Risks associated with renewable energy and other emerging power technologies are outpacing the expansion of global energy infrastructure, raising concerns over construction costs, insurance premiums and investment returns, according to a report by commercial property insurer FM revealed on Friday.
The FM Power and Renewables Report found that the rapid expansion of power infrastructure, driven by artificial intelligence (AI), data centers, electrification and the energy transition, is creating new risks across the lifecycle of energy assets.
The report examines a range of technologies, including battery energy storage, renewable energy, gas-fired generation and small modular reactors (SMRs), highlighting the challenges of managing risks associated with technologies that have limited operating histories at scale.
Based on a survey of 750 energy sector risk decision-makers, 150 insurance brokers and 150 financiers globally, the findings showed that 59 percent of energy companies identified the adoption of new technologies as a leading cost-of-risk driver.
Meanwhile, 39 percent of energy companies surveyed plan to increase their SMR capacity over the next three years, reflecting growing interest in emerging power technologies.
However, the limited operating history of many emerging technologies is creating uncertainty over their performance under real-world conditions. Nearly half, or 46 percent, of respondents said they were uncertain how new technologies would perform under operational stress, particularly when deployed in hybrid applications.
FM said the findings highlighted the need for engineering expertise to be incorporated into energy projects at an early stage, rather than only after construction or when insurance arrangements are being considered.
Doug Patterson, senior vice-president and division manager of specialty industries at FM, said energy companies were under considerable pressure to expand capacity quickly, but decisions made during the early stages of a project could embed risks that would be difficult and costly to address later.
“The biggest resilience decisions are often made when sites, technologies and equipment are selected. Engineering should be part of those decisions early, while there is still time to identify vulnerabilities and engineer out risk,” he said.
The report also found that uncertainty over the resilience of energy infrastructure was increasingly affecting project economics.
Among energy providers surveyed, 51% said such uncertainty resulted in higher construction costs, while 46 percent cited increased insurance costs and 40 percent reported lower returns on investment. Another 39 percent said it made projects less attractive to investors.
Financiers also estimated the cost of risk to be higher than energy providers across several categories, suggesting that those funding infrastructure projects may have greater concerns over potential risks than the companies developing them.
Site selection was another major area of concern, with 78 percent of energy companies saying decisions on project locations frequently resulted in downstream exposures that had not been anticipated at the time.
FM’s regional head of Southeast Asia, Calvin Kuan, said resilience considerations should be incorporated into infrastructure planning before construction begins, particularly as energy systems evolve and new technologies are introduced.
“In Singapore, every infrastructure decision carries weight. As energy systems evolve and technologies change, resilience can’t be something we assess only once an asset is built. The opportunity is to bring engineering into the conversation while there is still time to change the outcome,” he said.
The findings also point to a broader role for insurers in helping developers identify and reduce risks before projects are completed, rather than focusing solely on providing coverage once assets are operational.
Insurance brokers surveyed placed particular value on insurer-provided engineering expertise for projects involving new or first-of-their-kind technologies, cited by 71 percent of respondents.
Construction projects and developments in catastrophe-prone regions were each identified by 67 percent as areas where such expertise was particularly valuable.
FM said early engineering assessments could help developers identify vulnerabilities in site selection, technology choices and project design, improving asset resilience while supporting insurability and investor confidence.
Overall, 85 percent of respondents agreed that engineering insight at the early stages of a project could improve asset stability, insurability and investor confidence.
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