Powering Progress

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Powering Progress

Powering Progress

As we approach the ten-year anniversary of the Paris Climate Agreement 2050 Net Zero target4, the question is: Are we moving into the end of the beginning phase of the energy transition and entering the implementation phase?

Green shoots of progress

Today, we are at a tipping point where renewable energy is often cheaper than carbon-based fossil fuels. The International Energy Agency (IEA) says that fossil fuel demand will peak by 2030. Renewables will overtake coal as the leading source of electricity by 20255. These developments are linked to technological advancements, economies of scale, government subsidies, and commercial investment. These green shoots of progress are cause for optimism, but the transition to low carbon energy sources presents a dual risk to many industries and firms.

The transition challenges are not uniform. Industries relying on fossil fuels for heat or chemical reactions still struggle to find financially viable renewable alternatives. Great strides are being made in biofuels, hydrogen fuel cells and geothermal energy, as well as in the technology to create battery power for big fossil burning industries like the steel industry.
And there is progress being made on the development of commercial fusion power and the acceptance of Small Modular Reactors (SMRs). Some of these new fuels are further ahead than others, with AI playing a critical role in many to help develop workable, stable and safe solutions. However, their implementation often requires extensive changes to infrastructure, supply chains and significant investment, and in some cases it can result in stranded assets.

“There is real progress being made on the development and production of fusion energy and other forms of alternative energy. However, challenging problems remain but they are not insurmountable. Much of the technology being used has been proven on a smaller scale, the challenge now is being able to scale to the levels required to produce and commercialise fusion power.”

Denis Bensoussan
Head of Space, Beazley

Concerns remain

The challenges facing businesses, particularly in Europe, are also compounded by ongoing political tensions. The evolving situation between the US and EU leaders over the conflict in Ukraine is expected to cause an increase in defence spending by governments across Europe, potentially redirecting vital investment in sustainability initiatives.

This could have significant ramifications for businesses operating in countries that were already struggling with net zero targets. In Germany, for example, significant investment is still needed to decarbonise the most emissions-intensive sectors: energy, industry, transportation, buildings, and agriculture. Their heavy reliance on imported gas also requires large-scale action, which may be put on hold in favour of defence priorities.
Similarly, despite the ambitious target set out by Spain’s National Energy and Climate Plan (INECP) to achieve a 31 percent decline in emissions between 2019 and 2030. This rate needs to be four times as fast if Spain is to reach its 2030 decarbonisation goals, and five times as fast after that to reach net zero by 2050.6

Key challenges also still remain in France’s transition – still heavily reliant on fossil fuels, which accounted for almost half of its primary energy consumption in 20237, any reduction in renewables investment would represent a huge set back in its path to net zero, and present a significant hurdle and risk for businesses investing in their own transition.

Our research reveals that 21% of the global executives surveyed ranked the energy transition, including the impact of moving away from carbon fuels, stranded assets and the costs associated with moving to a net zero economy, as their top concern.

Renewable energy

Not only are businesses struggling to develop the infrastructure required, but political decisions on renewable energy are also affecting the ability of businesses to plan for and invest in sustainable power and become carbon neutral.

For traditional energy suppliers, the transition towards renewables presents a double-pronged risk to their operations. The first, there is the financial consideration around adapting their wider infrastructure and operations to become carbon neutral. The second, however, is linked to the democratisation of energy supply, through the development of technology, such as solar panels for homes, is causing a shift away from the traditional centralised model, in which households would be powered by an external supplier.

“Historically, electricity has been provided by centralised utilities, with customers – whether industrial or residential – purchasing power from large, high-voltage production centres. However, with the rise of renewable energy, which can be easily distributed and even generated by households, this model is changing dramatically. We now need to think of energy supply in a way that's more similar to the telecoms industry’s transition, where the supply is becoming democratised. This shift compels traditional energy providers to rethink their centralised distribution models, embracing innovation or risk being left behind in a rapidly evolving energy landscape.”

Rob Grant
Managing Director at Pollination

Looking ahead

Whilst we expect the risks associated with the low carbon transition to continue to be front of mind for businesses, there remains significant concern over what their journey to net zero will look like. 67% of the businesses we surveyed agree that they will find it difficult to switch to renewable/non-carbon energy sources, with only 17% disagreeing.

“We are exploring transition risk scenario analysis to assess the potential impacts of moving to a low carbon economy on our underwriting activities. The analysis will consider the impacts of different transitions scenarios (such as orderly and disorderly transitions) and different time horizons. This analysis will assess how technological advancement, policy changes and market trends may impact different industry sectors, so that we can identify potential risks and opportunities for insurance to support our clients through de-risking the transition.”

Juan Duan
Head of Financial Climate Risk at Beazley

Supporting future technologies

The transition to a low-carbon economy has brought technologies like carbon capture and storage (CCS) and nuclear fusion into the spotlight. Insurance for carbon capture is being developed that can protect against liabilities associated with the capture, transport, and storage of CO2, such as the risk of leakage that could lead to environmental and health issues. Similarly, as nuclear fusion technology develops, the insurance industry is working on cover for the unique risks involved, including equipment failure and safety liabilities, to help unlock vital investment in this burgeoning sector.

Green shoots of progress

Green shoots of progress

Today, we are at a tipping point where renewable energy is often cheaper than carbon-based fossil fuels. The International Energy Agency (IEA) says that fossil fuel demand will peak by 2030. Renewables will overtake coal as the leading source of electricity by 20255. These developments are linked to technological advancements, economies of scale, government subsidies, and commercial investment. These green shoots of progress are cause for optimism, but the transition to low carbon energy sources presents a dual risk to many industries and firms.

The transition challenges are not uniform. Industries relying on fossil fuels for heat or chemical reactions still struggle to find financially viable renewable alternatives. Great strides are being made in biofuels, hydrogen fuel cells and geothermal energy, as well as in the technology to create battery power for big fossil burning industries like the steel industry.
And there is progress being made on the development of commercial fusion power and the acceptance of Small Modular Reactors (SMRs). Some of these new fuels are further ahead than others, with AI playing a critical role in many to help develop workable, stable and safe solutions. However, their implementation often requires extensive changes to infrastructure, supply chains and significant investment, and in some cases it can result in stranded assets.

“There is real progress being made on the development and production of fusion energy and other forms of alternative energy. However, challenging problems remain but they are not insurmountable. Much of the technology being used has been proven on a smaller scale, the challenge now is being able to scale to the levels required to produce and commercialise fusion power.”

Denis Bensoussan
Head of Space, Beazley

Concerns remain

Concerns remain

The challenges facing businesses, particularly in Europe, are also compounded by ongoing political tensions. The evolving situation between the US and EU leaders over the conflict in Ukraine is expected to cause an increase in defence spending by governments across Europe, potentially redirecting vital investment in sustainability initiatives.

This could have significant ramifications for businesses operating in countries that were already struggling with net zero targets. In Germany, for example, significant investment is still needed to decarbonise the most emissions-intensive sectors: energy, industry, transportation, buildings, and agriculture. Their heavy reliance on imported gas also requires large-scale action, which may be put on hold in favour of defence priorities.
Similarly, despite the ambitious target set out by Spain’s National Energy and Climate Plan (INECP) to achieve a 31 percent decline in emissions between 2019 and 2030. This rate needs to be four times as fast if Spain is to reach its 2030 decarbonisation goals, and five times as fast after that to reach net zero by 2050.6

Key challenges also still remain in France’s transition – still heavily reliant on fossil fuels, which accounted for almost half of its primary energy consumption in 20237, any reduction in renewables investment would represent a huge set back in its path to net zero, and present a significant hurdle and risk for businesses investing in their own transition.

Our research reveals that 21% of the global executives surveyed ranked the energy transition, including the impact of moving away from carbon fuels, stranded assets and the costs associated with moving to a net zero economy, as their top concern.

Renewable energy

Looking ahead

Supporting future technologies

Spotlight Snapshots

For most industries and businesses, the path to net zero is complex. It requires wide-scale operational changes, creating risks - some foreseeable, others, like political and regulatory changes, less so. Access to risk scenario analysis and medium-to long-term planning will greatly enhance the ability to secure quality insurance capacity.
Undertaking extensive due diligence to enable informed decisions and long-term choices will be essential for success.
Insurance has an important role in partnering with firms as they take their next steps on their energy transition journey.

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