Aon transition roadmap highlights hydrogen, BESS GWP opportunity

By Rebecca Delaney

June 25 - (The Insurer) - Energy transition-related technologies are projected to record compound annual growth rates (CAGRs) ranging from 5% to as much as 30% by 2030, according to a new transition roadmap by Aon.

The broker said this underlines the need for underwriters to develop new coverage solutions and align strategies with anticipated regulatory changes.

The roadmap, published to coincide with London Climate Action Week, notes that while traditional energy sources may still dominate global electricity production by 2030, renewables are expanding faster than any other technology.

In response, traditional oil and gas companies are evolving into hybrid energy firms by investing in renewables and transition technologies such as hydrogen, battery storage and carbon capture. These shifting risk profiles are prompting the insurance industry to adapt accordingly.

"Unlike traditional industries that follow a GDP growth pattern typically between 1% and 3%, renewable energy and transition-related technologies, such as battery storage and hydrogen, exhibit significantly higher CAGRs, ranging from 5% to sometimes up to 30%," said Aon.

"This stark contrast is why investors and insurance companies are turning their attention to these opportunities, as they could represent a considerable portion of future portfolios and gradually replace investments in traditional industries."

Liz Henderson, global head of Aon's climate risk advisory group, commented: "Those taking early steps toward technologies and sectors that support the net-zero transition are likely to have a first-mover advantage, just as insurers that built early capabilities in renewable energies are now leading the market."

SOLAR PV AND WIND

Onshore wind and solar PV have a projected gross written premium opportunity size of more than $5 billion by 2030, with a CAGR of 20% to 35% between 2024 and 2030, said Aon.

The roadmap noted that onshore wind and solar PV in Europe and North America tend to be more profitable compared to other regions with rate increases between 1% and 10%.

The insurance opportunity is focused on providing solutions for natural catastrophe exposure, technological advancement and high claim costs in both the construction and operations phases.

Aon noted that while the U.S. has been the fastest-growing market (supported by tax credits and state-level mandates), offshore wind is stalling and Europe is forging ahead as a major market with "aggressive" renewable targets, led by London and Nordic hubs with bundled construction and operational phase coverages.

In Asia Pacific, solar and wind GWP is expected to grow from $1.1 billion in 2023 to $2.6 billion by 2030, said Aon.

China leads with dominant solar PV manufacturing and deployment, with Asia Pacific insurers increasingly relying on local reinsurers to manage volatility in emerging markets.

HYDROGEN ECONOMY

Aon pegged the projected GWP opportunity of the hydrogen economy at more than $5 billion by 2027, with a top-end CAGR estimate of more than 10% from 2024 to 2030.

The hydrogen economy presents opportunities across production, transport and storage, and end-user markets, with insurers poised to develop innovative solutions such as green hydrogen shipping insurance, end-to-end hydrogen full-value-chain insurance, prototype coverage flexibility, performance coverage and leak-detection platforms.

Currently, Europe accounts for the majority of global hydrogen GWP and is expected to continue to grow. Asia Pacific holds the next highest share of hydrogen GWP, driven by China's dominance in hydrogen production.

Aon noted that U.S. carriers are developing new wordings for green hydrogen, especially for upstream production, while European underwriters are focused on liability aggregation and supply chain risks in hydrogen transport. The roadmap said that hubs such as London and Hamburg have a combined GWP potential of $1.2 billion.

BATTERY ENERGY STORAGE SYSTEMS

The insurance opportunity of battery energy storage systems (BESS) spans traditional P&C cover and warranty and performance cover, including cyber for smart systems, parametric outage triggers and residual value guarantee products.

The projected GWP opportunity by 2027 is estimated to be more than $1 billion, with a top-end CAGR estimate of around 25% between 2024 and 2030, said Aon.

This growth will be driven by various segments, including utility batteries (which help integrate variable renewable energy into the grid by smoothing out supply), manufacturing batteries for EVs and storage applications, repurposing "second life" EV batteries for storage and behind-the-meter batteries.

The Asia Pacific region currently accounts for approximately half of the total market for BESS, with China holding a majority share. South Korean and Singaporean markets also provide capacity on large and complex accounts.

Aon noted that London plays a crucial role in arranging insurance for the key countries driving the adoption of BESS in Europe, including the UK, Germany and Spain. It said the U.S. is expected to be the largest market in future, driven by increasing renewable penetration and federal incentives.