COVID-19 Workplace, Supply Chain Risks Having Significant Impact on Power Sector

Source: WTW | Published on June 3, 2020

Industrial pipelines on pipe-bridge against blue sky

Pressures on workforce availability and maintaining supply chains arising from COVID-19 are proving challenging to the power sector, according to Willis Towers Watson, a leading global advisory, broking and solutions company, at the launch of its Power Market Review. Additionally, the increasing focus on environmental, social and governance (ESG) is having a significant impact on future power sector risk management strategies.

The report outlines how COVID-19 presents unique risks to the power sector that must be managed effectively to maintain reliable supply. Those risks include reduced electrical demands, moratoriums on construction projects, availability of personnel and travel restrictions, which affect access to operating assets for maintenance; however, the report goes on to note that some clients have taken advantage of the decrease in electricity demand and lower pricing to proactively advance scheduled maintenance operations, contrary to insurer expectations.

Additionally, the increasing significance of ESG and the changing climate risk landscape form key themes of the report, which highlights that the transition to a low-carbon economy requires a fundamental reappraisal of risk in the power sector. The report also shows that achieving a satisfactory ESG rating will be critical in enabling power companies to attract and maintain the support of key stakeholders in the future.

Other key highlights of the report from an insurance market perspective include:

  • Capacity: Global capacity for power companies has reduced in two different ways: First, some insurers have withdrawn from the sector entirely, and second, the remaining insurers are agreeing to deploy a reduced capacity. Now in 2020, the total global capacity is approximately $3 billion, with a realistic capacity figure of approximately $1.5 billion.
  • Losses: With average global annual losses being approximately $2.5 billion, the report concludes the global premium for the power sector has been below the average annual loss amount for some time.
  • Rating levels: In Q2 2020 most programs saw rating increases between 15% and 20%. At the time of writing, this has stayed relatively stable on a risk rating basis based on occupancy. The COVID-19 global pandemic has led to the global marketplace operating during a very uncertain time, which has led to some unforeseen challenges and variances in offers.

“In these unprecedented and uncertain times, the issue of COVID-19 remains uppermost in all our minds as the power industry and its stakeholders begin to analyze the effects on their balance sheets and on their overall risk landscape,” said Graham Knight, head of global Natural Resources, Willis Towers Watson. “As the power generation sector and its insurance partners adjust to conducting business during the pandemic, all parties must remain disciplined in assessing and managing risks. Risks magnified by the pandemic, including the availability of plant and vendor support personnel and any disruption to operation and maintenance tasks, should ensure plant reliability. At a time where plant resources might be limited, open and transparent communications with their insurance risk consultants should be leveraged to the benefit of all.”

A full copy of the report can be found at https://willistowerswatson.turtl.co/story/power-market-review-2020/