Coal power becoming uninsurable as firms refuse cover

theguardian.com

22 points·7sigma··4 comments

A side note first: Another post quite recently claimed that insurers aren't refusing coverage totally, but merely reducing their exposure, since reinsurers are making demands like "no more than 30% of portfolio exposed to coal". (Double side note: I suppose some insurers set that at zero, for whatever reason.)

To the main point: What's peculiar about coal? I can see reasons why insurers might want to avoid or limit exposure to a particular class of risk. But what makes "coal" into a class of risk, in insurance terms? Why is coal a different class of risk than, say, mining or construction, which seem similar to me as naïve layman?

Whether insurers are reducing or avoiding this risk doesn't matter for this question.

I think the key idea is systemic risk.

Insurance only works when a percentage of people put in claims, so house fires across a nation are mostly uncorrelated.

But if there's something that could affect every house and burn them all down at once, then insurance wouldn't really be an appropriate way to hedge that risk.

In this case, a coal plant needs to run fairly continuously for decades to be profitable. The risk is a combination of policy and ever cheaper renewables making coal economically unviable.

The term usually used is the risk of becoming a stranded asset.

http://www.lse.ac.uk/GranthamInstitute/faqs/what-are-strande...

Are you saying that insurers insure coal plants against being unprofitable?

Yes. I think that the alternative to an insurance policy would be for the coal plant operator to make a side bet on solar power, or almost anything other than a different coal plant. This alternative doesn't have the big payout an insurance policy would have, but it would provide profits that are not correlated with the risks of coal plant operation.

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