Competition in the solar industry is fierce. Constant pressure to improve efficiency and reduce costs at all levels to improve profitability is pushing innovation and rapid change. In a market in flux, how can project developers, owners, financiers and investors safeguard against business risk? Should they be worried?

The single biggest issue that is paralyzing investors is ongoing market consolidation of original equipment manufacturers (OEMs). Half of all solar equipment manufacturers now in business are expected to go bankrupt or be acquired by competitors. Such market convulsions will be difficult for project developers and owners to weather if unprepared especially if the result is further erosion of confidence in the quality of manufacturer’s products.

It is no secret that many in the industry are already claiming that manufacturers, in their effort to compete and remain viable, are cutting corners that affect the quality of their products.

Similar concerns are now being raised about engineering, procurement and contracting (EPC) companies. Fear that some EPCs may be swapping out approved equipment in a solar project development for less expensive and less reliable materials fuels the worries. Such changes could go undetected if the EPC certifies their own work, but could affect the profitability of an installation if the energy output of a solar installation fails to meet expectations because of an equipment change. Although no one can point to an epidemic of quality deterioration taking place right now, these fears persist because of the uncertainty about potential long-term impacts of short-cuts undertaken today. Project developers, owners, lenders, investors and insurers can safeguard against such risks and possibilities by working to accurately evaluate and understand the variety of solar project risks that exist. It is important to ask: How will OEM market consolidation affect the long-term viability of solar installations being built today? Is equipment quality deteriorating because of manufacturers’ need to reduce costs and compete on thin margins? Will today’s manufacturers be in business five or 10 years from now and honor the equipment warranty? Does it make sense to invest in projects using older technologies or those that rely on disruptive technologies? What are the tools and strategies available to identify and mitigate risks? Do they adequately protect against risk?

Consider solar panel certification. All solar panel OEMs seek certification to international standards, but such standards may not identify manufacturing or technological problems that may are after many years of use and threaten the rate of return from a solar installation. Most agree that current testing does not adequately replicate the wear-and-tear that solar panels face after years of exposure to the elements and cannot adequately predict a solar panel’s energy output for 20 years. Laboratorytesting companies are working to improve their methodologies and technologies to more accurately address these concerns. Project insurance can address this and other risks that cannot otherwise be easily and economically mitigated or predicted. Standard general liability and property insurance are the basic building blocks of a comprehensive insurance coverage program. General liability protects policyholders for claims of property damage and bodily injury to third parties. Property insurance covers a solar project against specific hazards and natural perils such as fires and windstorms. Specialized solar insurance goes further to recognize the unique exposures to financial loss faced by the solar industry. Policy coverages continue to be refined as the market evolves and risks emerge and are understood. Specialty coverage provides protection for each phase of project development. During installation, the following insurance policies are available:

• Delay in start-up coverage. Provides a financial backstop in the event that a solar project is delayed from generating energy as scheduled because of problems during installation.
• Equipment installation. Covers losses that occur during a project installation that is not covered by engineering, procurement and construction (EPC) companies. During the operation phase, the following coverage is available:
• Property insurance: Protects against natural perils, such as wind, hail, lightning and fire.
• Business interruption. Offers a financial backstop due to revenue shortfalls caused by an equipment breakdown or loss caused by natural perils. Electrical breakdown. Protects against a project’s equipment failures including computers, fiber optic cables and converters.
• Warranty management program. Authorizes and pays claims on all warrantied equipment. Pays for labor and shipping. Serves as backstop should an equipment manufacturer go out of business. The program provides a singlepoint of contact for all warrantied and covered equipment in a solar project. In addition to these insurance options and warranty management program, another important consideration is ongoing operations and maintenance (O&M). While such programs aren’t automatically thought of as a typical insurance coverage, common sense says otherwise. It is vital to operations and energy production to maintain solar project equipment throughout the project’s lifespan. Beyond trimming back the weeds that may overtake a solar array, ongoing oversight via O&M will promptly address drops in energy production and ensure the project is running as anticipated. O&M, warranty management and insurance coverage demonstrate a strong risk management culture. They work together to reduce uncertainty and strengthen control of operating outcomes. This is critical to the future growth of the solar industry -- a market buffeted by dynamic change.

Jeanne Schwartz is vice president of new venture commercialization for Assurant, Inc., a Fortune 300 company providing specialized insurance products and related services in North America and select worldwide markets. 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 before moving to her new position.