AON SOUTH AFRICA: Underpinning Powerful African Renewable Energy Transition

Coal continues as the mainstay of South Africa’s energy system, responsible for around 70% of generation capacity, contributing to the country’s status as Africa’s most carbon intensive country with the highest emissions in the G20 (per capita). South Africa also holds an estimated 7% of total global coal reserves. But targets are in place to change in the future. By 2030, South Africa is aiming for 33% of generating capacity to come from renewable sources. In 2023, just 12% of the country’s electricity came from solar and wind.

Clearly, there is a way to go for the country to transform its energy mix, but this opens opportunities for developers and financiers looking to boost progress and contribute to change. 

To ensure progress continues, helping project owners and funders to invest in South Africa with confidence, Aon SA has developed a portfolio of insurance products to cover critical risk through construction, implementation, connection, and operation. 

A global insurance brand, Aon is an industry leader and pioneer in modern insurance and risk management. 

“I like the idea of the growth of South Africa, I want to see the country flourish and prosper; I am passionate about success here. That was a key reason for me coming into the renewable energy industry as it is a positive thing going forward for South Africa. Aon wants to be part of the positivity. Our intention is to create visibility in the market that we are here to assist,” says Santesh Pillay, Strategic Account Manager for Renewable Energy and Construction. 

He has worked in various insurance roles for his entire career and is excited about supporting the energy transition and energy rollout. According to the World Economic Forum, a ‘lack of cost-effective, globally available cover could throttle renewable energy investments, which are as critical to energy security as they are to decarbonisation’. 

BRIGHT SUN, STRONG WIND 

With renewable energy likely to make a large portion of new projects in the energy space, comprehensive understanding of risks, and efficient and effective support should incidents arise, is critical. Aon is perfectly positioned to partner. 

“We have an almost infinite amount of natural resources,” smiles Pillay. “There are places here where the sun shines almost all of the time. There are places where the wind is consistently strong. We also have a vast amount of space.” 

The conditions in South Africa and across sub-Saharan Africa, he says, are perfect for rolling out the just energy transition the government committed to in 2021. 

“Successful bidders for eight new projects were released in December, totalling around 3GW. We are moving forward, and we are moving well. I recently learned more about the Transmission Development Plan and the basis is that there will be investment into 14,000 km of new transmission line. All of the projects that have been completed, and all of the new projects that will be completed, will have a sustainable new infrastructure to get power from plant to end-user, and that is a big thing for the country.” 

At the same time, technology on site is advancing quickly. Smaller, thinner, lighter solar panels can now generate significantly more power than their predecessors. Taller, larger, more powerful wind turbines can create clean electricity far beyond what was thought possible even a decade ago. But with increased performance comes fresh risk. 

“In terms of getting projects off the ground, South Africa is moving forward rapidly,” says Pillay. “But technology is evolving so rapidly at the moment that many are struggling to keep up. Even developers are not sure what they need from an insurance point of view. There are expectations that wind turbines will soon be able to generate 25MW from a single unit. In SA, we are currently able to generate between three and six MW of power from one turbine, so the leap in technology is big.” 

However, on greenfield sites many unknowns remain. Construction of power plants is a relatively well-known process for global insurers, but experience and access to data is key. The infamous hailstorm of 2019, in Midland Texas, saw insurers pay out more than $70 million after 400,000 solar modules were damaged or destroyed. This incident was unprecedented at the time, underscoring the vulnerability of energy installations when severe weather events occur. 

“We target project owners, developers, EPC contractors and related companies. The industry is complex in that a company can create a special purpose vehicle (SPV) to construct a wind or solar farm. We would work with the SPV and advise on the best possible insurance programme to put in place, from marine through to operational, including all peripheral covers,” says Pillay of the Aon target market. 

MONITORING RISK

The company is innovating to bring clients useful data that can assist in the placement of relevant policies. “We have a climate risk monitoring system which collects data to provide a report on potential weather effects that could occur during a project. That is great for an underwriter, and I have used similar technologies that have been extremely useful for predicting risk in a project period. 

“We also have Intellectual Property insurance which is a very innovative product. If you’re doing something new in the industry, either from a tech or process perspective, we can put in an insurance policy to protect the concept and information,” adds Pillay, highlighting the wide range of options that Aon can deliver that others would not have access to. 

Longer-term, Aon will participate in the wider African energy transition as national, local, and private projects are rolled out to support decarbonisation and economic development. The company is headquartered in South Africa but has partnerships around Africa, boasting a presence across 14 countries.

“Many of the projects we cover are in Africa,” says Pillay. “We are busy in Lesotho, the DRC, Zambia, and Botswana. We offer our services through partners across the continent, and that consists of advisory risk management and guidance on how to place an insurance programme.” 

INSURER OF CHOICE  

As the industry advances at pace, more unknowns come to the fore. This is where Aon can offer real value. Challenges in the industry include, supply chain, sourcing of raw materials, skills shortages, technology advancement, regulation and more; and these challenges are evolving all the time. 

“There are only a handful of contractors who can complete these projects successfully anywhere in the world, it can take 12-18 months to get a power purchase agreement signed and that is too long,” highlights Pillay. But he says that the major risk for investors and project owners comes during operation. 

“The main risks come in operation. If a tower fails, or if the blades fall, or solar panels catch fire – that is really high-risk stuff. The plants are usually in remote areas, so theft is not common. Trying to steal a solar panel is not easy – natural perils are the bigger risk.” 

To roll out its provision further, Aon continues to partner with others in the industry, focusing on brokerage quality and gaining access to insurance panels. 

“We are trying to work with different vendors and become the best possible choice of insurer,” Pillay explains. “We want people to know that when they put capital down on projects, there is effective risk mitigation in place. That is sometimes a hard thing to sell as return on investment is the main concern for project financiers, but we can protect the investment through the various programmes we can put in place. We are dealing with billion-dollar companies, and it is vital that they understand the risks involved in construction and operation of complex energy production plants. 

“We have successfully promoted our due diligence to lenders,” he adds. “Through that, we can take a project that they might like to invest in, and we offer advice on the best way forward. We can also offer this for power generation companies. Our capabilities in this area are very strong.” 

Aon is able to quickly and comfortably identify business needs and understand the complexity of an organisation while designing and creating personalised solutions that are delivered seamlessly.

With an industry holding so much promise – Africa is home to 60% of the best solar resources globally, yet only 1% of installed solar PV capacity, and renewables accounting for over 80% of new power generation capacity to 2030 – Aon is the perfect partner for protection now, and into the future.