An introduction to solar panel insurance
Despite many years of commercial solar applications and an increasingly larger and international solar market, solar panel insurance products are not yet standardized or normalized in the insurance industry. A number of insurers offer solar panel insurance policies, however the premium can be still prohibitively high. To underwrite a fair and comprehensive solar PV policy, underwriters will need to understand the PV technologies and products with lots of field data in order to run through their risk modeling. But comprehensive data is lacking: insurance companies have no traceable experience to deal with solar panel projects, yet..
Different types of PV insurance
Even though solar insurance products and standardized yet, demand for PV insurance is increasing. In general large PV systems require liability and property insurance, and many developers may opt to add policies such as environmental risk insurance.
1. General Liability Insurance
General liability Insurance covers policyholders for death or injury to persons or damage to property owned by third parties. General liability coverage is especially important for solar system installers, as risk is greatest during installation.
2. Property Risk Insurance
The solar system owner usually purchases property insurance to protect against risks not covered by the warranty or to extend the coverage period. The property risk insurance often includes theft and catastrophic risks.
3. Environmental Risk Insurance
Environmental damage coverage indemnifies solar system owners of the risk of either environmental damage done by their development or preexisting damage on the development site.
4. Business Interruption Insurance
Business interruption insurance is often required to protect the cash flow of the solar project.
Do you really need PV insurance?
Rely on manufacturer warranty?
Realistic or not, often there are concerns about the warranties offered by solar panel manufacturers. What if there is a functional defect or performance problem due to technical faults in the PV system in 10 years, will the solar panel manufacturer be willing to help if the warranty is already outdated or even worse: will the manufacturer still be around to help?
Chinese solar panel manufacturers in general offer guarantees, which are backed up by the manufacturer itself or by one or more Chinese insurance companies.
Regular solar panel guarantees are:
- 5+ years product warranty
- 10 years on 90% performance output
- 25 years on 80% performance output
However, how solid are guarantees offered by Chinese solar panel manufacturers? Quite solid, however it depends on your choice of solar panel manufacturer. Basically, we can divide the PV manufacturers in two groups:
- The first group of solar panel manufacturers offers guarantees that are backed-up by a consortium of Chinese insurance companies
- The second group of solar panel manufacturers takes responsibility for the insurance themselves, by including the risk on their balance sheet. Regardless which guarantees are offered, the validity depends on the manufacturer's own (future) ability to solve defects. In case the manufacturer would go bankrupt, the likelihood of ending up with a useless warranty is quite high
In case a solar system is under-performing or certain PV panels are defect, under the guarantee conditions, the manufacturer will support in the form of solar panel replacements or additional PV power.
Still high performing in 15 years?
Property insurance typically covers solar system components beyond the terms of the manufacturer's warranty. For example, if a PV module fails for reasons covered by and during the manufacturer's warranty, the manufacturer is responsible for replacing it, not the insurer. However, if the module fails for a reason not accounted for in the warranty, or if the failure is beyond the warranty period, the insurer must provide compensation for the replacement of the PV module.
How to protect the end-user?
End-users basically insure anything nowadays and are often more than willing to pay for insurance in return for certainty. The question is however if an insurance on the product warranty and/or the PV performance output is needed.
Solar panels, diodes and inverters are semiconductor devices. They suffer from DOA (usually do to shipping), early life failure and early life fatigue. Typically after the units pass the first 3 years of life, tracking of the individual panels and inverters will indicate those panels that are failing.
The best protection for end-users is to closely monitor their solar system installation.
By evaluating the solar system, any product defects or weak PV performance can be spotted in an early stage of the product lifetime, and can be replaced by the solar system installers, with the help of manufacturer guarantees.
Pay large part of revenue to insurance company?
What are the costs of PV insurance?
Currently PV insurance costs are high (NREL):
"Insurance premiums make up approximately 25% of a PV system's annual operating expense. Annual insurance premiums typically range from 0.25% to 0.5% of the total installed cost of a project depending on the geographic location of the installation. PV developers report that insurance costs comprise 5% to 10% of the total cost of energy from their installations, a significant sum for a capital-intensive technology with no moving parts."
Without advising you to exclude any solar panel insurance, here are 4 practical solutions to reduce risks
- The provider of any PV warranty should have produced longer than the warranty itself
- Purchase insurance on those risks that are well understood by the insurance industry, which includes catastrophic events such as fire, hail, earthquake, etc.
- Quantify all other risks along the project design path: 1. Manufacturing 2. Installation 3. Maintenance. Find which party can mitigate every particular risk in the best manner. Hire this party to cover the particular risk. Read more about solar panel (PV) quality testing.
Watch out for un-experienced insurance brokers who warn you about self-igniting solar panels etc. We can assure you that self-igniting solar panels are rare.
The truth is that the insurance industry has no established idea about the risks of PV installations. Insurance is based on statistics, which are not there yet. The only way for insurance companies to respond is to assign the highest possible risks to solar PV projects and charge for that accordingly.
Solar panel project developers are already able to purchase PV insurance from several insurance companies. Many insurance carriers and brokers are quietly and conservatively testing the water by doing some low-risk insurance deals for solar projects. I am afraid the solar PV industry will be in for some period of complexity and confusion over what insurance to buy, what coverage to have, what carriers to deal with.
One final note: Insurance is no substitute for quality!
Solar panel quality inspections
Are you purchasing solar panels, inverters or mounting racks in the Greater China region? Our partner Kisun Solar performs independent quality inspections on-site at solar manufacturers.
- Replace defects prior to shipment
- Independent testing report
- 100% certainty about product quality
- International testing crew specialized in solar PV panels, inverters and mounting racks