Insight: How the energy transition will create a boom in both Marine and Energy classes

It’s been a testing few years in the marine insurance market, with an increase in the number of large and high-profile market claims, challenges to routing affecting supply chains, and global inflation.

Chaucer has weathered these storms and grown our marine portfolio significantly since 2020, with a broader appetite and increased capacity in global hull and cargo, as well as the growth of Lonham’s marine specialty brand. It’s what is coming however, that will generate both the greatest challenges and opportunities in both the Marine class and its sister class, Energy.

To avoid the greatest impacts of climate change and achieve 1.5C global warming scenario limit which the Paris Agreement set in 2015, global investment of around $150 trillion will be required to transition technologies and infrastructure in the period to 2050, equivalent to $6 trillion per year.

Of these totals, the most significant capital expenditure relates to the end-use sector: approximately $73 trillion is expected to be spent on electrification, the production and direct use of renewable technologies, and carbon removal. Each of these segments will in turn require huge increases in capacity in order to meet the demand of a growing global population which requires ever-higher standards of living.

In the power generation sector, it is expected that $61 trillion will be needed to move the sector towards renewables including power generation capacity and upgrades to infrastructure. To reach these goals, the International Energy Agency estimates that 80 million kilometres of grid will need to be refurbished or added across the globe by 2040 – the equivalent of installing or upgrading the entire current global grid.* It is estimated that around 3000 gigawatts of renewable power projects are queuing for connection to the grid, of which 1500 GW are in advanced stages and unable to progress due to the grid not matching capabilities.

An immense expansion is therefore needed to drive the electrification demand and draw supply away from other carbon-emission-generating fuels. To achieve it will need significant acceleration in construction and production activity to meet these goals in just a few decades.

As renewable technologies pivot from being minority projects to dominance both on and offshore in the coming decades, significant movement of materials will therefore be required as components and machinery move from production countries to the four corners of the globe. This growth in cargo needing transportation will be paired with storage requirements growing, likely for significant periods of time, creating a boom in project cargo.

Given the nature of infrastructure projects and the materials used, which are often stored outdoors, such projects may also increase exposure in ports and sites such as solar farms, to ever more extreme weather such as storm surges, rising sea levels, hailstorms and tornadoes. Ports themselves will need to prepare for the growth in movement of cargo and specialist vessels just as fossil fuel terminal usage changes over time and some decline.

The energy transition boom for may demand an increased uplift in the size and capabilities of the global vessel fleet to match as ever larger and more infrastructure components are needed.

The current projection for the next five years of shipbuilding is an approximately 25% growth as modernization of technology and automation take hold.** The likelihood beyond 2030 is that this will grow once again; even for renewables, highly specialist installation vessels will be required for offshore projects, and many existing vessels may need refitting.

To enable acceleration of such projects, insurance capacity and capabilities must increase accordingly, and ahead of the curve. Chaucer is investing in human and technological resources to prepare for the future; ensuring our staff have the expertise and we have the right data is critical to being ready for what is to come.

*IEA (2023), Electricity Grids and Secure Energy Transitions, IEA, Paris https://www.iea.org/reports/electricity-grids-and-secure-energy-transitions, Licence: CC BY 4.0

** https://www.mordorintelligence.com/industry-reports/ship-building-market