Protecting Solar Projects with Insurance
Over the past few years there has been a rapid growth in solar power projectsin the country. While the investment in solar projects is high , the investors always look for different insurance options for their risk coverage. As risk and uncertainty are present throughout each phase of the solar project life cycle from construction to operation and through its life cycle to decommissioning.
Unfortunately, developers are not educated about the coverage they need and fail to insure their project properly. Usually developers focus on project development, not insurance, they may not know what coverage they need. Most developers think they pay too much for insurance. However, if they have not fully covered themselves, they may be paying less than they need to pay to cover all possible risks. The solar PV market is a maturing industry, but it is not yet mature (even for crystalline silicon). The solar PV industry has excellent fundamentals (e.g., strong product demand, declining input costs).
Solar industry participants are suggested to opt for Tailor made insurance policies to reduce their financial loss. These coverages transfer or reduce the financial impact of equipment breakdowns, physical damage from natural perils, theft and liability exposures associated with owning and operating a solar system.
Most insurance companies’ products are generic and homogeneous, and therefore are not easily adapted to provide protection for renewable energy technologies. However, industry-specialist insurance brokers work with renewable energy product manufacturers, facility developers, and project finance clients to create unique product offerings and the necessary underwriting support that are not well covered by traditional insurance.
The goal of an industry-specialist or consultative insurance broker is to strategically partner with clients and provide innovative, responsive, and cost-effective solutions that mitigate the risk and uncertainty of renewable energy systems.
The typical insurance options available for the solar project developers are as follows:
Property Damage – all risks cover to protect from any loss arising out of fire,catastrophe risks eg. Earthquake, lightening , flood & inundation , Cycle , storm , and high wind damages etc.
Machinery Breakdown – electrical or mechanical breakdown of any machinery or other equipment resulting in costly repairs or even replacement of the solar panels.
Business Interruption – cover for periods of operational downtime as a result of an Insured peril e.g. fire or storm damage, machinery breakdown and equipment failure.Business interruption insurance is often required to protect the cash flow of the project. This coverage ensures that policyholders can recover lost sales as a result of the system not being operational and loss of production-based incentives also resulting from the lack of electricity production.
Contract Works – protection against any loss arising from property damage caused during construction of the project. Cover starts while solar panels are in transit to the job site and ends once the job is completed or the owner accepts the work
Employers’ Liability – provides cover against risk of accident from usual workplace risks such as working at height and manual handling
Public Liability – provides cover for any damage caused to third party property during installation of the panels. Essential for businesses engaged in Construction and Installation of solar panels and solar farms.
Marine Cover – Covers include Marine Transit for any loss of goods and Marine Delay in Start up to protect from any consequential loss in revenue.
Specialized policies such as contractor’s equipment, equipment breakdown, delay in start-up and business interruption insurance also are available. These provide additional coverage that can be critical throughout the construction and operation phases of a solar project, protecting developers, owners and investors alike.Some of the companies have also started providing the generation insurance for the solar projects in order to cover the solar irradiation risk.
By Amit Agarwal,
Director- Ideal Insurance Brokers Pvt Ltd.