FM Report: Power-Generation Risks Mount as Electricity Demand Soars

Aging equipment, protracted replacement times and a variety of risk-management shortcomings threaten efforts to meet rising global power demand fueled by AI data centers and broad-based electrification, according to a new report by commercial property insurer FM.

“Understanding Power Generation: Loss Trends and Predictive Analytics” details power-generation systems’ chief vulnerabilities, most prevalent causes of loss and recommended practices for improving resilience.

“Power generation is a pillar of national and global security,” said Stuart Keller, chief engineer at FM. “Losses within this sector reverberate beyond individual facilities, affecting macroeconomic performance, energy availability, the resilience of critical infrastructure and local communities. As demand increases and system complexity grows, maintaining operational efficiency and proactively managing risk are essential.”

Where the vulnerabilities lie 

Mechanical and electrical breakdowns are the primary drivers of loss, accounting for more than 70% of all loss events in power generation and over 80% of total financial impact annually, the report says. Gas turbines are the single largest source of property damage across the sector. Gas turbines and transformers are major drivers of business interruption losses in large part due to ongoing supply chain constraints. The lead times for replacement units are often measured in years.

The report is informed by seven decades of FM client loss data in the power generation sector.

From 2021 to 2025 alone, FM clients have suffered 427 power-generation losses totaling approximately US$3.7 billion in gross losses, with steam turbines and gas turbines consistently representing the most severe and costly sources of loss.

Causes of loss include:

• Fire originating from electrical, mechanical or hot-work problems.
• Stress on AI data centers’ transformers, switchgear and cooling systems due to concentrated  high-density loads.
• Business interruption due to reliance on single critical equipment assets that take years to replace.

Loss-prevention impact

More than a quarter of FM client losses (approximately 27%) originate from the 2% of client locations previously identified as most predisposed to a loss. To avoid such problems, FM provides strategic risk-management guidance informed by science, research, engineering, site visits, close OEM relationships, real-world data and predictive analytics.

Accordingly, the report details the business value of client vigilance, including proactive inspection, testing, monitoring, maintenance, housekeeping, contingency planning and scenario-based training.

“Our experience conclusively demonstrates that proactive loss prevention leads to materially fewer and less severe losses,” said Keller. “Not only do clients strengthen their operational resilience, they protect their long-term reliability and profitability.”

“India’s rapid economic growth and expanding digital infrastructure are driving unprecedented demand for electricity. As capacity grows, a strong focus on loss prevention and operational resilience can help power providers meet demand with greater confidence” said Sumit Khanna, CEO, FMIC India – Reinsurance Branch.