Market News

 June 09, 2010
Companies urged to see the light on energy

 Companies of all shapes and sizes need to think urgently about securing green energy supplies, Lloyd's Chief Executive Richard Ward told business leaders.

Dr Ward cited the unfolding environmental disaster in the Gulf of Mexico as just one example of the potential consequences of the ongoing reliance on fossil fuels. The deeper companies drill for oil the greater the risks, the more chance that supply will be disrupted, and the harder the clean up should anything go wrong, he said.  

Speaking at the launch of a joint report from Lloyd's and Chatham House, entitled Sustainable Energy Security: Strategic Risks and Opportunities for Business, Dr Ward said businesses must prepare themselves for those risks and stop treating a low carbon economy as a 'nice to have'. Instead, it has to be an essential part of securing a future energy supply.  

"Prevention is better than cure. It makes business sense for industry to be thinking not just about the risks associated with fossil fuels, but also about how they will manage the transition to a low carbon economy. This is long overdue," he said.   "Our report is not just required reading for the Shells or Exxons of this world, but for all types of business - from supermarkets to financial services. Everyone needs power to operate and make a profit. Everyone has a vested interest in protecting that power supply against future risk and disruption."

Dr Ward also called on governments to set a clearer framework for a low carbon economy, to encourage investment. He said: "Businesses need security that regulations, once fixed, won't be subject to arbitrary change. Otherwise, they simply won't make big investments. And the energy sector needs an awful lot of investment just now."

Regulatory framework

Also speaking at the launch of the report, Charles Hendry, UK Minister for Energy and Climate Change, said the Government's role would be to set the regulatory framework but that it was the responsibility of the private sector to deliver the best renewable energy solutions.  

"The lesson is that risk management needs to be holistic or we will just lurch from one crisis to another." Charles Hendry, UK Minister for Energy and Climate Change

"If we get the technology and the regulation right around new energy sites, then they become more insurable," he added. "Therefore, we are keen to hold conversations with the insurance industry and businesses on where the response lies. This is an area where the Government really can work in partnership with industry." 

Speaking of the insurance industry's role, Dr Ward added that Lloyd's and the market in general helps businesses by paying claims when things go wrong but also by advising how to manage risks - thereby reducing the chances of things going wrong in the first place. He said that Lloyd's estimates its total bill for the Deepwater Horizon incident at between $300 million and $600 million. 

And he warned that the transition from fossil fuels to new green energy will bring a new set of risks to be managed: "We probably don't know the long-term impact of some of the technologies we are exploring now, but I know that, in our haste to fix one problem, we often run head-long into another one. 

The full report Sustainable Energy Security: Strategic Risks and Opportunities for Business is available here

Source: www.lloyds.com