Credit Insurance & the Energy Sector: Finding Opportunity Through Uncertainty

Credit Insurance & the Energy Sector: Finding Opportunity Through Uncertainty
August 1, 2025 7 mins

Credit Insurance & the Energy Sector: Finding Opportunity Through Uncertainty

Credit Insurance & the Energy Sector: Finding Opportunity Through Uncertainty

Credit Insurance has long been used by Energy sector clients as a credit risk mitigant, however more and more often, we have found that sophisticated players have utilised it beyond this; as a tool for growth, which in our view, is where considerable opportunities lie.

Key Takeaways
  1. Protecting Trade & Carbon Transactions: Credit insurance safeguards against non-payment and non-delivery risks in both energy trading and carbon credit markets.
  2. Managing risk: Credit Insurance is a valuable tool to increase stability, reduce uncertainty and foster confidence to create opportunities and growth.
  3. Collateral Efficiency: Surety bonds can replace traditional collateral, supporting trading activity between buyers and sellers more flexibly.

We seek every opportunity to listen and to learn from our clients in the Energy sector, and to generate new ideas and solutions to help address the challenges faced by the industry. Several key themes have been emerging from our recent conversations with industry leaders in the course of regular business and at trade events with topics ranging from: the uncertainty caused by changing international trade policies, the urgent need to decarbonize, the complexities of long-term agreements and the growing need for battery storage. This article will explore these themes in more detail and highlight how Credit Solutions can foster confidence and support businesses to grow, navigate challenges, and create opportunities from uncertainty by mitigating the risk of non-payment, non-delivery or political risk. 

Energy Pricing: Where do we go from here? 

One of the most significant challenges in the energy market has been the uncertainty of energy prices. Following a period of unprecedented price increases (115% price increase for natural gas in July 2022) due to geopolitical crisis, the past few years have seen a fairly benign environment. However, a fear of a reoccurrence of 2022 is still present amidst today’s trade wars and geopolitical tensions and following Europe’s first cold winter since it’s attempt to be less reliant on Russian gas. During this time of price volatility, Credit insurance was a particularly valuable tool to help manage the elevated risk of default by key trading partners and inflated exposures. Those who had embedded credit insurance as a key part of their credit risk management strategy could trade and make the most of opportunities in this volatile environment, with the confidence of the credit insurance market behind them. Whilst the risk today may seem subdued, access to the credit insurance market is still valuable to mitigate potential future exposure.

Companies who embed Credit Insurance as part of their strategy can find opportunities in volatility, with the confidence of the insurance market behind them. Credit Insurance can help manage counterparty credit risks and concentrations, including fluctuating mark-to-market exposures, and political risks.

Price volatility is also a challenge for energy transition: the expectation was that the shift towards renewable energy sources, (such as wind and solar which introduces intermittency and variability in supply) could lead to price fluctuations - but how extreme would they be? The present environment has presented a different concern, rather than “how to manage exposures”, the question is “how to make a profit”? Energy traders and offtakers are reluctant to fix pricing when the future is uncertain: geopolitical events and changes in consumer demand have significant influence on energy prices. Moreover, localised concerns such as the previous uncertainty around UK zonal pricing, Spain extraordinarily experiencing negative pricing, and subsidies in Italy are having an impact on competition. Battery storage could become integral to stabilising solar and wind power fluctuations, however, has yet to solve the problems at hand. 

Long-Term Agreements: Navigating Extended Risks 

Power Purchase Agreements (PPAs) are fundamental to the financing and development of renewable energy projects. These long-term contracts, typically spanning 10 to 25 years, are the future revenue streams which enable developers to secure financing to invest in new capacity. Whilst developers are exposed to the offtaker’s payment obligations, the offtakers themselves are exposed to significant risk on the producing asset over a long period of time for which there is very little mitigation.  Where offtakers agree to long term contracts, any impact on supply could affect onward sale of the energy and crucially eat into increasingly thinning margins. Seeking new supply should the renewable asset fail is costly both in terms of returns and reputation. Changes in market conditions, regulatory shifts, or the financial health of a counterparty on a longer-term (and therefore less predictable) time-horizon can jeopardize the fulfilment of these long-term commitments. 

It has historically been a challenge for credit insurers to provide cover on these counterparties with limited balance sheets and no track history, particularly for long term cover. However, we have seen Export Credit Agencies (ECA’s) providing support for green projects and private insurers could be encouraged to collaborate with the ECA’s as they build up experience and therefore comfort to widen their appetite.  

Tariffs on LNG: Adapting to Geopolitical Complexities 

Liquefied natural gas (LNG) plays a significant role in the global energy mix, providing a flexible and an arguably cleaner alternative to traditional fossil fuels. International trade in LNG, however, is subject to a complex web of tariffs, trade policies, and geopolitical considerations.  The EU’s tilt away from Russian natural gas, by focusing on securing LNG particularly through longer-term contracts, has been one such major shift. These factors can significantly impact the price competitiveness of LNG and create credit risks for both buyers and sellers. 

With the US imposing tariffs in an unpredictable manner, Europe's first cold winter since the Ukrainian conflict broke out (with sources citing that Europe’s LNG stores are at c. 33% of the 90% required by the end of the summer) and the unknown of Asian demand over the summer, where will prices go?  And where gas prices go, electricity is soon to follow.  

Weather Events: Life without a Crystal Ball 

With increasing dependence on renewable energy sources, energy companies will further continue to be reliant on the great unknown: the weather. Variability in wind speeds or sunlight can lead to fluctuations in energy generation. These fluctuations will impact the supply of energy, and, in turn, the pricing of electricity. 

The recent power outages in the Iberian Peninsula have thrown up more questions on reliance on renewables. Whilst the exact cause of the outage remains under investigation, there is speculation that the amount of wind and sun available could have overloaded the grid. Whilst this may not have been the cause, the resilience of the energy systems powered by renewables has been questioned, and in particular how we can mitigate situations like these going forward, and how to effectively manage the volatility that arises with renewable. 

Credit Solutions: Providing a Partner through volatility and in Energy Transition 

In an ever-more unpredictable world, risk management and mitigation are at the forefront of business management; credit solutions are a versatile tool for energy companies to utilize. As Credit Insurers understanding of the power and energy market continues to grow, their willingness to underwrite a broader spectrum of counterparty credit risk, structures and extend longer credit terms for organizations they consider well-managed also continues to grow. The volatility in the energy market drives us to innovate and support clients who take risk management seriously. With energy security at the forefront of everyone’s minds, credit insurance is a valuable tool to increase stability, reduce uncertainty and foster confidence to create opportunities and growth.  

Aon’s Thought Leaders
  • Meera Saunders
    Client Director – Structured Credit & Political Risk
  • Samuel Brown
    Head of Structured Credit & Political Risk UK
  • Alice Black
    Structured Finance Lead, Aon Credit Solutions

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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