The UK energy crisis: A wake-up call to back renewables?

Authored by RSA

Our Head of Social Impact and ESG, Laura Spiers, and Lead Underwriter for Construction, Engineering and Renewable Energy, Richard Hampson, offer insights into RSA’s position on sustainability and how renewable energy could reduce the UK’s exposure to future price shocks.

If you’re being even more diligent than usual about turning down the thermostat or switching off unnecessary lights this autumn, you’re not alone. The UK’s energy system has been plunged into chaos by a perfect storm of market forces.

The wholesale price of gas has skyrocketed during 2021, largely due to a supply shock caused by the economic restart after the COVID-19 lockdowns. In recent years, in an attempt to ease out of coal as an even more polluting fossil fuel, the UK has become heavily reliant on gas for domestic heating, industry and power generation. Yet through a lack of investment in storage infrastructure, we hold less than 1% of Europe’s stored gas – barely enough to meet demand for five days of winter – leaving us uniquely exposed to the supply crunch.

Industrial customers such as large steel makers, chemical plants and manufacturers are already feeling the financial pain of the energy price shock. Meanwhile, smaller domestic energy suppliers have folded, with millions of residential consumers being switched to larger, more financially stable suppliers on higher tariffs.

The answer is surely to increase the diversity of the energy mix through non-carbon sources. In 2020, for the first time ever, renewable electricity generation in the UK overtook fossil fuel generation, with onshore and offshore wind providing more than half the country’s renewable electricity. So, could the UK energy crisis be a wake-up call to accelerate the transition to renewables – for economic as well as environmental reasons?

We progressively rebalance the risks we underwrite in favour of renewable energy production. For instance, our Climate Change and Low Carbon Policy position sets our risk appetite on insuring carbon intensive activities

What does energy sustainability mean for insurers?

Changing weather patterns and increasing frequency and severity of extreme events causes damage to homes and businesses, and disruption to global supply chains. So, we’ll be watching the forthcoming COP26 summit in Glasgow with interest, as governments are asked to submit their long-term goals to address the climate emergency.

Insurers like RSA play an important role both in enabling the transition to a low-carbon economy by insuring renewable energy generation projects – often a prerequisite for lenders – and by ensuring that energy production of all kinds is conducted with appropriate mitigations for environmental impacts.

Our Head of Social Impact and ESG, Laura Spiers, says “Ensuring our returns are sustainable starts with making important choices about our investments. For example, we don’t invest in companies that derive more than 30% of their revenue from coal mining, power generation from thermal coal, or the production or transportation of sands and shales, unless our involvement would support a project that would enable a transition to renewable energy.

We’re also progressively rebalancing the risks we underwrite in favour of renewable energy production. For instance, our Climate Change and Low Carbon Policy position sets our risk appetite on insuring carbon intensive activities .”