Renewable energy is on the rise in Latin America (LATAM). The International Energy Agency (IEA) projects a growth of electricity demand from 1,295 TWh in 2020 to 2,282 TWh in 2040. The projected demand is almost double the installed capacity and poses a huge challenge for the region. In this article, we’ll give a brief overview of the status of renewable energy development and the challenges the region is facing for each of these technologies.

Onshore and Offshore Wind

The global offshore wind market is growing at an almost exponential pace. In 2020 alone, 5.5 GW was installed globally, resulting in a total installed capacity of 39 GW. Current trends move toward wind turbine generators up to 15 MW in capacity, and wind farms being developed further offshore.

In the LATAM region, though, offshore wind is still in the very early developing stage. While Europe and Asia are leading the global development, LATAM, like North America, is falling behind with offshore wind developments. Three decades after the first ever offshore wind farm was built, there still aren’t any existing facilities in LATAM.

The reasoning behind this might be a bit more complex than it appears. Energy policies in LATAM countries are heavily tied into the current government´s agenda in each specific country. The current tendency of LATAM elections and governments shifting left has created a lack of long-term consistency of energy policies that could enhance the transition in each specific geography. LATAM regulations and governments need to find a way to create consistency on medium- and long-term policies, regardless of which party remains in power as we move toward a net-zero economy in 2050.

In addition, LATAM generally lacks transmission infrastructure. It is not just a matter of creating new installed capacity in offshore wind, it is also a matter of bringing that capacity from remote areas into the most densely populated cities within the region. Something that requires a good amount of capital injection. The opportunity is certainly there for LATAM to exploit offshore wind, but there are still administrative and technical challenges that need resolving before the region can fully explore its potential.


Data from Global Energy Monitor shows that with roughly 20 GW of solar projects currently in construction, the LATAM region is currently constructing four times more capacity than in Europe, and is only behind Asia (110 GW) and North America (22 GW). With another 100 GW in preconstruction or announcement phase, the region is booming.

The key risk for solar farms is related to the weather, especially hail or hurricane damage. Violent hailstorms are not uncommon in LATAM. For example, in 2022, a LATAM airline flight had to make an emergency landing after the plane sustained substantial damage when it flew straight through a hailstorm. Whether or not climate change is bringing larger and/or more frequent hailstorms is still under debate, but the threat is there and cannot be ignored. The World Meteorological Organization registered 16 large hail events in Peru in 2021, and 10 in Chile. As mentioned above, the infrastructure dilemma applies to solar as it does to offshore (and onshore for that matter) wind. Transmission infrastructure desperately needs development to satisfy the growing energy demand and not compromise energy security, especially with the significant population increase expected in LATAM over the next 15 to 20 years.

Battery Energy Storage Systems (BESSs)

Chile is leading BESS development in the region with 54 MW in operation as of 2021, followed by Puerto Rico and Surinam. Installed capacity and projects in development in LATAM is still far behind the U.S., China, and Europe—who are leading the global development. The majority of battery technology applied is Li-ion based while flow battery solutions are currently uncommon. There is as well an overall worry in the region that the Inflation Reduction Act implemented by the Biden administration in the U.S. will have a negative effect on BESS development in LATAM.

The biggest problem with Li-ion batteries is the high risk of thermal runaway, a phenomenon that has caused severe headache to the insurance industry, almost in line with current hail related losses of solar farms in the U.S. Statistics from the Electric Power Research Institute’s (EPRI’s) publicly available BESS failure events database show 12 global BESS events in 2022, with none of these installations having an age of more than five years. This presents a huge challenge for developers, original equipment manufacturers (OEMs), and, of course, the insurance market.

Hydroelectric Power

Global net hydropower growth expectancy in LATAM is still relatively low and is slowing down compared to other major regions of the world. Brazil is the third-largest hydropower nation in the world, and the largest hydropower nation in the region with 109 GW of installed capacity, followed by Venezuela (15 GW) and Colombia (12 GW). The projected additions in the region between 2021 and 2030 is 15 GW, a 64% reduction in development compared to the period 2011–2020, mainly due to a reduction of planned projects in Brazil (both Argentina and Colombia are adding capacity but not enough to counter the reduction in Brazilian development). This is a large reduction, compared to the global average of 23%.

Risks and Trends in Insurance Coverage

The Estimated Maximum Loss (EML) or Maximum Foreseeable Loss (MFL) can be described as the largest, low probable loss that is foreseen for a specific power generation asset. This is an important parameter for the insurance industry, as it specifies the estimated highest potential insurance claim, which does not necessarily have to be the full value of the power generation asset. The difference between the EML and the full asset value will determine the savings with respect to insurance premiums. Higher EML means higher premiums, so it is in an asset owner’s interest to keep this as low as possible. Another important aspect when using EML and/or MFL is what sort of insurance limit is required when a project is financed, for example, and lenders sit behind some insurance requirement. It’s important to engage in these discussions at an early stage to be able to optimize premium costs.

Offshore Wind. Construction and installation costs for offshore wind have contributed to driving the industry toward the use of a single offshore substation (OSS) for the whole wind farm, which, from an insurance perspective, significantly increases risk and subsequently increases insurance premiums. The role of the OSS is to collect all the power produced from the wind farm, transform the power to the required voltage, and export it back to the substation located onshore. In the event of a full loss of an OSS, the whole wind farm would be non-operational for the entire repair/replacement period (lead time), which today can be up to several years.

As an example, the total cost of replacing an OSS for a 1 GW offshore wind farm is in the range of $200 million to $300 million. Adding business interruption (BI) of at least $200 million per year for a period of three years, the total EML would reach at least $800 million. This does not include penalties that might be in place from the power off-taker. The total potential loss will have most insurers thinking twice before they decide to get on the program or set the premiums at a level where they feel comfortable taking on the risk. The time element coverage (delay in start-up [DSU] and BI) has been under the scope of markets in the last few years as conditions such as the volatility clause have taken a front seat when declaring the sum insureds, that is, the amount of money that the insurance company is obligated to cover in the event of a covered loss, to the markets. Therefore, this critical equipment issue for offshore wind assets could be under heavy scrutiny in years to come.

PV Solar Plants. The recent large losses due to hail in PV solar plants in the U.S. has driven markets to impose limits on possible coverage in a desperate attempt to respond to million dollar claims over the last few years. Will this also be the case in LATAM? With the current boom in construction, and unpredictable changes in weather, losses seem inevitable, and the market response risk being harsh. Parametric insurance solutions do exist, but is that a viable solution?

BESS. Thermal runaway is still the largest threat to Li-ion based BESS integrity. Spacing of units (typically determined by National Fire Protection Association [NFPA] rules or other industry/insurance guidelines, such as FM datasheets) and effective response from the local fire department are two of the parameters that are not yet fully implemented on all BESS sites nor fully agreed upon by various insurers, OEMs, and project owners. The rules and standards are also changing constantly in this specific field, which can lead to plants only five or 10 years old suddenly finding themselves in a situation where new requirements that didn’t exist during the design or construction phase are being imposed by insurers.

Hydro. Hydroelectric power is a mature technology and the risks determining the coverage are relatively well-understood. That said, construction and operation of hydroelectric plants are not risk free. In 2018, the diversion tunnel collapsed at the 2.4-GW Hidroituango project in Colombia, causing significant delays and an estimated $2.5 billion in losses. At the 1.5-GW Coca Codo Sinclair project in Ecuador, problems related to quality of the work appeared after commissioning in 2016, and still have not been fully resolved. Besides construction risks and quality issues, NatCat events, such as flooding, need to be re-evaluated every couple of years, especially for assets running on rivers where one dam failure can affect other dam assets (creating cascading effects) or critical infrastructure downstream.

What Can Be Done to Reduce the Risk?

The asset owner should determine what the actual risks are during the feasibility stage of the project, and which of the risks should be transferred to an insurance company. This can be done by analyzing the total cost of risk (TCoR) for various design solutions, as well as by the use of advanced modeling tools, including catastrophic modeling tools such as those available from AIR Worldwide, part of the Verisk Analytics family of companies. The total cost of risk is measured over the entire project lifetime. By managing this parameter, the owner can determine what impact various design solutions will have on the insurance related costs, losses included. It is possible to obtain a good balance between risk retention (owner takes the risk) and risk transfer (the risk is transferred to the insurer), by effectively using risk management tools at an early stage of a renewable project.

Andreas Fabricius is a senior risk control consultant with Aon Global Risk Consulting, Canada, and Daniel Ocampo is Aon Natural Resources Industry leader for LATAM, Mexico.