A "Trilemma of Tension" in the global power sector is encompassing stress between energy security, affordability and sustainability and has led to continuing volatility in the sector according to a new market review by WTW.
The 2023 Power Market Review suggests that 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 amplifies the uncertainty in the sector. This is also aided 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 according to the report.
The report highlights the changing panoply of risks challenging the power sector. It includes insights which discuss:
ways to optimize risk strategies as budgets tighten and premiums rise
potential risks involved in asset life-extension strategies; and
the potential benefits of parametric insurance for power risks.
WTW head of global resources Graham Knight said, “The challenges we reported in 2022 – the Russia-Ukraine conflict, global inflation, energy transition and climate change, are ever-present. We have seen some positive developments, though. Wholesale gas markets have eased and supply has shifted away from Russia. There are 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 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.”
He said, “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.”
Power Market Review also considers the current state of the insurance market and these include profitability in the power insurance market, property risk pricing, international liability and construction-risk pricing.