Among the events disrupted by Hurricane Sandy was the Fuel Cell Seminar at the Mohegan Sun.  I had been looking forward to the keynote address, from Tom Sullivan of Proton OnSite.  Instead I found myself sitting in my office in Edinburgh, Scotland and thinking about the long-range implications of the latest “storm of the century.”

Sandy caused more than 20,000 flights to be cancelled, but that was nothing when compared with the power outages, cell towers giving up the ghost, and local transport networks quite literally shutting down.  So soon after the event, it feels odd to be thinking of this in terms of the push it could give distributed generation.  But this Black Swan event could be what the United States needed to move its transmission and distribution networks into the new smart energy paradigm.

Ironically, the rather amazing New York State Energy Plan was released just days before the hurricane hit.  Even pre-Sandy, we knew that many states and countries around the world are increasingly looking to make their energy networks more resilient.  But those initiatives are mostly at the regional and national policy level.  Perhaps there is another, blunter, instrument that will change the current energy network.  Such as insurance.

The Tipping Point

According to InvestorWords, insurance is “designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.”  The problem for businesses at least is that we now live in a time when losses such as those caused by Sandy are no longer unexpected.  In fact, they’re not only predictable but also well known.  Power outages, especially, are increasingly yearly in the U.S., with the result that sales of backup power systems for commercial and residential use are rising quickly.  We are also seeing the rapid development of systems that can be islanded when the grid goes out to continue to provide power.  ClearEdge Power is just one such example, which I’ve blogged about before: unless the natural gas supply grid also goes out the system keeps on running.

In terms of insurance, we are surely reaching the point where business owners will not be able to insure their companies against losses due to power outages below a rather high threshold.  I say high because, according to the latest U.S. 2011 Blackout Tracker, from Eaton, the current average power outage in the United States is already 221 minutes, with the total duration of outages in 2011 in the United States reaching a truly staggering 2,039 hours.

So if you can’t get insurance even for the average duration of 4 hours, and your business losses are a highly conservative $10,000 per hour, you are looking at an average annual bill of $40,000, with the possibility of much higher losses.  For banks, airlines, and other essential 24/7 industries, the numbers quickly jump into the hundreds of thousands per outage.

There has to be a tipping point, where companies reach a level at which they cannot get insurance, and it becomes financially more attractive to adopt a form of distributed generation.

This could not only reduce insurance premiums for current risks, such as grid outage, but also reduce the risk of future liabilities, because most DG systems are lower in carbon emissions than conventional centralized power generation.  Carbon emissions are definitely another insurance target – right after catastrophic natural disasters.