Building resilience and navigating risk along the path to net zero

As global demand increases for cleaner, more sustainable sources of power, the energy industry is undergoing rapid change to meet the challenges and opportunities of achieving net zero targets.

The transition of the energy sector requires long-term strategic commitments to funding and public policy, to enable and build confidence among investors in renewables and greener energy projects. Reducing carbon emissions to sustainable levels also requires technological innovation and confident developers willing and able to take risk.

This is where the insurance industry plays a critical role in the energy evolution: new and unprecedented risks need to be addressed holistically, through a collaborative approach among energy companies and their risk partners. To understand key factors helping and hindering this transition, AXIS, a global specialty insurer, commissioned an independent survey in 2024 of more than 600 energy producers, industrial energy buyers, and specialist insurance brokers in the UK and US. The results show a range of risk factors that the energy sector faces in on its transition journey.

• Energy price volatility (cited by 56 per cent of survey respondents)—often impacted by unforeseen geopolitical developments—serves as a key indicator for predictability, stability, operational continuity, and long-term planning.
•  Supply chain disruptions (41 per cent of respondents) underscore the need for diversified sourcing strategies and resilient logistical networks.
• Changing regulatory and policy environments (39 per cent of respondents) can provide clarity but also add compliance and disclosure measures across a company's operations and strategy.
• Technology disruptions (36 per cent of respondents) emphasise the critical need for climate-resilient technology solutions within the energy sector. While designing technology to be more resilient to extreme weather events builds resilience, it may also have a knock-on effect for project costs. 
• Extreme weather events (35 per cent of respondents)—the increasing risk posed by hurricanes, floods, wildfires, and other climate-related disruption— pose a threat to infrastructure and assets especially as they are typically harder to model and predict.

Closing the gap

The complexity of the risk landscape may also explain another finding from this research - a gap between the desire among organisations to advance the transition and the reality on the ground. While 41 per cent of respondents feel 'very prepared' to respond to the growing urgency and demands of the energy transition from a business strategy perspective, a majority (55 per cent) say they have some way to go before they feel confident in their strategy and ability to act decisively.

Notwithstanding, energy producers and industrial energy buyers are committed to making critical investments in energy transition. Solar technology emerges as the most common investment area, with nearly six in 10 (59 per cent) respondents reporting investments (63 per cent). Global solar installations reached almost 450GW in 2023, which was more than three times all other renewable technologies combined. The confidence surrounding solar reflects comparatively low barriers to entry, including decreasing costs, scalability, relative ease of deployment, and lower capital expenditure requirements compared to other technologies.

Battery storage solutions, which can enhance reliability and mitigate the intermittent nature of renewable sources, are the next most common reported investment area in the UK and US (37 per cent). Likewise, smart grid technology and modernisation follows as another frequent investment in both markets (34 per cent). This reflects how energy stakeholders recognise the importance of infrastructure upgrades in connecting more renewable energy capacity.

According to respondents, the high capital investments required for projects (35 per cent) and global economic conditions (33 per cent) are commonly cited barriers, highlighting the financing complexities that businesses experience when navigating some projects. However, businesses often also hesitate to invest significant resources in breakthrough technologies that can be accompanied by unknown risks (28 per cent of energy producers said this is a concern).

Insurance has an important role to play in helping address these obstacles and in managing uncertainty. There is no shortcut to the energy transition, however through deeper understanding of the risks associated with the technologies and the shift in energy mix, and through deeper collaboration between the energy sector and insurance partners, steps towards net zero can be taken with greater awareness of potential risks and elevated confidence.

Joe Dutton is energy innovation lead at AXIS.

Read the AXIS Report: Navigating Risk in the Energy Transition here. 

This article is sponsored by AXIS, which is a partner of the Net Zero Festival 2024