AI demand raises power generation loss risks, FM warns

FM has published a report on rising risks in power generation infrastructure, linking the trend to growing electricity demand from artificial intelligence and electrification.

Mechanical and electrical breakdowns account for more than 70% of all loss events in power generation and more than 80% of the sector's annual financial impact, the insurer found. Ageing equipment, long replacement times and weaknesses in risk management are adding to the pressure on operators as demand rises.

Drawing on seven decades of client loss data, the report identifies gas turbines as the single largest source of property damage across the sector. Gas turbines and transformers also feature heavily in business interruption losses, partly because replacement units can take years to obtain.

From 2021 to 2025, FM clients recorded 427 power-generation losses with gross losses of about USD $3.7 billion, according to the report. During that period, steam turbines and gas turbines were consistently the most severe and costly sources of loss.

Loss patterns

The findings point to a concentration of risk in a relatively small group of sites. About 27% of client losses came from the 2% of locations already identified as most predisposed to loss, FM said.

Among the causes highlighted were fires linked to electrical, mechanical or hot-work problems. The report also pointed to stress on transformers, switchgear and cooling systems used by AI data centres, where high-density loads can place greater strain on equipment.

Another recurring issue is dependence on single critical assets that cannot be replaced quickly. When those assets fail, operators can face prolonged disruption as supply chain constraints continue to extend lead times for major equipment.

The wider backdrop is a sharp rise in electricity demand as more sectors electrify and operators expand digital infrastructure. This is creating pressure not only to add capacity, but also to maintain the reliability of existing plants and networks.

Stuart Keller, Chief Engineer, FM, said the industry's losses extend well beyond the facilities directly affected. "Power generation is a pillar of national and global security.

"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," Keller said.

Prevention focus

The report places particular emphasis on maintenance and monitoring. It highlights inspection, testing, housekeeping, contingency planning and scenario-based training as measures that can reduce both the frequency and severity of incidents.

FM said its analysis combines site visits, engineering assessments, relationships with original equipment manufacturers and predictive analytics based on historic losses. The report argues that this approach can help identify vulnerable facilities before a major incident occurs.

That matters because losses in power generation can be unusually expensive and slow to resolve. Turbine failures, transformer damage and major fires can trigger extended outages, repair challenges and knock-on effects for industrial users, utilities and nearby communities.

The pressure is particularly visible in markets where economic growth, urbanisation and data centre development are pushing demand higher. In India, where digital infrastructure is expanding quickly, the report frames resilience planning as an operational issue for providers trying to keep pace with consumption growth.

Sumit Khanna, CEO, FMIC India - Reinsurance Branch, outlined that regional context in a statement accompanying the findings. "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," Khanna said.

Keller also pointed to the insurer's historical data as evidence that earlier intervention can reduce damage. "Our experience conclusively demonstrates that proactive loss prevention leads to materially fewer and less severe losses," he said.

"Not only do clients strengthen their operational resilience, they protect their long-term reliability and profitability."