As the demand for renewables grows, the energy sector is increasingly turning to trade credit and political risk insurance as a means of enabling long-term green projects to get off the ground. Jenny Messenger reports.
Across the globe, new sources of renewable energy are being developed to fuel the green transition at an ever-increasing scale.
According to the International Energy Agency’s Renewables 2025 report, renewable power capacity is expected to increase by almost 4,600 gigawatts between 2025 and 2030 – double the capacity created between 2019 and 2024.
This means more energy producers, larger investments and projects in more locations, selling greater quantities of power to offtakers worldwide.
But while the demand for renewable energy and decarbonisation has never been higher, the risks of developing projects are similarly elevated.
In the US, President Donald Trump has halted wind and solar projects already underway, while in countries like Germany, Sweden and Spain, excess renewable output and limited battery storage have resulted in negative electricity prices.
A slew of recently cancelled power purchase agreements (PPAs) – struck between a producer and a buyer to guarantee a set volume of energy at a fixed price – has also drawn attention to the challenges of keeping long-term renewables projects economically viable.
At the start of November, aluminium and energy firm Norsk Hydro announced it had terminated a 29-year PPA with an onshore wind farm in central Sweden.
When the €270mn (US$310mn) funding package for the Överturingen project reached financial close in 2018, it was reportedly one of the longest corporate wind energy PPAs in the world.
But earlier in 2025, as the wind farm failed to deliver the agreed power volumes and its operator posted losses totalling millions of euros, Hydro voluntarily terminated the agreement.
Wind power, while vital in the green transition, depends on the wind reaching a certain speed. But this can vary daily, impacting the overall output.
Turbines can also suffer from a build-up of ice, which can reduce the amount of power they are able to generate.
With wind levels low at the Överturingen site, its operator, Cloud Snurran, was forced to buy pricey electricity on the open market to meet its obligations under the contract, which demanded an output of power it could not deliver.
The Överturingen wind farm is now set to be sold off, and Hydro is seeking up to €90mn (US$103mn) in compensation to cover the electricity that went undelivered as well as future deliveries.
In 2024, Hydro also cancelled its 19-year PPA with another Swedish wind farm, Markbygden Ett, after it too ran into difficulties when power production proved patchy and energy prices soared.
This trend has prompted many developers to turn to trade credit insurance, which typically covers non-payment and other risks associated with counterparties defaulting on long-term offtake agreements.
“[Energy firms] see the insurance as an enabler to sign some of these longer-term deals that would fall outside of what would usually be possible.”
Meera Saunders, Aon
“The economics of these projects are frequently changing for developers, and as a result, they have to think about if something were to happen to [the offtakers], that would really put them in a tough spot,” Alex Wolfson, vice-president, credit specialties at Marsh, tells GTR.
“Generally, I think more people are thinking about the power purchase agreement, or the offtake agreement, especially with projects in the US, EU and in other developed markets.”
Meera Saunders, client director in structured credit solutions at Aon, says the broker is seeing more requests for long-term cover on offtake agreements for renewable assets.
“I think the insurance market is responding to that,” she says. “There’s always more that can be done, but that’s definitely where we’re seeing a lot more conversations with energy clients.”
In the context of PPAs, energy suppliers can buy insurance to cover settlement risk – the chance that a buyer is unable to pay for energy it has already received.
Another key use of trade credit cover is to insure replacement risk, which can be deployed to cover the price differentials between a new and an old contract if an original buyer or seller defaults.
If a buyer is no longer able to pay for energy it was contracted to purchase at an agreed price, the seller risks making a loss on the volumes it has left, because the market price might have fallen.
And if a seller has bought volumes of power at a predetermined price from an energy supplier that is then unable to deliver, it too could have to pay more for energy to fulfil its contractual obligations to other buyers.
Because prices of energy per megawatt-hour can fluctuate, any increase may also help offset some of the loss from the original contract.
This situation might result in a better position overall for insurers, says Madeleine Whiteley, structured credit broker at Aon.
“For the insurer, covering the mark to market could end up being a net benefit in a loss scenario,” Whiteley says. But she adds that while some insurers are comfortable with this approach, others are not yet there.
For larger energy firms, trade credit insurance is being used strategically to help them sign more far-reaching deals.
“I think they see the insurance as an enabler to sign some of these longer-term deals that would fall outside of what would usually be possible,” Aon’s Saunders says.
Trust no one
During the extreme volatility in energy prices following Russia’s invasion of Ukraine, credit insurance was widely used by energy companies to help manage the risk of default by their customers and to address higher levels of exposure.
These buyers are generally maintaining their cover, says Saunders.
“When there was a lot of volatility in the market a couple of years ago, the credit insurance allowed them to ride that storm,” she explains.
“[Energy companies] can also see the value in it when things aren’t as volatile. It’s still worth keeping their credit insurance going to help manage that, even when margins are thin.”
Yet even with well-known counterparties, the threat of large energy customers becoming insolvent and unable to pay is a real concern.
According to Marsh’s Wolfson, the broker is “hearing more and more interest” in securing cover to protect against the default of all kinds of corporate energy buyers – including “the really well-rated names”.
“Often, it’s a very large amount that’s at stake with these names. A lot of people are thinking about catastrophic risk with those types of counterparties too.”
In those cases, the policy is often tailored to the client, for instance, with coverage triggered not by a counterparty’s first default but by a subsequent one, which would cover both the value of the electricity and the costs of having to find a new counterparty.
And while cover is broadly available for most regions, Wolfson says China is “becoming increasingly difficult to insure”.
This has generated more interest in buyers of political risk insurance, to mitigate the risk of government interference or expropriation of assets, but the tightening sentiment has also spilled over into China’s credit market, he explains.
“Because renewable power, and power in general, is such a vital commodity, there’s more concern from developers and investors around governments going in and taking the asset, depriving the owners of their use of the asset in some way and making it inoperable,” Wolfson says.
“For the last year or two, the political risk insurance market and the credit market, to some extent, have really had a tough time supporting new risk exposures in China.”
While larger companies with operations in China are still seeking protection against government actions that might affect the value of their business, the political risk market is scaling back programmes, increasing pricing and tightening terms.
As a result, buyers struggle to secure even one-year policies for China, compared to multi-year terms for most other countries, Wolfson says.
Appetite to grow
But as the green transition gathers pace, some in the trade credit insurance sector are looking to capitalise further on the opportunities it presents.
“There’s going to be more opportunity with people that haven’t traded with each other, or a new company that’s emerged,” says Jay Rose, managing director of pure-play energy credit insurance specialist Navitas.
“Traders, banks and energy firms are now using the products to create a high level of transparency and then risk mitigation to be able to go into new markets.”
Rose founded the managing general underwriter in 2022, having previously spearheaded Euler Hermes’ energy arm.
Anticipating a boom in interest, Navitas is now expanding beyond North America. It is building a European team and has secured a license to operate in Switzerland, with the aim of tapping into the country’s trading community.
While renewables companies have generally not invested in trade credit insurance to date, largely because they are so new, Rose says this is starting to change as their total exposure grows.
“We have seen a huge acceleration in the number of renewable projects that have landed on our desk from the banks.”
Paul Carrington, Navitas
“If you’re a renewable energy company that’s worth, say, US$200mn, and you have US$200bn-worth of exposure, that causes them to look to mitigate that risk,” he says. “There’s going to be a significant uptick in the use of credit insurance to alleviate some of the risk on the balance sheet.”
Another major buyer of the product is the banking sector. Paul Carrington, a Navitas senior director and head of Europe, explains that banks – traditionally the biggest purchasers of credit insurance – are using it to increase lending to the energy sector.
“Quite often, banks want to be bigger. They’ve got a relationship with a borrower, and they want to continue lending to that borrower,” Carrington says.
“What we’ve seen from the banks is somewhat of a retrenchment from oil and gas. A few have gone back in, as I think they’re finding that the margins for renewables are pretty thin. But we have seen, over maybe the last five years, a huge acceleration in the number of renewable projects that have landed on our desk from the banks.”
In spite of overall cost pressures in the energy sector, the potential is there for more firms to use trade credit insurance, adds Aon’s Whiteley.
“There’s a lot of scope for insurers to support more. They really want to, and the capacity is there and ever-growing.”
Frontier markets
In one corner of the energy sector, underwriters are developing products to insure traders, banks and corporates as they navigate the nascent carbon credit market.
Despite being rocked by fraud cases and forest fires ripping through offset schemes, both compliance and voluntary carbon markets look set to remain a key strategy in global decarbonisation efforts.
UK-headquartered Kita is one carbon insurance specialist offering products such as non-payment, non-delivery and political risk cover for carbon credits.
“There have been, historically, some reputational challenges with the carbon markets in terms of some bad actors,” says Alek Pillay, Kita’s head of underwriting.
“We’re always keen to highlight that that’s a very small subset of people.”
Commodity traders are generally at the forefront of new technologies in this space and can see their potential, he says.
“For many [traders], putting a few million dollars in today is worth the risk if the market does scale as people anticipate it scaling.”
Banks are also starting to get more involved in the carbon credit sector, which is a promising sign that the carbon markets are maturing. “They’re starting to actually finance deals,” Pillay says.
In August 2025, JP Morgan led a US$210mn credit facility for Chestnut Carbon, a US-based firm that generates carbon credits by planting new forests.
Underpinning the deal was a 25-year offtake agreement between Microsoft and Chestnut Carbon, with the tech giant committing to buy more than 7 million tonnes in credits. London market insurer CFC provided non-delivery cover on the deal.
In the case of ‘reversal events’ – where carbon that was expected to have been removed is released back into the atmosphere – Kita says it offers to pay claims in replacement carbon credits rather than cash.
“It was a first of its kind for the insurance market to be able to say, ‘the credit you bought didn’t materialise, but here is a replacement that has materialised. That positive change has still occurred’,” Pillay says.
As yet, the product is untested, with no claims filed. But interest looks set to grow, Pillay thinks.
“It’s really quite exciting to see the credit and political risk market paying attention to the carbon space and more generally the climate change transition,” he adds.
