Bringing Climate Tech to Market: The powerful role of insurance

Accelerating the commercialisation of climate technologies to decarbonise industries over the next decade will require new ways of doing business. Demonstrating and deploying these emerging technologies at scale is capital intensive and comes with many challenges and risks. Strong cross-sectoral collaboration will be required to develop innovative risk management measures to improve insurability, design appropriate insurance solutions and unlock the needed capital. The task will be complex and will necessitate changes to traditional commercialisation pathways and financing frameworks.

To explore the role re/insurers can play, The Geneva Association launched a two-part research series on climate tech and insurance. The first report in the series describes the climate tech commercialisation landscape and related challenges. It also offers perspectives from key stakeholders and insurance C-level executives on the benefits of and difficulties with engaging re/insurers in climate tech commercialisation. A lack of mechanisms to bring re/insurers and other key stakeholders together, profitability concerns and the limited number of projects available were found to hinder their early engagement in projects.

This second report examines the changes that need to be made to traditional approaches to developing and financing emerging technologies for climate tech and focuses on the importance of insurability and the development of affordable insurance solutions for market readiness. It makes clear the benefits of engaging P&C re/insures from the pre-commercialisation stages of projects to frame risks and develop risk management strategies. The report also offers a novel ‘Insurability Readiness Framework’ to help climate tech stakeholders pinpoint specific areas of projects that pose problems from an insurance perspective.

Key findings

1. Efforts are underway to modify the traditional framework for technology development and financing to expedite the deployment of climate technologies. The Technology Readiness Level (TRL) framework, which has been used since the late 1980s to assess a technology’s maturity, does not capture many risks that hinder market readiness.
   • Project finance is increasingly being used instead of traditional technology financing mechanisms (e.g. growth venture capital funding) to address project complexities and large capital requirements, even for first-of-a-kind pilots in the demonstration and early deployment stages.
   • Using the U.S. Department of Energy’s Adoption Readiness Level (ARL) framework, which identifies 17 risks that hinder the market readiness of climate technologies, alongside the TRL framework from the pre-commercialisation stages could help with the wide-scale deployment of climate tech.
2. Affordable insurance solutions are essential for getting climate technologies market ready, securing financing and managing project liabilities. Assessing the insurability conditions and developing insurance solutions for new climate technologies is complex and time consuming due to the myriad new risks involved and the lack of historical data. Greater risk sharing among stakeholders in the early stages could lead to the development of structured risk management solutions and better risk allocation among parties based on risk appetite and ability to bear risk, thereby attracting more capital and ensuring optimal risk financing. As the technology matures and deployment increases, more data on the performance and efficacy of risk management strategies becomes available, standards are developed for project replication, and the technology becomes more insurable. This allows insurers to take a greater share of the overall risk pool.
3. Insurability challenges exist but, in general, can be overcome. While there are issues associated with the common insurability criteria for emerging climate technologies, they can generally be addressed. Specific risks may not be insurable through the commercial insurance market and may instead require other interventions. If not solved, such risks could hold back the scaling of the technology indefinitely, as has been the case for carbon management technologies.
4. Early engagement of re/insurers at the industry level from the demonstration and early deployment stages of technology development would offer a number of benefits, including increased transparency and enhanced knowledge about the untested risks; convergence on data needs and monitoring requirements to initiate the development of databases for risk assessment in the industry; strengthened collaboration among stakeholders to develop risk management strategies for different aspects of the technology (e.g. equipment design); creation of 'pools of projects' to spread risks; and identification of unique insurance needs on a tech-by-tech basis to motivate insurance product innovation. This would also expedite the co-development of risk management standards, guidelines and codes of practice as projects reach the desired commercial scale, which is fundamental for project replication for wide-scale deployment.
5. At the project level, very early engagement re/insurers (irrespective of the stage of technology development), would ensure that risks are considered, assessed and managed more holistically to enhance the insurability and potentially shorten the due diligence period for obtaining insurance, with subsequent impacts on financing and execution. Traditionally, re/insurers are contacted after the project has been fully designed for development at an approved site, to arrange for insurance needs to secure financing and for execution. By engaging early, e.g. from the project feasibility phase when the site is selected and approved, re/insurers can provide important feedback on critical decisions, such as where and how to build facilities to maximise their insurability against extreme weather events over the project's life cycle.
6. The novel 'Insurability Readiness Framework' (IRF) presented in this report allows climate tech risks to be viewed through an insurance lens. The IRF translates the risks in the ARL framework into seven categories: 1) technology risk; 2) project information and organisation risk; 3) legal, finance and compliance risk; 4) physical risk at project location; 5) business interruption and supply chain risk; 6) long-term risk; and 7) environmental, social and governance risk. The framework enables more informed conversations among climate tech stakeholders and re/insurers for framing risks, identifying data needs, exploring insurability conditions, and considering risk management strategies. It also brings focus to the most challenging risks from an insurability perspective. We demonstrate its use in the report by applying it to two emerging technologies: green hydrogen and carbon management.

The report offers recommendations for stakeholders including insurers, investors, climate tech associations and developers, and governments on how they can leverage these findings to help expedite the commercialisation and at-scale deployment of climate technologies.

The 28th United Nations Conference of Parties (COP28), held in Dubai in December 2023, stressed again that limiting global warming to 1.5oC requires reducing greenhouse gas (GHG) emissions by 43% by 2030 and 60% by 2035 – relative to 2019 levels – with the goal of reaching net zero by 2050.1 The conference ended with the release of a climate deal, referred to as ‘The UAE Consensus’, which explicitly calls for transitioning away from fossil fuels, tripling renewable energy capacity globally and accelerating zeroand low-emission technologies for the decarbonisation of industrial sectors with heavy GHG emissions by 2030.2 Decarbonisation is highly capital intensive, with an estimated USD 7–9.2 trillion annual investment gap between now and 2050.3

In 2022, The Geneva Association (GA) launched a multi-stakeholder, two-part research project, Accelerating Climate Technologies for Industrial Decarbonisation and the Insurance Industry, to explore how re/insurers can help accelerate the deployment of new climate technologies for adoption by ‘hard-to-abate’ sectors – the steel, cement, aluminium, chemicals, aviation, trucking and shipping industries – which account for over 30% of global GHG emissions.4,5

The first report examines the climate tech commercialisation landscape and traditional approaches to developing new technologies based on the Technology Readiness Level (TRL) framework (Figure 1)6. It highlights major barriers to expediting climate tech commercialisation – including huge funding gaps, technical challenges with scaling and market readiness, and scarcity of data on the risks – and presented perspectives of C-level insurance executives on the topic.7 It stressed that new ways of doing business will be needed to expedite climate tech financing and market readiness, which will require stronger cross-sectoral collaboration among stakeholders in the climate tech ecosystem. The report concludes that re/insurers can play a pivotal role in their capacity as risk engineers and underwriters, but that they need to get involved in projects from much earlier stages. Currently, however, mechanisms to bring this about do not exist. Further, there is a lack of awareness among climate tech stakeholders of what re/insurers can offer and how insurance solutions could help unlock financing for projects and impact market readiness.

This second report:

• Explores why insurability and the development of affordable insurance solutions are critical to expediting climate tech market readiness.
• Explains why existing frameworks need to be enhanced to allow climate tech stakeholders to better leverage re/insurers’ expertise, especially from the precommercialisation stages.
• Showcases examples of the benefits of early engagement between re/insurers and climate tech stakeholders.
• Presents an ‘Insurability Readiness Framework’ (IRF), which allows the risks identified by existing frameworks to be viewed through an insurance lens.
• Applies the IRF to two technologies: green hydrogen and carbon management.

Section 2 takes a deeper look at existing frameworks and how they may be modified to gain a more holistic view of the risks associated with climate technologies, as well as the implications for insurability and the development of insurance solutions. Section 3 examines the insurability issues associated with new climate technologies. Section 4 highlights the benefits of engaging re/insurers in climate tech projects from the pre-commercialisation (demonstration and early deployment stages) phases. The IRF is presented in section 5 along with the results of its application to two technologies. Section 6 offers concluding remarks, highlights remaining issues and suggests recommendations for the way forward.

A significant portion of the estimated USD 7–9.2 trillion annual investment gap to fund the transition of the global economy by 2050 needs to be mobilised towards the development, demonstration and at-scale commercial deployment of emerging climate technologies.8 Massive amounts of public and private capital will need to be raised through financial institutions, but institutional investors and banks are reluctant to fund these technologies.9 Reasons for this include the complex risk profile of projects; low risk appetite from investors due to their limited resources and expertise in this area; financial regulatory constraints, such as high cost of capital for investing in risky projects; an inconducive public policy and regulatory environment; limited accessibility to investable-grade projects; and investors’ commitment to fiduciary responsibility.10

Cross-sectoral collaboration to identify, understand and manage the risks will be central to mobilising capital and expediting climate tech market readiness. These solutions could also have a material impact on the cost of capital for borrowers and enhance risk-adjusted returns for investors. This section will take a deeper look at frameworks that are currently used for the development of new climate technologies and examine the collaborations needed to develop proactive risk management solutions.

The TRL framework (Figure 1) has been used as the main framework for assessing the evolution of the maturity of a new technology from laboratory research (TRL 1) to widescale commercial deployment (TRL 9).11 It has helped to align discussions between innovators, entrepreneurs, project developers and investors on issues such as technological performance and safety risks, which need to be addressed through pilots and scaled projects before operational deployment.

However, the TRL framework does not address a number of factors that contribute to a technology’s market readiness; for example, market demand, equipment manufacturing and supply chain issues, availability of a sufficiently skilled workforce, or the public policy and regulatory environment. These factors, if not dealt with from the pre-commercialisation stages, could significantly delay or compromise the at-scale commercial deployment of climate technologies. Solar and wind power (onshore and offshore) technologies, for example, took over four decades to commercialise12 but have still not realised their full market potential due to manufacturing and supply chain issues, project developers’ or offtakers' credit risk, and long permitting processes.

FIGURE 1: TECHNOLOGY READINESS LEVEL FRAMEWORK

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Source: NASA13

Furthermore, first-of-a-kind (FOAK)14 pilots and early commercialisation projects are capital intensive, complex and involve many stakeholders, such as project owners and developers, Engineering, Procurement and Construction Companies (EPCs), suppliers, contractors and offtakers.15 Traditional growth venture capital financing is no longer sufficient for funding and scaling these new technologies. Project finance is increasingly being utilised for the development and deployment of newer climate technologies. While more prominently used in TRL 8 (early commercial-scale projects) to TRL 9 (wide-scale commercial deployment projects), it is occasionally being used for FOAK to nth-of-a-kind (NOAK) pilot projects in TRL 7.16

The emergence of project finance in this space is helping to facilitate discussions among key stakeholders and opening up further channels for financing these projects.17

The Adoption Readiness Level (ARL) framework (Table 1, risks 1–17) was developed to complement the TRL framework, to allow climate tech stakeholders to assess the market readiness of emerging climate technologies. It was released by the U.S. Department of Energy (DoE) in 2023 for consultations and introduced 17 risk types under the following four categories:

1. Value proposition covers risks associated with delivered costs, functional performance and ease of use/ operational complexity (risks 1–3).
2. Market acceptance encompasses risks associated with demand maturity, market openness, barriers to entry, market size and development of the downstream value chain for getting the product from producers to customers (risks 4–6).
3. Resource maturity for market adoption and large-scale commercial deployment includes risks associated with capital flow and availability; project development, integration and management; underpinning infrastructure (digital and physical); manufacturing and supply chains; access to critical materials required for the technology; and the availability of a trained workforce (risks 7–11).
4. Licence to operate includes risks associated with the regulatory and public policy environment; permitting and siting processes; environmental and safety issues; and community perception (risks 13–17).

Consideration of the risks defined in the TRL and ARL frameworks from the pre-commercialisation stages is critical to accelerating the commercial deployment of climate technologies. A complex ecosystem of stakeholders – including manufacturers and suppliers, infrastructure owners and regulators – is engaged in addressing market readiness factors. They need to align priorities, engage proactively and work together in a more concerted and interactive fashion (Figure 2).

TABLE 1: ADOPTION READINESS LEVEL FRAMEWORK WITH INSURANCE INCLUDED AS A KEY ELEMENT FOR MARKET READINESS

Source: Modified from U.S. DoE18

As new climate technologies are demonstrated and scaled from TRL 7 to 9, feedback based on lessons learned could help address market readiness factors. Mechanisms are needed to harness the knowledge and experience gained from project execution, for example on the performance and resilience of equipment, gaps and challenges in the value chain and special requirements for training the workforce.

The development of climate-tech-specific hubs, which aim to bring together technology developers and customers to leverage existing infrastructure systems, create a business marketplace and develop safety standards to expedite scaled deployment, are a step in the right direction.19

FIGURE 2: EXPEDITING CLIMATE TECH MARKET READINESS UTILISING THE TRL AND ARL FRAMEWORKS

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Source: Modified from U.S. DoE20

Available and affordable insurance solutions will be essential for getting new climate technologies market ready, securing financing and managing the liabilities associated with the execution of projects. However, assessing insurability conditions and developing such solutions for new climate technologies is complex and time consuming because of the myriad new risks, and lack of historical data and relevant experience. It is important to begin assessing conditions at the pre-commercialisation stages to determine what may be insurable through commercial insurance markets and how to address uninsurable aspects, for example through public-private partnerships (PPPs) or government backstops.

The development and implementation of risk management solutions is fundamental for improving insurability conditions. Beyond risk management efforts at the project level, industry-level efforts are needed to help change the risk profile of climate technologies. Such actions may include building extreme-weather-resilient equipment (e.g. thicker or vertical solar panels for protection against hail) and more resilient infrastructure systems, targeted workforce training (e.g. contractors, operators), and developing public policy and regulatory requirements that mitigate environmental and safety risks.

As understanding of the risks associated with new climate technologies improves and risk management solutions are developed and tested, industry associations and standard-setting and certification bodies will be able to engage and collaborate with insurers to develop risk management frameworks, standards and codes of practice. These in turn will have a significant impact on insurability conditions and the development of affordable insurance solutions.

As such, we propose to include an additional risk, ‘Insurability and Availability of Affordable Insurance,’ under ‘Resource Maturity’ in the ARL framework (Table 1, risk 18).

Assessing the insurability conditions for new technologies is not straightforward and decisions will not be binary (‘yes’ or ‘no’). They will instead fall somewhere on a scale that will evolve as the technology matures and risks are identified, understood and mitigated, or at the very least become more measurable. In the early stages of commercialisation, greater risk sharing among stakeholders, i.e. insurers, project owners, project developers, investors and government agencies, is required. As the technology matures, deployment increases and more data on the performance and efficacy of risk mitigation strategies becomes available, new technologies become more insurable and insurers can take a greater share of the overall risk pool.

Table 2 outlines the fundamental criteria of insurability21 as well as related issues for emerging climate technologies.22

An essential criterion of insurability is the randomness and independence of loss occurrence. For example, insurability is compromised if there is a systemic foreseeable risk, such as design flaws, which are only discovered once a technology has been in operation for a period of time. At the time of discovery, multiple units would typically already have been manufactured, delivered and installed. As a result, units may need to be fixed in the field at increased costs. Real-world examples include design flaws of rotor blades and gear boxes in wind turbines.

Re/insurers also need to be able to assess and measure the maximum possible loss (MPL) and average loss per event in monetary terms. For proven technologies, this analysis is carried out using scenarios that are developed based on previous experience. For new technologies, scenarios are developed based on assumptions and thus bear significant uncertainty.

Data transparency and knowledge sharing between project developers and re/insurers is critical for assessing the MPL. It is difficult for re/insurers to gain the same level of insight as project developers, especially in the earlier stages of development (e.g. TRL 7–8), and they may have no or limited access to information on technological risks. Ultimately, the project developer needs to ensure effective communication of complex technical information with the insurer, as project finance relies on convincing investors to assume well-mitigated technology risk.

The number of exposure units is another important consideration. From an insurance perspective, risk should be spread over a sufficiently large number of independent exposure units (i.e. projects) to reduce the variability of the loss experience. As the technology matures and the number of projects expands across different jurisdictions, more favourable conditions are created to form insurance pools. However, if the number of projects is limited – as has been the case for nuclear power, for example – government interventions are needed to cover the liabilities. This is the reality for emerging climate technologies, which are high risk and have a limited number of exposure units.

TABLE 2: CRITERIA OF INSURABILITY AND ISSUES RELATED TO EMERGING CLIMATE TECHNOLOGIES

Source: The Geneva Association

Assessing the ‘insurable interest’ of the stakeholders involved in climate tech projects is also complex. This refers to the financial interests of each stakeholder and the potential financial losses that each may experience in case of damage or destruction of the insured asset(s) or injury or death of the insured person(s).

• Project owners may be individuals, small to mediumsized enterprises, corporations or government entities. They may have insurable interest as they are responsible for the project's operation and maintenance. They may seek to manage and transfer risks associated with equipment failure, property damage or liability claims.
• Project developers have significant insurable interest as they have a financial stake in the project's success and may seek to protect their investment against potential risks such as damage to equipment, disasters caused by natural hazards or business interruption.
• Investors may include private investors, venture capital firms, banks and institutional investors who provide different types of funding via equity, debt and other capital market tools. They have a vested interest in protecting their investment and ensuring the project's profitability.
• Suppliers and contractors include companies involved in the construction, installation or supply of equipment and materials. They may seek insurance to protect against potential losses arising from project delays, equipment failures, liabilities or accidents.
• Power purchasers or offtakers23 are utilities or companies that enter into power purchase agreements or offtake agreements with project owners. They rely on the project's ability to supply and may want to safeguard against any disruptions that may impact power supply.

Though there are insurability issues associated with climate technologies, in general, these are not expected to be unmanageable (as opposed to pandemic business interruption or catastrophic cyber risks, for example). However, there may be tech-specific risks that may not be insurable through the commercial insurance market. These will require other interventions. If not solved, these risks may hold back the scaling of the technology indefinitely (see the case study on carbon management provided in section 5).

This section outlines the benefits of engaging re/insurers through their risk engineering services from the early stages of climate tech projects (TRL 6).

The benefits of involving re/insurers as early as the demonstration and early deployment stages of climate tech projects are manifold (Figure 3):

• Increased transparency, data sharing and enhanced knowledge on the risks. This would allow a more holistic approach to developing the risk profile of the technology to assess and fine-tune insurability conditions as it moves through the TRLs.
• Identification of data needs and monitoring requirements from early stages. This would facilitate the development of databases for risk assessment and determining insurability conditions.
• Strengthened collaboration with climate tech stakeholders (e.g. project developers, policymakers, equipment manufacturers and suppliers, infrastructure operators) to develop risk management strategies.
• Exposure to more projects as the TRL of the technology matures, which could lead to faster identification of systemic foreseeable risks and defects that could be mitigated, for example, through rethinking equipment design or government policies and interventions.
• Development of a ‘pool of projects’, which could lead to the establishment of an insurance pool to spread the risks.
• Setting reasonable expectations among climate tech stakeholders as to which risks can be transferred to the insurance industry, and how that risk-sharing balance may evolve over time as the technology matures and more risks become known or measurable.
• Identification of unique, tech-specific insurance needs, which may require product innovation in commercial insurance markets, or other interventions such as PPPs and/or government backstops.
• Expedited development of risk management standards, guidelines and codes of practice, which is fundamental for project replication and wide-scale deployment.

Appendix 1 offers an overview of the issues that may arise for project developers as emerging climate technologies move from TRL 6 to 9. Project developers need to start thinking about insurance needs as early as TRL 6, as they start planning their FOAK pilot.24 Insurance-related issues will also change significantly from TRL 6 to 9; for example, the insurable value of assets at TRL 6 is relatively low but risks and insurance needs evolve markedly for projects over TRL 7–9 (see Appendix 1).

FIGURE 3: BENEFITS OF ENGAGING RE/INSURERS AND CLIMATE TECH STAKEHOLDERS FROM THE PRE-COMMERCIALISATION STAGES

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Source: The Geneva Association

It is important to note that many emerging climate technologies in TRL 6–7 are being developed by smallto medium-sized entrepreneurial technology firms, which often do not have strong balance sheets, risk management expertise, knowledge about insurance requirements or the management skills required to run a successful business in the growth stage.25 There is a unique opportunity for these project developers to leverage the risk engineering expertise of re/insurers. 

Climate technologies are demonstrated, scaled and implemented in an operational capacity from TRL 7. Given the complexities and large capital requirements of these projects, traditional technology financing mechanisms, such as growth venture capital funding, are not sufficient and project finance is increasingly being utilised. Figure 4 demonstrates the six phases of project development, financing and execution, with related milestones. Decisions that are made during the early development phases have significant implications for the insurability of the project, with subsequent impact on its financing and execution.

Traditionally, re/insurers are contacted after the project has been designed for development at an approved site (red circle in Figure 4). However, this often means that insurance-related considerations may not have been made during project design, potentially leading to unanticipated surprises, both for untested (or not-fully-tested) and known risks that may have been overlooked. Such oversight could result in insurability challenges, delays or compromises in financing and executing the project.

Engaging re/insurers’ risk engineering teams much earlier on would ensure that risks are considered, assessed and managed more holistically, enhancing the insurability of the project and potentially shortening the due diligence period for obtaining insurance. For example, extreme weather events can significantly damage or destroy industrial assets.26,27,28 Between 2019 and 2023, wildfires, floods and hailstorms have resulted in major losses for renewable energy facilities.29,30 Rising insurance costs and difficulty finding coverage are starting to limit where such projects can be built, particularly where the risk of weather-related events is above average. With trillions of publicand private-sector funding being mobilised to expedite the commercial deployment of new climate technologies over the coming decades, deciding where and how to build facilities will be critical to keeping them insurable over their life cycle. Specifically:

• Involving re/insurers’ risk engineers from early project feasibility (phase 1, Figure 4) and pre-site selection approval will help guide these decisions. Traditionally, project site selection involves trade-offs between many different factors such as the cost of land, access to infrastructure and supply chains, as well as consideration of regulatory constraints and requirements. Using forward-looking scenario analysis, re/insurers can help project developers to anticipate current and future physical climate risks at a given site. Based on this, it may not make economic sense to build the project in the chosen location or, if it is decided to proceed with the site, project developers could integrate climate resilience and contingency plans into project conceptual development and design.
• When the design of project feasibility is being conducted (phase 2, Figure 4), re/insurers can help identify risks associated with the performance of the technology and its integration into the local ecosystem. Re/insurers can also work with project developers and their EPC partners to develop risk management strategies, such as contingency plans, advanced control systems and sensors for system-wide monitoring for anticipation of system failures for consideration in the design phase to enable proactive maintenance when the project is implemented.
• There are further opportunities for re/insurers to propose risk mitigation measures in the pre-engineering design phase, before the technology has been selected (phase 3, Figure 4). Re/insurers can propose risk mitigation strategies, through selection of technology and related equipment. For example, the use of thicker glass or vertical solar panels for a solar plant in a zone with high hail risk. Such measures may make a big difference to the insurability of the project. In addition, during phase 3 discussions about re/insurers’ requirements for construction and operational risks, regulatory requirements, industry standards (if available) and contract risk allocation among various counterparties can be addressed.
• Finally, re/insurers can help assess construction and operational risks in line with insurance requirements and suggest any additional risk management measures prefinancing (phase 4, Figure 4).

FIGURE 4: ENGAGING RE/INSURERS IN EARLY PROJECT DEVELOPMENT FOR ENHANCED INSURABILITY

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Source: The Geneva Association

When risk management standards and codes of practice have been insufficient or non-existent for projects, with implications for insurability, re/insurers have been known to initiate the development of guidelines (Box 1). Early engagement of re/insurers in climate tech projects will improve their expertise in this area, help build relationships with key stakeholders and potentially lead to the development and fine-tuning of insurability requirements, best practices, standards and codes of practice for project replication.

Source: Verband der Sachversicherer (VdS)31

In this section, we present a novel ‘Insurability Readiness Framework’ (IRF), which will help climate tech stakeholders to think about risks from an insurance lens. This will enable more informed conversations with re/insurers around framing risks, exploring insurability conditions and considering risk management strategies. Developed by The Geneva Association in collaboration with other stakeholders, it builds on the risks identified in the ARL framework.

The IRF (Appendix 2) breaks down the risks of new technologies into seven categories relevant to insurance and demonstrates how they relate to risks identified in the ARL framework. Table 3 provides a breakdown.

For each of the insurance-relevant risk categories, the IRF specifies key issues that need to be considered by climate tech stakeholders when framing risks in their dialogue with re/insurers, the information project developers need to compile to share with re/insurers for risk and insurability assessment, and risk mitigation strategies that would help enhance insurability conditions. The full template is provided in Appendix 2.

Table 4 shows the issues specified under ‘technology risk’. The types of data and information needed for discussion with re/insurers range from a basic overview of the technology and the scale-up strategy to material selection, proof of performance, quality control and risk management in the development process.

Table 3: Insurance-relevant risks provided in the IRF and their relation to ARL risk types

Source: The Geneva Association

Table 4: Insurance-relevant issues related to technology risk32

Source: The Geneva Association

As another example, Table 5 shows the ‘location-specific physical climate risks’ section of the IRF, which provides more clarity on the types of issues that need to be considered for managing these risks.

Table 5: Insurance-relevant issues related to location-specific physical climate risks

Source: The Geneva Association

It is important to note that the issues associated with the seven risk categories in the IRF are not meant to be exhaustive. Individual re/insurance companies may add other issues that are relevant to their own assessment processes.

Utilising the IRF for enhanced strategic risk conversations at the industry level

At the strategic level, the IRF can be used to identify and frame risks that may be considered uninsurable from a commercial insurance market lens and may require different interventions, such as PPPs or government backstops. Using the IRF in climate tech project development from the demonstration and early deployment stages (TRL 6–7) could help to identify the most challenging risk areas and develop structured risk management solutions. It may also aid in allocating risks among parties based on appetite and ability to bear risk, thereby attracting more capital and ensuring optimal risk financing. As technologies mature and re/insurers become engaged in more projects, they can engage with standard-setting and certification bodies to identify effective risk management strategies to help with the development of risk management standards and codes of practice.

Utilising the IRF at the project level

Transparency around insurance requirements will enable climate tech project developers and their engineering partners to address them in a more targeted way during different phases of project development, with the following benefits:

• Information provided by project developers will be more in line with insurance expectations, which will help to streamline the process.
• Insurance-related risk considerations will be reflected during project design. This could include longterm climate risks being considered during site and equipment selection or the development of mitigation measures to minimise operational risks across the value and supply chains.
• The IRF could help avoid unnecessary iterations during project development due to oversight of insurancerelated risks. It may even help expedite the process, given the enhanced risk awareness of project developers.

Through three technical multi-stakeholder workshops,33 we utilised the IRF to frame and facilitate a dialogue around the range of risks associated with two major emerging technologies: green hydrogen and carbon management (with focus on geological storage technologies and related carbon markets) to identify the risks that pose the most challenges from insurability perspective. A summary of findings is provided in this section.

Green hydrogen

The least emissions-intensive pathway to produce hydrogen is referred to as green hydrogen.34 It is produced through electrolysis using renewable energy as the power source, mainly solar and wind power. As of December 2023, globally announced green hydrogen production capacity is 32 million tons per annum (Mt p.a.) by 2030, with approximately 2 Mt p.a. already having passed the final investment decision.35

As of October 2023, the total investment gap for both green and blue36 hydrogen projects (collectively known as clean hydrogen) is USD 961 billion by 2030,37 with 50% allocated to hydrogen production and supply, 25% to infrastructure including hydrogen transportation and storage, and the remaining 25% to support end-use applications such as electric power or mobility. While an estimated USD 570 billion in direct investments has been announced, only USD 39 billion has passed the final investment decision. Further development and commitment are required to close the gap.38 The establishment of hydrogen hubs is playing a crucial role in expediting the market, boosting supply chains and facilitating infrastructure for the commercial-scale deployment of clean hydrogen.39,40

This case study considers complex and large-scale green hydrogen projects (Figure 5). The value chain consists of hydrogen production, transformation into transportable products (such as ammonia or methanol), storage and transportation (via ships, pipelines, etc.) to the end user. At the point of end use, there may be a need for final deconversion of the transported product (e.g. ammonia) back to hydrogen. An overview of the major risks as well as the most challenging risk categories from the IRF is provided in Box 2.

FIGURE 5: COMPLEX GREEN HYDROGEN PROJECTS AND RISKS ALONG THE VALUE CHAIN

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Source: Modified from IRENA41

Source: The Geneva Association48

Carbon management (with focus on carbon storage and carbon markets)

The carbon management value chain includes CO2 capture, transportation, and utilisation or storage, usually summarised by the term carbon capture utilisation and storage (CCUS). The intended outcome can be to either reduce ongoing emissions at their source, or to undo past emissions independently from their original source (carbon dioxide – or simply carbon – removal). The processes involved in CCUS can be carried out through natureor technology-based solutions, or a combination of both.49 In nature-based solutions, the CO2 capture step is performed in biological systems. Technological solutions capture CO2 in one of two ways:

• From high-CO2-emitting point sources, e.g. municipal solid waste incineration plants or steel and cement production facilities, known as point-source capture.
• Through direct air capture methods, which remove CO2 directly from the atmosphere.

CO2 can either be directed to dedicated geological storage sites or utilised for other purposes, such as the production of concrete or synfuels. There are two approaches for storing in deep geological formations:

• Geological storage. Compressed CO2 is pumped deep underground into a porous host rock that is concealed by a layer of impermeable caprock (examples of such geological formations are depleted oil and gas fields, or saline aquifers).
• In-situ mineralisation. This entails injecting dissolved CO2 into rock layers where the rock minerals help to fix the CO2 in the form of solid mineral carbonates (such as limestone).

As of July 2023, there are 41 operational CCUS facilities worldwide, with a collective total CO2 capture capacity of 49 Mt p.a.50 Of these facilities, 40 are dedicated to emission reduction through point-source capture. Only one facility is dedicated to carbon removal, namely the Direct Air Capture and Storage (DACS) pilot ‘Orca,’ located in Iceland.51 To achieve the decarbonisation of heavy industries, approximately 700 Mt p.a. of CO2 would need to be captured and stored by 2030.52 According to the Intergovernmental Panel on Climate Change (IPCC), maintaining global emissions at net-negative levels will be necessary throughout the second half of the current century. Globally, the carbon removal sector would need to achieve around 6 billion tonnes of negative CO2 emissions annually by 205053 to limit global warming below 1.5°C and a cumulative total of up to 1,000 billion tonnes of negative emissions by 2100, depending on how fast and at what scale global emissions are reduced.54 The carbon removal industry must continue developing at an unprecedented pace to deliver such enormous negative emissions on time.

Increasing the establishment of CCUS networks or clusters (hubs) has been key to bolstering the supply chain, facilitating infrastructure, and bringing together producers and consumers.55

Furthermore, the development of robust and trustworthy carbon markets with verifiable carbon credits is important for incentivising carbon management projects. They provide a platform to monetise carbon reduction or removal efforts through the trading of carbon credits. There are two types:56

• Compliance carbon markets are created and maintained by jurisdictions as part of national, regional and/or international climate policies or conventions.
• Voluntary carbon markets, whether national or international, are not a compliance tool and involve the issuance, buying and selling of carbon credits on a voluntary basis.57

In recent years there has been increased scrutiny on the integrity of carbon credits, especially for credits from nature-based solutions projects. There is also growing interest in unlocking carbon finance via the sale of credits from technological solutions that involve geological CO2 storage and in-situ mineralisation. To ensure the credibility of these markets, more robust project methodologies and certification standards need to be developed, including stringent monitoring, reporting and verification practices.58 Using the IRF in discussions with stakeholders indicated that the scalability of the carbon management industry is heavily reliant on the long-term durability of carbon storage systems, i.e. long-term liabilities associated with potential future storage reversal events (release of CO2 back into the atmosphere). Carbon markets involving long-term CO2 storage operations face the same challenges and related uncertainties. Box 3 captures the issues in more depth.

Source: The Geneva Association67

Implementing climate technologies at the scale needed for industrial decarbonisation over the next decade will require new ways of doing business. Demonstrating and deploying these technologies is capital intensive and comes with many challenges. Available, accessible and affordable insurance solutions will be essential for getting new climate technologies market ready, securing financing and managing the liabilities associated with projects. Assessing insurability conditions for climate tech projects and developing insurance solutions is complex and time consuming due to the myriad risks involved and the lack of historical data and experience.

Most new climate technologies are being developed by smallto medium-sized firms, which may not have a strong balance sheet, sufficient risk management expertise and/or broader knowledge about insurance and related requirements. This report outlines why and how climate tech developers, their partners and other stakeholders could benefit from working with re/insurers, particularly through leveraging their risk engineering expertise.

Collaboration from the very early stages of projects will enable insurability conditions to be determined and insurance tools to be developed on a tech-by-tech basis. Furthermore, the development and implementation of risk mitigation strategies will help to improve insurability conditions. The costs associated with involving re/insurers’ risk engineering teams should also be acknowledged and evaluated very early on in the project. The long-term benefits – risk prevention, financial optimisation, commercial opportunities – would potentially outweigh the initial costs.

This report sheds light on issues that need to be considered for assessing and improving the insurability of new climate technologies. The Insurability Readiness Framework (IRF) offers guidance on how to think about risks from an insurance perspective and will enable more informed conversations between re/insurers and climate tech stakeholders.

Recommendations

1. Entities with access to pipelines of projects, e.g. investor platforms, engineering companies, and climate tech hubs and associations, should collaborate with re/insurers to:
   • Raise awareness and educate climate tech project developers about:
     • The crucial role of insurance for managing risks, mobilising capital and financing projects.
     • The benefits of early, direct engagement with re/ insurers’ risk engineering teams.
     • The benefits of using the IRF to consider risks holistically.
   • Utilise the IRF to identify factors that could hinder the insurability and scalability of climate technologies, as demonstrated in this report for carbon management and complex green hydrogen projects. The framework could be applied to other emerging technologies such as long-duration energy storage, sustainable aviation fuel or small modular nuclear reactors, for example.
2. Climate tech stakeholders should leverage re/ insurers’ risk engineering expertise and utilise the IRF from the early stages of projects to:
   • Frame project risks more holistically and evaluate the data needed by re/insurers.
   • Better address insurance requirements by providing information that is in line with insurance expectations and ensuring that adequate risk management measures are considered in project design.
3. Governments and policymakers should collaborate with re/insurers to:
   • Raise awareness of the importance of insurance for commercialising new climate technologies and obtaining government subsidies.
   • Identify risks that are not insurable through commercial insurance markets and may require public-private solutions.
   • Support the development of climate-tech-specific databases and analytical tools needed for risk assessment and the development of insurance solutions.
   • Identify tech-specific risk management and incorporate these in the development of public policies, regulatory frameworks and government programmes.
4. Re/insurers should:
   • Invest strategically in building their internal expertise and capacities by expanding their risk engineering services for viable emerging climate technologies.
   • Strengthen partnerships with entities that have access to climate tech projects from TRL 6–7, such as EPCs, climate tech hubs, investor platforms and governments. This will help to educate project developers about the benefits of risk engineering services and the key role of insurance, and explore opportunities to develop pools of projects to spread risks.
   • Strengthen industry-level collaboration and partnerships to develop innovative risk management solutions to identify the unique insurance needs of different climate technologies, as well as work with standard-setting and certification bodies to converge on best practices for the development of risk management frameworks and standards to enable project replication.
   • Strengthen collaboration with governments, the scientific community, climate technologists, and third-party technology verification and testing firms to compile data and analytics that may already be available on emerging climate technologies and translate these for insurance use.

We hope the findings and recommendations presented in this report help advance dialogue and collaboration among climate tech stakeholders and re/insurers. The re/insurance industry has a crucial role to play in supporting the rollout of new climate technologies, but significant progress needs to be made in order to unlock their potential contributions. This includes:

• Developing practical mechanisms for engaging re/insurers’ risk engineering teams directly and more efficiently with project developers and other stakeholders from the demonstration and pilot stages and from early phases of project development.
• Exploring how insurance markets could be best leveraged to enable the at-scale deployment of climate tech.
• Better understanding insurance needs for funding climate tech projects through debt and capital market financing.
• Improving understanding of how industrial sectors are adopting these emerging technologies and the implications for their business models.

Source: The Geneva Association, based on deliberations with re/insurers, MGAs EPCs and investors.

This Insurability Readiness Framework (IRF) has been developed as a guide to translate risks associated with the TRL and ARL frameworks into seven risk categories from the insurance lens. IRF enables all stakeholders involved in the climate tech ecosystems to have a more holistic view of the risks and their interconnectivities. This enables more informed dialogue about various risks, related issues and data needs to explore insurability conditions, consider risk management strategies, what may or may not be insured through the commercial insurance markets, motivate insurance product innovation for the insurable aspects and explore ways to address the uninsurable aspects through other means, such as public-private partnerships or even the government as the insurer of the last resort. 74

Business continuity plan: strategic playbook created to help an organisation maintain or quickly resume business functions in the face of disruption, whether that disruption is caused by a natural disaster, civic unrest, cyberattack or any other threat to business operations.77

Business interruption insurance: coverage that replaces business income lost in a disaster, such as fire.78

Delay in startup insurance: coverage for project owners for the financial consequences of a delay in project completion arising from an insured physical damage event.79

Directors & officers insurance: covers the liability from legal actions as a result of serving as a director or an officer of a business or other type of organisation from regulators, legislators and shareholders, e.g. class action against company.80

Engineering, procurement and construction contract: contractual agreement between a project owner and the contractor that enables the owner to transfer the complete risk of design, procurement and construction to the contractor. The contractor is solely responsible for completing the project and handing it over to the owner in a turnkey condition.81

Erection all risk insurance: covers losses arising from the erection and installation of machinery, plant and steel structures, including physical damage to the project, equipment and machinery, and liability for third-party bodily injury or property damage arising out of these operations.82 Also known as builders all risk or construction all risk in the U.S.

Operation & maintenance: Combination of maintenance, management, training, budgeting and business to run an organisation.83

Operation all risk: considerations that are typically covered by project safety management requirements, including hazard and operability analysis undertaken during design, construction and pre/post-commissioning phases. For example, maintainability (including inspection), spares availability, operator selection and training, health and safety of operations.

Original equipment manufacturer: company whose goods are used as components in the products of another company.84

Power purchase agreement: long-term agreement to buy power from a company that produces electricity.85

Provisional acceptance Certification: typically outlined in a contract between the project owner and the construction/ design/technology licensor company. It is granted upon the fulfilment of various contractual obligations, such as meeting performance criteria and confirming compliance with safety standards. While the criteria can be complex, the key feature of a PAC award (or equivalent) is the transfer of 'care, custody and control' of the facilities to the plant owner. From this point onward, the owner assumes responsibility for operating and maintaining the facilities. Subsequently, the contractors are typically only obligated to meet longerterm performance criteria, such as efficiencies and power consumption, and address equipment warranty-related issues for a defined period. Upon expiration of this period, a 'Final Acceptance Certificate' or equivalent is issued, relieving the contractor/designer of further liabilities for the plant, except as defined through legal action.