Natural catastrophes and un-modelled extreme weather risks have now become a global threat for renewable energy markets, raising concerns about the long-term bankability and viability of clean energy projects as the industry expands, according to GCube’s “Known Unknowns” report.

Fraser McLachlan, CEO of GCube Insurance, said: “For years, the US has been at the frontline of the renewable energy market’s battle with Nat Cat and extreme weather risk. But while North America has long been the focal point of these challenges, it is now evident that this has become a global issue.

“Across Europe, the Middle East, and Australia, the renewables sector recognises the increasing climate-driven risks, but, due to modelling and data shortfalls, the full scale and complexity of those risks remain unclear.”

As the report revealed, climate-driven risks in renewable energy are no longer just a US problem, as Europe, the Middle East, and Australia face increasing uncertainty.

In the US, the report’s findings indicate a rise in losses attributed to both hail and wildfires, with some Nat Cat events now exceeding $300 million in insured damages.

The tightening of coverage limits, and rising deductibles is adding further pressure on project owners and financiers.

Europe is experiencing a significant shift in its perception as a lower-risk market for renewable energy investments. The year 2024 brought unprecedented renewable asset losses due to natural catastrophes and extreme weather events.

This coincided with the region’s second-costliest year for flood damages, which led to an increase in both the frequency and the severity of insurance claims across the continent.

The Middle East and North Africa (MENA) region, once viewed as having a relatively low exposure to extreme weather, now faces escalating climate risks for its growing renewable energy infrastructure.

As these risks intensify, insurers must rethink their exposure models, analysts highlight. At the same time, the renewables industry in the region must move beyond short-term fixes and begin to address the underlying vulnerabilities of its projects, the report suggested.

In Australia, losses to renewables from extreme weather fortunately remain low, but the current rapid expansion into new regions increases exposure to bushfires, cyclones, and hailstorms.

Fraser McLachlan, CEO, GCube Insurance, said: “The sector is acutely aware that Nat Cat and extreme weather risks are increasing, but there remains uncertainty around their true scale and impact, particularly in new and rapidly expanding markets.

“These “known unknowns” – the recognition of Nat Cat and extreme weather risks without a full understanding of their true severity – are what make this moment so critical. If the market fails to respond now, we risk a scenario where insurability and bankability become major barriers to growth.”

The report also highlights that Nat Cat and extreme weather risks are increasingly affecting project bankability, especially in the US, where some projects are facing challenges securing financing due to coverage gaps and rising costs.

According to Cécile Luciano, Director of Structured Finance Energy Origination at NORD/LB, there changes have not yet made projects “unbankable!, but challenges remain.

He stated: “For example, I’ve seen a project in a flood-prone area where the insurance policy excluded flooding entirely. That’s not something we can accept, forcing developers to find coverage elsewhere, often in a different market.

“We are seeing more engagement between lenders, insurance advisors, brokers, and developers to ensure that policies are bankable from the start. This needs to happen early in the process, ideally before construction insurance is finalised.”

To address the global renewables risk management gap, the report recommends that insurers, developers, and financiers improve data accuracy through updated Nat Cat modelling, optimise asset design to withstand emerging weather threats, and strengthening resilience strategies through closer collaboration between insurers and financiers to maintain long-term insurability and effective risk-sharing.

The post Nat Cat & extreme weather threatens insurability and bankability of renewables worldwide: GCube appeared first on ReinsuranceNe.ws.