The ‘Insurance Policy Model’: An Alternative Approach to Evaluating Disruptive Technologies in the Energy Transition

Abstract

The Energy Transition from hydrocarbon fuels (Oil, Coal, and Natural Gas) to carbon neutral or carbon zero fuels are bringing a necessary change in the way companies and markets evaluate and fund research and development (R&D) in the Energy Transition.

Historically research and development in oil, coal, and natural gas has been focused on “Sustainable Technology” that is developing technology that focuses on lowering cost, increasing efficiency, reducing environmental impacts, and using less energy in the production life cycle of an established product or commodity.

Sustainable technology projects and portfolios have proven evaluation and decision-making methodologies and are generally risk averse; For example, using risked net present value (rNPV) to evaluate incorporating a more efficient generator into a mature energy system.

With the Energy Transition many of the technologies are either in the very early stages of development or not yet tested beyond theory and can be classified as “Disruptive Technologies”. Disruptive technologies have by their very nature, as they are unproven, a very different value proposition than sustainable technologies thus traditional evaluation and decision-making methods, such as rNPV are not applicable.

This short communication puts forward an alternative solution to evaluating and supporting decision making for disruptive technologies; The Insurance Premium model is developed where representative insurance premiums are proposed, ranging from very small for unproven technology many years from a significant presence in the market (0.03% of investment) to rather small (1%) for more matured technology that may be significant in the market in five years’ time.