The world’s changing climate poses unprecedented challenges for communities across the globe. Wildfires, floods, hurricanes, heat waves, winter storms, and other weather-related disasters threaten lives and economic interests with increasing frequency and severity. These devastating events leave a lasting impact that can take years to overcome.
The intensification of climate-related disasters has been compounded by insurance companies reevaluating coverage in disaster-prone areas, often raising premiums or even ceasing operations in those regions altogether. At the same time, many homeowners and businesses are reducing and even eliminating their insurance coverage due to its high costs.
To further complicate matters, the world’s energy demands are growing, and communities are seeking cleaner alternatives to greenhouse gas-producing fossil fuels. Ironically, alternative energy infrastructure, meant to produce cleaner energy and mitigate the climate impacts of fossil fuel consumption, is itself highly susceptible to natural disasters.
Organizations investing in and building sustainable energy projects must be aware of the challenges in the insurance market and understand key considerations before embarking on their next project.
Think About Risk From the Start
When planning a new energy project, companies must consider potential risks from the outset. By doing so, project owners understand potential challenges and concerns, helping to mitigate unwelcome surprises further along in development. For example, it’s important to know the quality of materials being used in a project and that the design is structurally capable of withstanding severe weather events. If the original plans called for lower quality materials than what is appropriate, the project owner can make any necessary adjustments prior to purchasing material deemed ill-suited for the job.
By inviting insurers to the table during the planning stage, organizations can budget appropriately and set expectations regarding the resources necessary for the duration of construction and help to avoid budget adjustments once work has commenced. It also helps project owners in determining how much insurance a project requires. It’s important to note that insuring a project to its full replacement value is often impractical and unnecessary.
To modify the requirement of the full replacement value, a loss prevention engineering study, coupled with catastrophe modeling, allows for determination of the probable maximum loss (PML). A PML is used to estimate the largest loss that an insurer or business might expect to incur on a particular risk, or portfolio of risks, under normal circumstances. In most cases, the PML will be materially less than the full replacement cost of a project.
Resilience for the Future
Evaluating the risk a sustainable energy project faces requires foresight. While it’s essential to look at the immediate risk, companies must also consider what challenges may be present over the project’s expected lifetime. This includes potential changes to topography, variations in weather patterns, and how materials wear over time. As an example, a company exploring locations to build a hydrogen fuel production facility may have identified suitable land it can develop. However, if some models indicate that the location may be prone to seasonal floods within the decade, the long-term viability of that location renders that site inadequate from a business or insurance perspective.
In considering changing weather patterns, organizations also need to think about the types of projects they’re constructing and avoid pitfalls that may not be obvious at first. Placing a solar array in a dry, sunny locale may reduce the inefficiencies that cloudy days bring, but additional maintenance and repairs from dust can cause their own problems. Likewise, constructing wind turbines where there are frequent high winds may lead to unexpected operational stoppages, as most turbines can’t safely operate in wind speeds above 55 mph.
According to the World Economic Forum’s Global Risks Report for 2025, extreme weather events are the top global risks in both the near term and over the next decade. These events are also becoming increasingly costly for businesses and insurance companies to handle. U.S. government data shows that there were 27 weather-related disasters that exceeded $1 billion in damages in 2024. With that amount expected to grow in coming years, understanding the pivotal role insurance plays in energy infrastructure projects is more critical than ever.
Resilience in a Volatile Environment
There are special considerations companies must make when planning sustainable energy projects that may not be applicable to more traditional energy infrastructure. For instance, solar farms require regular maintenance to keep the energy-generating panels free of debris and dirt that reduce their efficiency. Overgrown grass, accumulated dust, and large hailstones can all damage solar cells, leading to costly repairs and downtime.
A changing climate adds a new wrinkle to these already-present challenges. Excessive rainfall may lead to accelerated vegetation growth, while extensive periods of drought can create frequent dust storms. These are examples of the scenarios that energy companies must plan for prior to beginning a project.
One of the most daunting challenges the changing climate presents is how it makes weather patterns more unstable and unpredictable. While modeling remains a useful tool, unprecedented events are occurring with greater frequency, and predictions alone no longer suffice when deciding where and how to construct a new energy project. Models themselves do not serve as a single source of truth and must be combined with other tools to help companies understand how to proceed.
Overcoming Energy Distribution Challenges
Extreme weather events create challenges that go beyond energy production; they also affect energy distribution. While this isn’t a risk unique to sustainable energy projects, it’s still something companies investing in them need to consider. Utility lines and towers that hold them can be damaged and prevent electricity from getting to the offtaker or end users. It’s important for project owners to assess the utility infrastructure where they’re looking to build so they understand any challenges it may cause.
The decentralized, aging power grid in the U.S. brings its own complexities. With a lack of uniformity throughout the country and a potential for lengthy wait times to get projects connected into the distribution network, companies may find themselves in a scenario where they’re ready to produce energy but unable to begin selling it.
Insurance as a Financial Safety Net
By assessing the different risks and potential challenges that a sustainable energy project may face, organizations put themselves in a better position to leverage insurance as a financial safety net. As complications from a changing climate prompt insurers to reduce coverage, increase premiums, and even halt operations in some regions, organizations that can demonstrate a well-prepared project plan position themselves to obtain the right level of coverage without incurring excessive costs.
Building a Sustainable Future
Sustainable energy projects can help combat the effects of climate change while addressing the world’s growing energy needs, but they require careful planning and risk assessment. Proactive considerations can help organizations looking to prepare for and react to weather-related disasters that can threaten their infrastructure.
Building Resilience for the Future
BDO stands out with our independent, unbiased approach. We lead with a risk and resilience strategy, crafting bespoke plans tailored to your needs. Our team’s experience spans risk management, operational resilience, insurance strategy and more, providing a holistic treatment of risk.