For thousands of years, man has banked on the sun rising and setting each day. But the star’s reliability doesn’t always translate into the ability to earn a profit when it comes to turning sun rays into solar energy. During the past decade, however, improvements in solar development project economics spurred dramatic industry expansion. But now new threats are casting a cloud over industry prospects and pressuring market growth. A solar project’s bankability depends on numerous variables: the cost of developing and designing the project, equipment costs, financing, regulatory conditions, and long-term power pricing among others. In the past 10 years, technology improvements in solar panels led to increased energy generation and efficiency. This coupled with lower equipment costs, regulatory measures to encourage renewable energy generation and higher oil prices helped fuel recent growth in the solar industry. For investors, solar development projects became highly reliable investments.
Today, however, the solar industry’s own success is threatening its growth prospects. Regulatory changes have eliminated the grant in lieu of tax credit program for renewable energy projects, reducing the number of potential investors to those with a tax appetite. In addition, as more manufacturers poured into the industry, equipment prices fell dramatically. While that made it cheaper to build new projects the unintended consequence is that many manufacturers are struggling to compete. Market consolidation among solar equipment manufacturers is now a serious threat to sustaining solar development project cash flows. As manufacturers go out of business their equipment warranties may become worthless. In the event that equipment has a failure there may be no way for a project developer to recoup the costs of making a repair to the equipment or the revenue from lost energy generation. Such actions throw the long-term viability of projects into question.

Jeanne Schwartz
Assurant, Inc.

Such changes create additional pressure for solar project developers to find other ways to increase and protect project margins. In addition, developers with significant experience are looking to new horizons for project developments. Unwittingly, they may be overlooking risks that they don’t know to look out for. Despite significant experience, a developer may just not know what they don’t know when working in a new location or different environment.

Working in new surroundings requires significant due diligence. Not only must developers literally learn the lay of the land, they also need to understand local regulations, building codes and permitting processes. Even disparities in climate conditions can create havoc when project developers fail to adequately account for unfamiliar weather patterns. From the start-up phase to decommissioning, developers must keep their eyes wide open and employ extensive risk management practices to address these issues.
Comprehensive insurance protection and warranty backstops available throughout the project lifecycle can help. In a study conducted on behalf of Assurant, Inc., researchers found that many market participants in the solar industry expressed a need for a truly wide-ranging insurance policy that would provide phase-specific protection. They indicated that this coverage would help alleviate investors’ concerns about the financial stability of their development projects.
In response, Assurant developed a solar insurance bundle that allows mid-sized commercial solar developers to easily qualify for and launch more projects. The company partnered with the leading provider of insurance for the renewable energy industry, GCube Insurance Services, Inc., to provide commercial solar project developers across the U.S. access to the insurance offering and warranty management program at affordable prices.
The insurance offering works by addressing key lender and investor requirements to protect project cash flows that are traditionally threatened when manufacturers go out of business or a project’s energy generation is compromised by equipment failure. In addition to liability and property coverage, the product offers single-source project warranty management throughout the lifecycle of a solar project. This eliminates the potential confusion caused by having to work with multiple carriers and manufacturers to settle a claim should the need arise. The streamlined process increases efficiency and the speed at which claims are handled.
Being able to rely on an insurance company to stand behind the project equipment in the event that its manufacturer goes out of business is critical to ensuring the long-term financial viability of a solar project. So too is securing business interruption coverage. This unique protection reimburses project developers for income from lost energy production and from sales of solar renewable energy credits lost as a result of a covered peril. While it is impossible to eliminate all risks and hazards from solar project developments, insurance can help improve their ability to generate profits for the long-term. These protections can take some of the variability out of the factors that can derail projects and act as a stabilizing force in the industry, helping to create a strong foundation for the industry’s continued growth.

About the author Jeanne Schwartz

is vice president of new venture commercialization for Assurant, Inc. In this role, she leads the market launch of Assurant’s solar project insurance, which provides a bundle of property, liability, and warranty management to commercial solar projects. Schwartz helped developed the specialty insurance coverage for the solar market while serving as vice president of Assurant’s Incubation Team.
As vice president of the Incubation Team, Schwartz led the company’s corporate strategic initiative development process. Schwartz and her team also generated and implemented opportunities to leverage marketing capabilities across the organization on behalf of specific business units, designing voice-of-the-customer, segmentation and pricing and profitability analytics initiatives among others.
Schwartz first joined Assurant in 1991, serving as senior vice president of Marketing for Assurant’s preneed life insurance business. From 1999 to 2007, she served as executive vice president of Corporate Communications Group, Kansas’ largest privately held public relations and marketing firm.