01 October 2024
Weathering the storm: What can the solar industry do to mitigate the impact of a hardening market?
Solar power has an auspicious future. Today, solar panels cover an area about half the size of Wales and generate roughly 6% of the world's electricity. Remarkably, the installed capacity of solar power doubles approximately every three years, leading to a tenfold increase every decade. If this trend continues, by the 2040s, solar energy could become the predominant source of not only electricity but all forms of energy globally. This exponential growth highlights the potential of solar power to revolutionise our energy landscape and drive us towards a more sustainable future.
Nevertheless, as the solar energy market continues to expand, it faces unprecedented challenges, particularly in regions prone to severe convective storms (SCS). Historically considered a US-specific issue, SCS-related losses have now emerged in other parts of the world, including the Middle East, Australia and Canada. This has led to heightened concerns among insurers and financiers alike.
Remarkably, the installed capacity of solar power doubles approximately every three years, leading to a tenfold increase every decade.
The growing challenge of severe convective storms
In 2019, the solar energy sector experienced its most significant weather-related loss to date when a catastrophic hailstorm struck the Midway solar project in Pecos County, Texas. This 178 MW installation suffered extensive damage, with approximately 400,000 of its 685,000 solar modules either damaged or destroyed. The total insurance losses from this event amounted to a staggering USD85 million.
This unprecedented loss led the industry to re-evaluate its exposure to weather-related risks. In the aftermath, the market saw a contraction in available insurance capacity and an increase in rates. Terms and conditions for coverage of microcracking became more stringent, deductibles were adjusted, and new limits on hail coverage were introduced. One notable consequence was CNA Hardy's exit from the market.
As a result, the insurance market for solar projects hardened significantly. Rates for coverage against convective storm damage increased by approximately 20% to 50%, with some unique cases experiencing rate hikes of up to 400% over an 18-month period. This event has left a lasting impact on the industry: insuring solar panels against hail damage has become more expensive and detailed, with lower sub-limits for hail coverage.
The hardening market for solar and hail insurance has reduced local appetite, particularly in the US, where recent hail activity has heightened concerns. Although capacity is still available, it requires careful adjustment to effectively align insurer appetite with client needs.
Today's landscape
The solar market has now experienced several significant losses due to SCS, and these are no longer isolated to the US. This global spread of risk has led to tighter underwriting standards and higher premiums. For projects located in exposed areas, developers are increasingly dealing with sub-limits for SCS, high deductibles, and potential premium increases. Given that most solar projects are bank-financed, lenders typically require substantial coverage for SCS - USD50 million, for example - making it incredibly challenging to secure adequate insurance in the current market.
If lenders require significant sub-limits, building up excess layers of coverage is an option, albeit an expensive one. Parametric solutions could offer a compelling alternative in the future. Although not generally accepted forms of coverage by lenders currently, this is likely to change as the market evolves. Parametric insurance, which pays out based on predefined triggers like wind speed or hail size, offers a more straightforward and transparent risk management option.
In light of these challenges, developers must be meticulous about what information they include in their underwriting submissions. Clear examples of how they are mitigating SCS risk can significantly improve their chances of securing better terms. This involves not just demonstrating the use of advanced technologies but also showcasing comprehensive risk assessment and management strategies.
Technological investment and risk mitigation
Advanced modelling and forecasting
Accurately assessing risks associated with solar projects is more critical than ever. Traditional modelling assumptions often fail to capture the unique characteristics and vulnerabilities of solar PV systems. For instance, standard assumptions can underestimate losses due to physical damage by over 300% in some regions. Innovative approaches like using satellite imagery and panel-segmentation algorithms help in developing more precise risk assessments. This advanced modelling can identify vulnerabilities and potential damage more accurately than traditional methods.
Durable module designs
Manufacturers are taking significant strides in creating durable solar modules designed to withstand extreme weather conditions. For instance, Kiwa PVEL and Waaree are producing hail-resistant modules that show minimal power loss even after hail damage. Additionally, adjustable tilt angles, such as setting a steeper stow angle of 75 degrees during hailstorms, can reduce damage probability by up to 87%. These adaptive approaches allow for real-time adjustments based on weather forecasts, significantly mitigating risk.
Enhanced structural designs
It is essential to develop robust racking systems that can withstand high wind speeds and heavy snow loads. These systems feature stronger materials and improved anchoring methods, which enhance stability during extreme weather events. Protective coatings and materials, like impact-resistant coatings, can distribute the force of impacts more evenly across the surface of solar panels, reducing the likelihood of cracks or other damage.
Weather monitoring and automated response systems
Integrating real-time weather monitoring systems with automated stow mechanisms enables solar panels to adjust their orientation quickly in response to incoming severe weather. This minimises exposure and potential damage, offering a proactive defence against SCS.
How Gallagher can help
Severe convective storms are an enduring challenge, but the strategies for dealing with them are evolving. Gallagher’s renewable energy team can provide invaluable support by advising on the latest technologies, addressing insurer concerns, and leveraging advanced data modelling. By investing in innovative technologies, the solar industry can improve performance and data reliability, thereby increasing insurers' confidence.
Gallagher's expertise in navigating these complex market conditions can put developers in a stronger position than their peers. By focusing on cutting-edge risk mitigation strategies and maintaining transparent communication with insurers, developers can better weather the storm of a hardening market.
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