Experience, data & resilience are key for insuring renewables
The solar industry is expected to grow as much in the next five years as it has in the past two decades combined.
As we head into hurricane season, guarding against weather-related perils is top of mind for property owners. Crippling damage to a solar farm in Nebraska from a massive hail storm in June was the latest to make headlines, in a string of notable outsized natural catastrophe losses suffered by solar asset owners and their insurers in recent years, particularly from major hail and hurricane events.
As a result, carriers are passing costs onto customers through higher premiums and tighter terms and conditions at best, and reducing capacity or withdrawing from the market entirely at worst, leaving renewable asset owners scrambling for coverage.
With the solar industry expected to grow as much in the next five years as in the previous twenty years combined, the need for affordable coverage is urgent. For solar asset owners and their brokers, three main considerations are crucial to ensure the coverage needed for financing and protecting assets.
Industry experience is critical
When it comes to coverage for solar assets, experience is key. While many carriers operate with a renewable arm, underwriters who specialize in renewable energy are rare.
Since this is still a newer asset class, few underwriters and agencies truly understand the nuances and risks associated with solar panels, wind turbines and storage. Underwriters considering renewable assets should look at attritional risks, such as the chance of inverter failure and vandalism, as well as natural catastrophe risks including hail, hurricane, earthquake, fire, and flood.
Data drives decisions
Relying on data and modeling is certainly not a new concept for underwriters, but when it comes to renewable energy, the key is finding the right data.
Without a lot of detailed historical data on renewable assets, underwriters thus far have turned to using a proxy for natural catastrophe modeling, such as a tin-roofed structure, but this has not proven to be sufficient in assessing renewable energy risks. For solar in particular, the damage mechanisms are unique from other traditionally modeled structures and vary by region, and things like wind speed and flood following a hurricane need to be considered (and can be mitigated by construction decisions like elevating the panels above projected flood levels).
It stands to reason that the more data an underwriter has to consider, the better the asset owner and insurer will both fare. Historical performance, maintenance and loss data are all critical. But underwriters need to look not only at performance and loss data, but also at zero-loss events, evaluating what works and what doesn’t.
Resiliency matters
Ensuring resiliency in the underlying asset is key to underwriting good risks. With more renewable energy projects being built in harsher weather environments, assets now have more exposure to natural catastrophes, rendering resilient design characteristics imperative. Risk allocation is rapidly shifting, placing the onus on asset owners to demonstrate resiliency, and that costs money.
The good news is that there is a lot of innovation in renewable energy, particularly around resiliency. Incorporating both design and operational best practices such as hail stow (employing a high degree tilt to reduce the kinetic energy of hail impact on the panels), torque audits (properly tightening fasteners to ensure they don’t disassemble in high winds) and racking construction (the racking manufacturer and materials matter; cheap or flimsy materials will not stand up to high wind speeds, floods, and other perils) can go a long way in ensuring asset resilience. Case in point: A solar project in Florida took a direct hit from Hurricane Ian, but it suffered minimal damage because proper mitigation efforts had been implemented.
Renewable energy asset owners who invest in operations and maintenance and in robust site design significantly reduce the risk of loss, which should be considered in insurance underwriting.
For example, although hail stow plays a vital role in ensuring the longevity and lasting functionality of solar modules, asset owners may hesitate to deploy a preemptive hail stow approach, fearing lost revenue.
However, according to the 2023 Solar Risk Assessment — a compendium of articles from industry experts on risk management in the solar industry — hail stow has little impact on production and can be cost effective if your insurance provider reflects such measures in their premiums. Asset owners would be wise to seek all available market quotes for property insurance, as some carriers may provide more beneficial terms for risk mitigation efforts than others.
Massive growth in the renewable space brings great opportunities as well as significant challenges. Extreme weather-related losses and resulting insurance market constriction have placed an increased onus on asset owners, forcing rapid advancement in innovation and resilience.
Jason Kaminsky is CEO of kWh Analytics.
Opinions expressed here are the author’s own.
Related: