If you’re frustrated by the process of finding solar project insurance for your business, you’re not alone.
Information found online about the cost of solar project insurance can be outdated1, and few insurance brokers and/or their underwriters seem to understand what solar – and solar plus storage – project development entails.
Solar development projects don’t all have the same exposures. A rooftop solar project on a church or school will not have the same risk profile as a ground mount system in a remote field.
And insurance carriers may conflate your business’s exposures with those of general contractors, installers and EPCs, operations and maintenance providers, financiers, lenders or passive investors, etc… This can lead to difficulty in the underwriting process, or worse, the wrong insurance.
Solar Project Insurance Requirements
Solar project developers should have the right business insurance to protect themselves and transfer potentially catastrophic risk.
Depending on the size of your company, your specific insurance requirements (types of insurance, desired limits, protective endorsements, etc.) will be driven by your internal risk management procedures or by the contractual language between you and your customers, lenders or partners.
Indeed, having the right type of coverage is as important as having coverage in the first place…!
For example if you’re a solar installer with employees installing panels at heights, you would not want a workers’ compensation claim that also involves a lawsuit against a contractually indemnified customer or contractor, only to find out that you have an action over exclusion in your general liability policy.
Or if you’re a solar investor, you may not have employees installing solar panels… But will that keep you from being named in a lawsuit when a claim occurs?
The risk you bear in an insurance claim depends on your role and relationship to your client and the language of your contracts.
Are you a solar developer? If so, are you also building projects and acting as a general contractor who’s responsible to the client, site host or offtaker? Or are you a “briefcase EPC”…?
If you are signing the agreement with the client, and hiring an EPC to do the work, you may be liable for any bodily injury, property damage or financial loss that occurs in a claim. And changes in solar system ownership over time, such as in a partnership flip model, can complicate matters…
Are you a solar energy purchaser (aka “offtaker“) or site host entering into a PPA?
Will you and your business be indemnified by all parties to the solar project?
An offtaker such as a school, non-profit organization or real estate owner may just want to purchase renewable energy… But what if you are named in a suit because you failed to maintain your property in a way that led to an injury…
Or what if an offtaker files chapter 11 and stops making PPA payments? Will the solar developer have insurance against loss of income if an offtaker fails to pay?
Solar Insurance Fundamentals
The most fundamental types of insurance needed by project developers are:
- General liability insurance
- Property insurance
- Business income/interruption insurance
General Liability Insurance
Commercial general liability (also referred to as just “general liability”) insurance protects your business from claims related to third party bodily injury and property damage. It should also provide you with contractual liability coverage.
CGL coverage may be a mono-line policy or part of a package of other insurance for the solar industry that may include some property coverages. CGL policies may be admitted or non-admitted.
Solar contractors and developers may be well served by selecting a general liability package program that offers specific coverages for the solar industry.
Some examples of specific solar industry insurance coverage packaged with general liability may be professional liability (aka “errors and omissions”), drone liability, inland marine, business auto, workers compensation, property floater coverage, employee benefits liability, environmental and umbrella.
Property Insurance
Solar property insurance protects the physical property at the solar project, or while in transit.
Property may include the solar panels, solar inverters, energy storage and/or battery systems, conduit, racks, mounting poles or solar carport structures.
Property is covered on an actual cash value (ACV) or replacement cost (RC) basis. ACV means property is valued at original cost minus depreciation. Replacement cost means property is valued at the cost to replace or repair as new.
If the assets are damaged by a covered peril2, your property insurance will pay for the cost to repair or replace the solar project.
Business Income/Business Interruption
Business income or business interruption is a form of property insurance that takes into account the cost of lost income in the event of a loss or business interruption.
This coverage may also include the extra expense associated with having to move to a new location to continue business while repairs are made.
Business interruption is valued using a business income worksheet that helps you calculate any income that could be lost in a claim. For solar developers, this income may include:
- PPA payments from offtakers
- Renewable energy certificates (RECs)
- Investment Tax Credit (ITC) benefits
- Local renewable energy incentives
In the event the project is damaged, and not producing energy, having business interruption coverage can help make you whole, minus a deductible.
Solar Insurance Cost For Financial Models
Commercial solar insurance cost estimates found online are not only few and far between, but may be outdated and/or inaccurate.
For instance, the following are quotes from a 2010 National Renewable Energy Laboratory (NREL) report on insuring commercial solar projects:
"Developers estimate the annual cost of insurance to be around 0.25% of the total installed cost of the project, which could be as high as 0.5% annually in areas where extreme weather events are likely. While this sounds quite low, the annual costs do add up over a 20-year contract, especially since the annual premiums escalate, usually every year."
"One developer indicated that insurance is their biggest operating cost."
"Another developer indicated the cost of insurance is 25% of the annual non-capital costs."
"Property insurance represents the majority of the overall cost of insurance. One interviewee indicated property insurance represents roughly 90% of the total cost of insurance. Another developer indicated 96% of the total insurance budget is allocated to property insurance."
"According to one developer, insurance costs 5% to 10% of the total delivered price of energy from the PV installation."
Of course, the renewable energy insurance industry has matured since 2010 as the number of renewable energy projects across the U.S. has grown significantly.
Current estimates for solar insurance costs should factor in current events, new technologies and ownership models and appetite among insurers. Also, since the NREL report was written, new insurance carriers have arrived on the scene willing to write insurance for solar, while others have left the market entirely.
Insurers now have more actuarial data and so they’re more sophisticated in their underwriting of solar risks, not only based on geographic and weather exposure but also awareness of hardware reliability and resilience…
Underwriting is informed by claims data and a recent report notes the increased severity and frequency of renewable energy insurance losses since 2017. Losses from hail, wind, wildfires and other natural disasters have caused some solar insurance premiums to spike by 20-30% and as much as 400%, according to GCube.
As mentioned in the video above, many solar project insurers simply do not want to write policies for less than a certain dollar amount (aka “minimum premium”).
For example, for projects or portfolios of 1 megawatt or greater, you should expect to pay at least $5,000 annually for property insurance and $5,000 annually for general liability. This would be an all in cost for property and GL of 1% of a project that cost $1,000,000 to build.
The cost per $100 of solar insurance, for the purposes of a property insurance pro-forma, could be 40-60 basis points annually. The same may be applied for a GL minimum premium, however, a GL policy should “scale” better…
Note… Insurance isn’t a commodity (despite what geckos and ducks might have you believe) and every project is different and warrants a different approach to underwriting…!
So you should expect the insurance cost for your solar projects to be different than these rough estimates.
Roof mounted projects will have premiums that are different from ground mount. Solar carport projects will be different from roof and ground mount… And the inclusion of energy storage will change the underwriting equation even further.
Take Control Of Your Solar Insurance
The lack of understanding of solar project development by the insurance world can lead to confusion, insurance premium inflation and/or poor coverage.
If you started working with an insurance broker years ago out of simple convenience because you just “needed insurance” at the time, you may now find yourself rethinking your broker relationship.3
Perhaps your broker doesn’t really care about solar, or isn’t keeping up with solar project development4 risks and new solar insurance products that may be available to you and your business.
Working with the wrong insurance broker, or having the wrong insurance, is a problem that gets worse over time… If you have questions about your insurance, schedule an appointment with me today.
Footnotes
- For instance, a report by the National Renewable Energy Laboratory (NREL) is over a decade old. Estimates for solar property and general liability insurance have changed since then. There are references to solar bonding solutions by Broadlands Financial Group, an affiliate of First Sealord Surety, that was shut down in 2012. Broadlands' website does not seem to be responding or active.
- Perils include wind, hail, flood, earthquake, fire, theft, etc.
- Your business may be a good candidate for a change of insurance and risk management through a broker of record. If you have questions about your insurance situation, please schedule an appointment with me.
- Photo by Stephen Yang, The Solutions Project. Project credit to Renovus Solar.
