Heatwaves raise insurance risk for power generators

SAMP Risk has warned that heatwaves are creating a growing insurance risk for power generators, citing recent grid emergencies in the United States as evidence of the scale of the exposure.

The warning focuses on periods when electricity systems come under strain and generators are asked to raise output at short notice. In those conditions, a failure at a power plant can leave operators exposed to both lost income and the cost of buying replacement electricity in volatile wholesale markets.

SAMP Risk said the recent US heatwave pushed the world's largest wholesale electricity grid to declare emergencies. Emergency orders from the US Department of Energy also allowed some plants to run at maximum output beyond normal emissions limits and directed large facilities to switch quickly to backup generation.

The company said that sequence has implications beyond the US market. More frequent extreme heat in Britain could force grid operators to consider similar tools to manage summer peaks in demand and bring extra generation online.

"What happened in the US over the July 4th weekend is a preview of a risk the power industry and its insurers need to take seriously. In the U.K., for example, as heatwaves become more frequent, the National Grid ESO (Electricity System Operator) will be looking at how other operators manage extreme summer loads and at the tools available to them, including formally declaring an emergency to bring more generation capacity online," said Alistair Moodie, Chief Product Officer at SAMP Risk.

Heat pressure

The issue for generators is not simply that demand rises during very hot weather. Sustained heat can also weaken supply, with lower wind speeds cutting output from wind farms and thermal generation becoming less efficient as temperatures climb.

That creates a difficult operating environment for conventional and backup plants, which may be asked to run harder or start up quickly to stabilise the grid. If equipment does not respond as expected, the cost can extend well beyond a temporary outage.

SAMP Risk identified two main financial risks for operators. The first is lost revenue if a plant cannot produce power during periods of high demand and tight supply, when market conditions might otherwise support stronger earnings. The second, and potentially larger, exposure arises when a generator has already committed power to the grid but cannot deliver it, forcing the business to buy replacement electricity on the open market at sharply higher prices.

Those liabilities often sit with the generator rather than insurers. Operators typically retain much of the risk on their own balance sheets, transferring only part of it through business interruption and capacity-related cover.

Insurance gap

SAMP Risk argued that the insurance market has not kept pace with this changing threat. It said underwriters should move away from relying mainly on static surveys and instead monitor and price risk more dynamically as operating conditions change.

The company's position reflects a wider debate in the energy insurance market over how to assess increasingly volatile weather-related exposures. Traditional underwriting models often depend on periodic inspections and historical assumptions, but extreme weather events are making operating conditions less predictable.

Moodie said this left an opening for insurers to address a risk becoming increasingly material for generation businesses.

"This is a real and growing balance sheet risk for power generation businesses, and one the insurance market has an opportunity to respond to properly through connected insurance," said Moodie.

He said telematics data could show how the approach would work in practice.

"As power gen operators come under pressure to increase supply during periods of extreme demand, telematics data from the site can give operators and insurers a live view of asset performance, so problems are caught before they become losses and risk is priced on real operating conditions rather than assumptions. Think black boxes in cars - it's exactly the same concept, but for the energy market. It's insurance that manages and prevents risk rather than simply kicking in at claim," said Moodie.

Market backdrop

SAMP Risk is the insurtech subsidiary of Asset Performance Partners, a specialist in power generation services. Its insurance platform uses real-time operational data, telematics hardware and risk-scoring tools to identify emerging problems before they lead to claims.

The company focuses on the renewable energy sector, but its comments point to a broader challenge across electricity generation as climate patterns shift. More frequent and intense heatwaves can affect multiple parts of the system at once, pushing up demand for cooling while limiting output from some renewable and conventional sources.

That combination raises questions for generators, insurers and grid operators about resilience planning and the allocation of financial risk as emergency measures become more common. It also suggests that insurance products designed for more stable operating patterns may need to adapt if heat-related stress becomes a regular feature of summer power markets.

Asset Performance Partners said its experience advising power generation sites on machinery performance, risk reduction and operational management underpins the underwriting models used by SAMP Risk.