Climate and economic uncertainty slows energy transition efforts – AXIS

AXIS Capital Holdings has released a new report titled “Navigating Risk in the Energy Transition” that examines how key risks impact the transition to renewable energy.

Based on independent research, the report discusses climate change, economic volatility, investment challenges, insurance and government support.

The report’s conclusions highlight that climate change is both a driver of change and a source of risk, posing a threat to physical assets and broader business activities. It also notes the disconnect between the urgency of accelerating the transition and the logistical reality of achieving net zero targets.

Global economic conditions have made securing financing for renewable energy projects more expensive and difficult. While public policy is driving the energy transition, additional government support is believed to be essential for continued progress.

AXIS notes that the insurance industry can play a more proactive role by moving beyond a transactional mindset and offering comprehensive customer support.

Vince Tizzio (pictured above), president and CEO of AXIS, commented that the transition to a low-carbon economy requires concerted efforts from businesses, governments, communities and individuals.

“By publishing this report, AXIS aims to better understand the risks and challenges of the energy transition and identify how energy stakeholders can actively and collaboratively support enterprises on their journey,” Tizzio said.

What are the risks associated with the energy transition?

The report shows that climate change impacts business operations and risks such as energy price volatility, supply chain disruptions, regulatory changes, technological disruptions and extreme weather events.

More than two-thirds (69%) of industrial energy buyers anticipate that the climate crisis will impact their business performance, including revenues, costs and investments. The key drivers for proactive climate action are long-term business viability (49%), regulatory compliance (49%), and climate concern (47%).

Investments in energy efficiency were identified as a key tool for climate action, with 73% of respondents in the US and 71% of respondents in the UK investing in this area. However, readiness to respond to the urgency of the transformation is limited, with most respondents feeling they are only “somewhat prepared” (55%) or “not very prepared” (4%).

While the renewable energy sector is growing, high capital investment requirements and global economic conditions pose significant barriers to increasing investment. Emerging technologies often face more difficult financial challenges – 40% of energy producers cite this as a problem, and 33% note a lack of proven return on investment.

Currently, the most popular area of ​​investment is photovoltaic technology – 63% of respondents in the UK and 54% of respondents in the USA invest in it. In second place are energy storage solutions and smart grid technology.

Global economic conditions, characterized by rising interest rates and inflation, have made securing financing for renewable energy projects more challenging. Volatility in energy prices is considered a major risk factor by industrial energy buyers in both the UK (63%) and the US (57%).

The report also highlights the role of public policy in accelerating the energy transition – 92% of energy producers see governments and regulators as key players. Governments clearly call for further investment incentives and closing the financing gap in the renewable energy sector.

Richard Carroll, global head of energy resilience at AXIS, noted that the report highlights the need for significant investment in technological innovation, risk management and long-term strategic thinking to achieve net zero goals.

“The energy transition also requires an insurance industry with deep specialist knowledge of the risks associated with the transition and the complexities of implementing technologies to make global net zero ambitions a reality,” Carroll said.

Carrol also stated that AXIS, through its Global Energy Resilience division and AXIS Energy Transition Syndicate 2050, is committed to working with customers and partners to address challenges and seize opportunities for a more resilient and low-carbon future.

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