Capacity withdrawal leaving coal fired utilities feeling the squeeze

Campaigner groups have published a new report which finds that the growing number of insurers which are walking away from coal is impacting their ability to source cover to build new coal plants.

The report by the Insure Our Future campaign and Korean non-profit Solutions for Our Climate, found that outside of China utilities are finding it increasingly difficult to access capacity, with warnings that it has created an opportunist market for those still willing to underwriter the projects.

The report found that having accessed a range of documents, insurance contracts for KEPCO, Korea’s national power utility, revealed that it is having to turn to smaller, inexperienced companies to secure cover for coal power plants that are already in operation as growing numbers of mainstream insurers withdraw from the sector.

Peter Bosshard, global coordinator of the Insure Our Future Campaign and report author explained: “Major international insurers have withdrawn from coal projects and been replaced by a haphazard coalition of the willing, consisting of a few global climate laggards, small speciality insurers and assorted companies from the Global South. Our report exposes Starr, Liberty Mutual, Berkshire Hathaway, Allied World and Lloyd’s of London as the coal industry’s last lifeline.”

Since the Insure Our Future campaign launched in 2017 at least 39 insurers have ended or limited their cover for new coal projects. However, the report confirms that even prominent international brands like Hannover Re (Germany), SCOR (France), QBE (Australia) and Helvetia (Switzerland) continue to underwrite existing coal plants, supporting companies like KEPCO that have no plans to phase out coal in line with climate targets.

The campaigners added coal is the biggest single source of carbon emissions. To stay on track for the 1.5°C Paris Agreement climate target, consumption of coal must fall by 9.5% per year.

“No investment in new fossil fuel production is consistent with that target, according to the International Energy Agency, yet it warns that coal demand could reach all-time highs in 2022 and stay at that level until 2024,” added the report.

Insure our Future said the insurance industry is under growing pressure to align its policies with 1.5°C. UN Secretary General Antonio Guterres told the Insurance Development Forum last year: “We need net zero commitments to cover your underwriting portfolios, and this should include the underwriting of coal – and all fossil fuels!”

“Asia is at the centre of global coal power generation and development, accounting for 91% of all plants planned or in construction worldwide (414GW out of 457GW) and 73% of operating coal plants (1,518GW out of 2075GW),” added the report. “KEPCO is a major player, developing and operating coal power projects in several Asian countries and arranging insurance on the global market.”

“In March 2018, KEPCO signed contracts with 19 insurers to underwrite the construction of the 1.3GW Nghi Son 2 plant in Vietnam for a total $7.2 billion. Four years on, 72% of the insurance capacity which underwrote that project has been withdrawn from the market.”

Bosshard added: “It is now unlikely that large new coal power plants outside China can be insured. The withdrawal of so many insurers has made it much more cumbersome and expensive to obtain cover. The few insurers who remain will find it challenging to provide the vast expertise and capacity required to insure a complex new coal power plant.”

“Lloyd’s of London insurers, which include Allied World and two Liberty Mutual subsidiaries, now provide 37% of the capacity still available to the market,” according to the report. “In December 2020, Lloyd’s ruled out insuring new coal projects from 2022 but has since made clear that it will not require insurers in its market to follow the policy.”

“These findings make clear that the Lloyd’s market, Starr, Liberty Mutual, Berkshire Hathaway and Allied World are the world’s coal insurers of last resort,” added Elana Sulakshana, senior energy finance campaigner at Rainforest Action Network. “At a time when we urgently need to accelerate the transition away from fossil fuels, their reckless support for new coal projects drives us ever closer to unmanageable climate breakdown.”

However, the report also highlighted that many insurers with coal exit policies are continuing to provide cover for companies such as KEPCO that “have no credible plans to phase out coal production”.

Sooyoun Han, a climate researcher at Solutions For Our Climate, explained: “KEPCO and other power utilities need to rapidly phase out their coal power fleets in line with global climate targets, and insurance companies should stop insuring power utilities which have no credible phase-out plans. Power utilities and their insurers need to urgently move beyond a pathway which is projected to take the planet to a catastrophic 2.7°C of global warming by the end of the century.”

Since the Insure Our Future campaign launched in 2017 at least 39 insurers have ended or limited their cover for new coal projects. However, the report confirms that even prominent international brands like Hannover Re (Germany), SCOR (France), QBE (Australia) and Helvetia (Switzerland) continue to underwrite existing coal plants, supporting companies like KEPCO that have no plans to phase out coal in line with climate targets.

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