cover more nuanced contractual and transactional risks. In combating climate change, the industry has focused on resilience and adaptation to reduce their exposure to losses from extreme weather events. This is appropriate, as insurers have disproportionately borne the costs of climate change. We believe there is a key role for insurers to play as a catalyst in driving climate solutions.
Energetic has been pioneering risk management solutions for renewable energy projects for nearly 10 years, viewing insurance as a mechanism to create market liquidity. We ask, “What can I achieve if I think of insurance as an enabler, rather than a requirement?” To date, our innovative credit insurance has unlocked over $500M in distributed energy projects across the U.S., avoiding more than 85,000 MT of CO2. Additionally, 30% of Energetic’s portfolio is located in disadvantaged communities, where most of these projects would not have been financed otherwise. We’re not alone at the forefront of risk-transfer innovation—other MGAs like kWh Analytics and New Energy Risk share this mindset. The insurance industry must continue expanding acceptable risk boundaries through deep expertise and specialized underwriting. Where private insurers need help, we champion the GreenieRE coalition to address bottleneck risks and accelerate deployment.
If finance is the fuel for the energy transition, risk management is the fuel for financing. Don’t let perceived risks hold back your projects—reach out to explore how we can collaborate to mitigate risk and advance our collective clean energy goals.
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