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Solar Developer Insurance Buyer’s Guide

If you’ve ever wondered what insurance you should consider as a solar developer, then this Solar Developer Insurance Buyer’s Guide is for you. 

Here’s why.

You can develop solar projects using partnership flipscommunity solarvirtual net metering (VNM)power purchase agreements (PPAs)solar leases, direct ownership or finance using a company like Wunder Capital, a CPACE lender or tax equity

However, regardless of your business model you should focus on three things:

  1. Proper indemnification
  2. Insurance risk transfer
  3. Risk management 

Proper indemnification helps protect you from the liabilities of another party, such as the subcontractor installing the solar system. Being smart about how you handle insurance and risk transfer means you won’t leave any potentially dangerous gaps in coverage. And Risk management means you’re being proactive with the risk you’ve chosen to take on.

This involves assembling, evaluating and managing the exposures you have in the various links in the solar value chain, including, but not limited to:

  • Clients
  • Investors, tax equity or limited partners
  • Contractors and their sub-contractors
  • Technology vendors (such as remote energy monitoring, renewable energy certificate tracking, and billing and customer management systems for community solar)
  • Financing providers
  • Utilities and other offtakers
  • Community solar subscribers

Certain parties may request additional insured status from you, or you may request it from them. 

Managing insurance coverage, endorsements and certificates is like herding cats – and sometimes bad things happen to good people! 

An expensive claim could occur that you’re unaware you lack coverage for, or a catastrophic employee injury claim occurs involving a third party liability that puts you out of business. 

Don’t let this happen to you…

After reading this guide, you’ll be able to better identify risks at each stage of your solar project and have a plan for mitigating and transferring those risks.

How Risky Is Your Solar Developer Business Model?

Depending on your solar developer business model you may be doing any or all of the following:

  • Identifying and selling opportunities 
  • Structuring solar deals
  • Financing solar projects with your own capital, tax equity, from limited partners (LPs) or with debt
  • Designing solar projects
  • Building solar projects (or acting as a general contractor and subcontracting out the work)
  • Doing electrical work as a licensed electrician
  • Maintaining and operating solar systems
  • Owning solar systems on 1st party owned or 3rd party property
  • Offtaking commercial solar projects as an owner 

Each of these business models carries 1st party and 3rd party risks. Even if you’ve indemnified your business, if you’re the “face” of the deal, and something goes wrong, chances are you’ll be named in a suit. 

Which Solar Developer Risks Are You Exposed To?

Below are some examples of the parties that may be involved in your solar project. 

In each case, proper indemnification, insurance and risk management must be in place to ensure smooth operations and reduce liabilities to your company.

Parties To Your Solar Project:

  1. Solar Developer: You.
  2. Solar Financing Company: The solar project financing company lends capital in the form of debt to the solar project owner. Solar financing may come from an individual, a specialty solar financing company or a more conventional bank, such as Bank of America or Goldman Sachs. Solar project financing company specialties include commercial solar energy debt, “infrastructure as a service” providers and CPACE lenders. Some examples of each include Wunder Capital, Generate Capital and Greenworks Lending, respectively.
  3. Solar Contractor: The solar contractor may build the project, provide hardware or materials or operations and maintenance (O+M). The solar contractor provides technical expertise, labor, materials (solar panels, inverters, racking, equipment, interconnection management, etc.), engineering and utility expertise to the project. For example, SunPower is a common business partner to solar developers. SunPower provides materials (high quality solar panels and energy storage, etc.) as well as business tools to their SunPower distributors and installers. The solar contractor may have employees or sub-contract out installation to another contractor. The solar contractor or their electrician may also manage the connection process with the local utility. After the project install is complete, the solar contractor may also provide ongoing operations and maintenance services, including monitoring solar output, making repairs, maintaining the system, etc.
  4. Solar Project Owner: The solar project owner is the entity that owns and operates the solar project. The solar project owner may be a single purpose entity or vehicle that owns the project’s physical assets (the panels and equipment, etc.) and receives the income stream from the solar offtaker (solar energy customer). The solar project owner may own or lease real estate that may need to be covered for potential general liability claims.
  5. Solar Offtaker: The offtaker is the customer that purchases the solar energy for use as electricity for their needs. The offtaker may be any entity that has a significant electricity needs, such as a school, municipality, private company, or community solar subscribers. The solar offtaker pays the solar project owner for the electricity from the solar project.

Your business could be assuming responsibility for all of these roles, or – more commonly – responsibilities are distributed across different parties with unique skillsets.

While each of the parties requires unique industry knowledge and expertise in order to achieve the most successful outcome for the project, insurance is often sadly an afterthought…! 

As such, be sure to confirm that the companies and business partners you work with are properly insured and that indemnification is in place where needed.1

Multi-party Indemnification... What Could Go Wrong?

Clients usually request indemnification from the solar developer, depending on the nature of their work. If construction is involved in your work, for instance if you’re a full service EPC or acting as a general contractor hiring sub-contractors to build solar systems, there will be indemnification between parties (either one way or mutual). 

However, solar developers often get indemnification language wrong or don’t understand how indemnification works with their general liability insurance. 

There may also be performance expectations and/or guarantees between financiers, project owners, EPC contractors and offtakers involving several layers of single purpose entity LLCs.

The risks to you as the solar developer or the solar project owner can be either internal or external, including:

  • Risk of lost investment
  • Risk of under-performance due to weather or miscalculation
  • Risk of equipment failure or other physical damage related to installation
  • Risk of damage to real property (eg. damage to the roof of a building)
  • Risk of solar vendors (contractors, solar equipment providers, etc.) going out of business
  • Employee injury or sub-contractor injury 
  • Employment practices related claims (such as sexual harassment, discrimination, wrongful termination, failure to hire, etc.)
  • Risk of ineffective risk transfer or lack of indemnification
  • Errors and omissions risks
  • Cyber related risk to designs, software, data, communications and monitoring

As such, it is important at the outset for you to:

  • Have strong contracts
  • Objectively assess risks are acceptable and transfer unacceptable risks with the proper insurance
  • Trust but verify 3rd party insurance and your additional insured status
  • Read your and your contractors’ insurance policies

While these risks affect all parties to in your project transaction, there may not be agreement on who bears liability for problems if and when they arise… 

Indeed, workplace accidents, the failure of a project to perform as planned, employment practices claims (eg. #metoo, etc.), financial disagreements, or technology vendor bankruptcies can trigger an insurance claim.

But what if your claim is denied because of a subcontractor or independent contractor?

You could have a hammer clause in your contractor’s commercial general liability policy. If this is the case you’ll probably be surprised that it means you’re 100% responsible for the quality of your sub-contractors’ insurance programs… 

If the subs’ policies don’t stack up, or if they use the wrong additional insured endorsement, or the proper indemnification isn’t in place with them, the insurance company may deny your claims.

Discovering a hammer clause or an action over exclusion can happen at any stage during the solar project development process.

Managing Risk

Some operational risks are simply beyond your control as the developer, as such risks can be transferred with insurance or bonding.

Solar projects can be taken offline by natural disaster, fire, lightning or other damage. Increasingly, solar projects are at risk of disruption by cyber attack, including hacking, ransomware and malware that can take energy monitoring systems offline.

Physical hazards and height exposures are common. 

No two worksites are the same and employee accidents or death can result from poor jobsite health and safety planning. Coordination and communication between the solar contractor, subcontractors and trades is essential.

Fires from solar photovoltaic (PV) panels are extremely rare, however, this can occur due to poor quality installation, or faulty or wrongly sized solar equipment. 

Utility solar installations may also include combinations of PV, battery energy storage, or other technologies making them more prone to equipment failure.

Crescent Dunes/Tonopah

Compared to solar PV, concentrated solar power (aka “CSP”) systems have numerous potential points of failure including concentrating towers, mirrors, steam boilers and generators, which can lead to fires and other problems, unexpected downtime and loss of revenue.

Concentrated solar power systems are used in the largest solar plants in the world, including the 392 megawatt Ivanpah Solar Electric Generating System in the Mojave Desert.

In a solar lawsuit involving the 110 megawatt Crescent Dunes solar project in Nevada, SolarReserve CSP Holdings, LLC (the solar developer) filed a complaint against Tonopah Solar Energy, LLC (the solar project owner) and the U.S. Department of Energy utility (the solar offtaker) because of disagreements over control, management oversight and a potential bankruptcy filing.

A summary of the lawsuit by the Nevada Independent notes that the PPA offtaker, NV Energy, a Nevada utility, filed a notice to terminate its power purchase agreement (PPA) with the project facility because it “failed to produce the requisite energy levels required…” due to “frequent and prolonged outages” and “equipment failure” since it began its operation in 2015.

PPAs are critically important to the economics of some utility scale solar projects – and NV Energy’s PPA was scheduled to expire in 2040.

Projects can be shut down temporarily causing lost revenue while the attorneys spend weeks and months to gain an understanding of the cost, timing and potential liability for losses2

Whether the claims are monetary or physical, legal costs and lost business income can spiral out of control if a lawsuit is filed.

Insurance and Risk Transfer

The following are types of insurance common to the solar development process. 

You want to minimize cost while maximizing coverage. As such you should work with an insurance broker who understands your business. 

Your broker should not only manage all the basic business insurance fundamentals, such as general liability, workers compensation, auto insurance, professional liability, etc., but also any specialty insurances, bonds and credit enhancement necessary to protect you:

  1. Commercial General Liability Insurance: The standard CGL policy is the lynchpin of a packaged solar insurance program. The CGL protects the company from claims of bodily injury or property damage caused by your company to a third party. If a person walks into your office or onto a jobsite and slips and falls or is hit by falling debris caused by your workers in the course of your business your CGL policy would kick in. Your CGL also provides protection for products and completed operations and liabilities you assume when entering into a contract that contains a hold harmless. Products and completed ops covers damage caused by products your company sells, such as solar panels or the construction of the system. However, products or property owned by others that are in your care, custody and control of an insured are usually excluded under the standard ISO CGL policy form. This gap in coverage can be addressed by inland marine coverage or bailees coverage.
  2. Commercial Auto Insurance: Protects your company from liability if your employees get in an accident that injures people in another vehicle while on the job. Also protects your business owned vehicles against physical damage.
  3. Hired and Non-Owned Auto Insurance: Hired and non-owned auto insurance is sometimes overlooked by companies when their employees use their own vehicles for work. Hired and non-owned auto (aka “HNOA”) protects your business from liability claims related to the use of vehicles you hire or do not own, such as your employees’ vehicles. 
  4. Builder’s Risk: Builder’s risk, also called “course of construction” insurance, is a type of property insurance that protects real property assets, such as homes or buildings, while under construction. Builder’s risk insurance is important because it protects property being built while the job site is active. A builder’s risk policy may be paid for by the general contractor, developer or project owner.
  5. Inland Marine: Inland marine is a type of property insurance that covers the tools and equipment that may be used in solar installation. Inland marine covers property while in transit and also at jobsites, even if it stored remotely (be sure to read your policy location coverages and exclusions). If solar inverters or panels are stolen from a jobsite, or damaged, their value can be covered by an inland marine policy. Inland marine may also be referred to as a “floater” policy and may be required for distributors by companies such as SunPower.
  6. Property Insurance: Protects you from 1st party losses to personal property and business property, such as the value of your solar PV system, the equipment and the income stream it produces. Solar property insurance covers business personal property (BPP) and business interruption (BI), tenant improvements and other first party property. Property insurance is sometimes packaged together with general liability insurance in a business owner’s policy (BOP).
  7. Umbrella: Umbrella or excess coverage provides an extra layer of protection to the insured if the primary layers of coverage are exhausted by a large claim. Be sure to have your umbrella insurance be “follow form”. Umbrella insurance is often less expensive than general liability because the underlying general liability limits must be exhausted before the umbrella will kick in. $1,000,000 of umbrella coverage is common. However, limits of $5,000,000 and up are common in NYC because of the perils of action over claims involving New York Labor Law 240 and 241, especially if there is any exposure to a fall from heights.
  8. Professional Liability: Professional liability (aka “errors and omissions”, or E&O) protects you if you’re a solar consultant or if your firm provides solar consulting or if you design systems for others. Even if you sub-contract out your mechanical and engineering drawings to 3rd parties, you still may need miscellaneous E&O insurance. E&O covers 3rd party claims related to professional consulting services and the providing of expertise, advice or counsel. Some solar engineering, procurement and construction (EPC) contractors have full-time installation and engineering crews on staff – whereas others sub-out everything and act more like a general contractor. If your company provides design or consulting services, such as electrical line drawings or structural plans for solar projects, you have some professional liability exposure.
  9. Workers Compensation: Workers compensation covers injuries to employees who are injured while in the course of their employment. Workers compensation is mandatory in most states. If work related injuries fall outside of workers compensation, they may be covered by your employer’s liability policy. Solar companies have had challenges with workers compensation because underwriters often misunderstand the actual exposures in different types of solar EPCs, virtual GCs, solar sales organizations and sub-contractors.
  10. Solar Offtaker Insurance: Solar offtaker insurance is a form of credit enhancement that transforms unrated solar offtakers into investment-grade offtakers. The insurance is used to reassure lenders, tax equity, or future solar project buyers that the income stream from the renewable energy sold to the offtaker is guaranteed. There are many benefits of solar offtaker insurance, including reducing the cost of capital and increasing the chances that a deal will get done.
  11. Cyber Liability: 1st and/or 3rd party protection from damage, or exposure of personally identifiable information (PII), electronic property, digital assets, valuable data and other non-physical assets. May cover ransomware, named and unnamed malware, social engineering/phishing, invoice tampering, hacking and services related to cleanup after a breach. Solar developers that calculate the production of electricity from solar PV systems, manage payments and collect revenue from offtakers are exposed to systems being taken offline by a cyber attack. In the spring of 2019, hackers hit Sustainable Power Group, (aka “sPower”) one of the largest renewable energy developers in the U.S., with a denial of service attack. Hackers gained access to sPower’s infrastructure through a low-level attack on an unpatched firewall from Cisco Systems.
  12. Directors & Officers: Also known as D&O, directors and officers insurance protects the company and/or the company’s directors and executive officers and senior management from claims of breach of fiduciary duty or other errors and omissions related to financial decisions. D&O also protects them from claims against their personal assets.
  13. Employment Practices Liability: Employment practices liability is often packaged with D&O, fiduciary and crime coverage. EPLI protects a company against claims of sexual harassment, bias or discrimination, wrongful termination or any failure to maintain a safe work environment on the basis of racial, gender, age, religious, sexual orientation or other protected classes, according to the EEOC.
  14. Equipment Breakdown: Equipment breakdown insurance provides coverage for machinery or equipment that fails due to accidental internal mechanical failure or electrical causes, such as power surges.
  15. Solar Production Insurance: Investors and offtakers rely on projections of future solar production. Performance guarantees to these parties are common and are directly related to their financial exposure. Solar production insurance, aka “energy shortfall” or “solar shortfall” insurance, provides coverage for losses related to physical damage to solar PV systems and other under-performance including weather risks (eg. clouds, lack of sunlight), errors in calculations of revenue models and projected yields on a project and design errors. Solar production insurance guarantees production levels up to a percentage of the projection (i.e. 90% guaranteed production). Solar production insurance can also reduce credit risk for solar financing companies and offtakers and provide increased confidence for investors that solar projects cash will flow as projected.
  16. Solar Surety Bonds:solar surety bond is a three party agreement between you, the client and a surety. The surety guarantees certain performance related to your project and will step in in the event of a default on the performance of the solar development project. It’s preferable for you to use a surety bond vs. letter of credit or cash reserve as a form of reserve because it does not tie up capital or create a liability on your balance sheet. Common surety bonds for solar projects include payment and performance bonds, bid bonds, labor and materials bonds, maintenance bonds, decommissioning bonds and interconnection bonds. 

Every insurance policy contains exclusions. Be sure to read through yours for dangerous exclusions such as a hammer clause or an action over exclusion, among others. 

Solar Project Developer Risk Management

Every solar project is vulnerable to problems, such as physical damage from fire, wind events, flash flood, earthquake, as well as lost revenue from business interruption, contingent business interruption and cyber attack, vandalism and other types of crime.

Solar project sites are often in remote locations and equipment must be transported to the location creating exposure for auto accident claims, inland marine risk from property damage to solar equipment or construction related risks of bodily injury. Cyber risks are constantly changing and insurance coverage often fails to keep up.

The solar project development risk management process involves identifying risks, assessing the probability and potential impact of any risks and developing a proactive plan to reduce the negative impact of those risks. Once your risk management plan is in place, the plan should be measured and evaluated over time to determine if changes need to be made.

Solar developers should design their own safety manuals and develop systems and procedures for working with sub-contractors. Solar project developers can manage risk by insisting that solar contractors and other trades follow OSHA guidelines to protect their employees.

Every party to the solar development process must have a process for managing certificates of insurance (COIs) for itself and other parties to the solar project and must protect itself with the proper insurance and risk management at each step of the way.

Summary

Your team needs to be aware of the potential risks in any project and the exposures related to large scale, multi-party solar projects.

Proper indemnification, insurance risk transfer and risk management begin at the initial planning stages of solar project development…

You can reduce risk and save time and money by working with an insurance broker who understands your insurance needs and helps you with the risk management process. 

Contact me to schedule a risk assessment or if you want a one-stop-shop for all your solar business insurance needs.

Footnotes

  1. This means more than just thoroughly reading your policies and requesting certificates of insurance (COIs). I've often received certificates of insurance from sub-contractors who are working for my clients who don't actually have the insurance they claim they do - either intentionally or not.
  2. The Crescent Dunes facility was permanently shut down.
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