From time to time, the public gaze lights momentarily on renewable energy. It may be news of a technical breakthrough, a ribbon-cutting at a new facility, a siting controversy, or a breath of scandal. Still, renewable energy is a minor figure in the economy and in American consciousness. Most Americans do not go out of their way to purchase renewable energy; many don't even know why it matters.
Partly for this reason, the renewable energy community continues to search for partners. For instance, wind and biopower advocates seek to show the agriculture community that renewable energy constitutes a value-added product improving the profitability of farming. The photovoltaic industry has sought to make its products the norm for remote power in telecommunications. Such strategies have resulted in productive partnerships. Yet a true prize among potential partnerships has so far remained largely out of reach: the integration of renewable energy into the global financial structure, as represented in the following paper by the insurance industry.
The accumulating momentum of global climate change gives this potential partnership even greater significance. The insurance industry (including a U.S. insurance industry that has been mum on climate change compared to its European counterpart) stands to lose hundreds of billions of dollars from weather-related losses due to climate change, even more than the $90 billion in costs from natural disasters in 1998—or the most damage in any single year according to the Red Cross and Red Crescent. The industry is starting to scale back their "markets", as they pull out of the Caribbean because of its increasing vulnerability to turbulent tropical weather. Other regions, including coastal areas, may also become more difficult to insure as greenhouse gas concentrations steadily rise. That means fewer money-making opportunities, which is a bad trend by any industry standard.
Insurers therefore represent potential allies in the struggle to stabilize the climate. More important for the renewable energy industries, were insurers to decide that their survival depends on a stable climate, they might begin to direct their enormous investment portfolios toward low- and zero-carbon energy technologies, including renewables.
The following paper proposes "electrofinance," a bundled product that insurance companies could offer, blending electric service, energy efficiency, solar power and an annuity. The paper represents the latest in REPP's series of examinations of finance options for renewable energy. Readers will note that it is not centrally a paper about renewable energy. Rather, it proposes an innovative mechanism by which insurers, acting in their own, short-term financial interest, might also be brought to support and sell sustainable energy products.
As this paper suggests, the insurance industry would be a powerful ally. But forging that partnership will be hard. In the early stages, renewable energy will be an important but modest component of larger developments. But the partnership remains truly valuable, and worth pursuing by any means.
Adam Serchuk, Research Director and Executive Editor of the Issue Brief series
Mary Kathryn Campbell, Publications and Outreach Manager
Roby Roberts, Executive Director
Virinder Singh, Research Associate
July 28, 1999
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