Insuring your solar project against the risk of earthquakes, fires and floods

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In this interview, Petar Georgiev, managing partner with FirstNRG Insurance Services discusses the logistics of insuring a solar project, an oft-overlooked aspect of the industry.

pv magazine: What phase of development, construction and operation usually sees the most claims?

Petar Georgiev: I would say it depends on the size, construction and location [of the project], but to be honest, we haven’t seen any actual claims during construction involving something critical that has been part of the engineering, procurement and construction company. Because normally we cover that [construction], typically in a one-year policy.

This is between constructional risk or builder’s own risk, as we call it. This also takes part as testing and commissioning after construction, which could vary from 72 hours to a week, before going to the operational phase, where it is now operational risk, where we see most of the claims actually.

pv magazine: I figured that the majority of the claims would come from the operational side, I just wanted to see where claims came from outside of the operational side.

Petar Georgiev: What we see during construction is sometimes in transit or when we have some of the equipment stored nearby, like at a construction site. We have seen damages, vandalism and people trying to steal out of the site. It could be a fire, or our equipment, a breakdown or it might cause a delay in startup. We also cover terrorism as well, during that part.

pv magazine: I noticed your portfolio of insured project is pretty global — what differences are there in insuring a project in the United States versus somewhere else?

Petar Georgiev: Well, if we’re trying to compare United States projects to projects that we have experienced in Europe, the difference is all in the compliance, all the regulations, all the terms, for the market and the industry. The compliance to regulations just to operate and to get your project started and into operational space. We don’t face that many challenges in Europe.

Companies that are coming into United States market to try and expand their international portfolio, they say those challenges are really hard, in terms of how to establish their business and run it in compliance. The the local, state and federal regulations are challenge number one.

If we are talking about technical specification, and that of the actual project, if you’re in Europe or China or India, all the equipment in major projects is basically the same. So, the values are not much different. When we have natural catastrophes, when we have mechanical and equipment breakdowns, equipment interruptions, they’re all the same.

pv magazine: Are solar farms considered a more high risk type of asset to insure than other types of generational facilities?

Petar Georgiev: If you have a big installation in a remote location that doesn’t suffer many natural catastrophes, your exposure to risk is a lot lower than any case they might see in, let’s say, a wind portfolio. But if you have a diversified portfolio, then it’s not like I can put it in one particular site, it has to go in one policy — one property policy. That might be considered a high risk exposure. Because it’s not a single site — it’s diversified, and it’s been placed in different locations.

So, in terms of parts and components, you have modules, you have racking systems, you have trackers, you have girders. And, you have cables that you never know what might happen.

We just had a claim, for instance, in California, due to heavy rain and flood. Even with no actual flood on the ground, that installation suffered huge damage because the heavy rain exposed soil deep down, about five feet. All the cables were exposed and all the connections were exposed, so that became a big failure, because of that heavy flood and heavy rain.

In many cases it’s critical and driven by natural catastrophes, it depends on the location and exposure. In California we see damages due to fire and equipment now because of high temperature. In states like North Carolina, Georgia and  Florida, we’ve seen many claims due to hurricanes and floods.

And we’ve seen losses because of severe damages from natural catastrophes like hurricanes in Southern states.

pv magazine: We hear a lot about earthquakes, fires, and hurricanes, those seem to be the big three that would lead to failure and disaster. Have you ever seen failures or had claims come forth due to blizzards or any sort of prolonged snowfall?

Petar Georgiev: With all the recommendations and requirements of engineering site, the O&M company has to be really good actively taking care of the snowfall and accumulation of snow over the panels, which is always their duty during winter or blizzards, snow and ice, they always have to clean up those panels.

pv magazine: S0 at that point it’s more on the O&M company.

Petar Georgiev: Right. It comes down to O&M and to proper construction. We’ve seen problems and issues with actual carports that are breaking down and drop due to heavy snow, but whenever we have the evaluations, claim adjusters come to place that the actual construction has not been proper.

pv magazine: Would you say a challenge in insuring solar projects is the relative youth of the solar industry as a whole?

Petar Georgiev: Well, that was originally the challenge, yes, in the beginning. Now, I mean, lately, that’s changing, because the capacity of the installations in the United States is dramatically growing in the past two years. Lately, more and more historical data has come into effect. So, it’s not that dramatic. As more and more industries contribute data, like real time data from installations, from external asset management companies, from O&M companies that are providing performance and maintenance, annual checkups and review, it gives more and more sophisticated data.

pv magazine: Any other critical issues you’d like to share.

Petar Georgiev: One of our premier products is our solar under-performance guarantee policy — because it’s something that pretty much brings another guarantee and can save millions of dollars for solar clients, investors, developers, asset managers of solar installations.

[This is] something strictly designed for the industrial- and utility-scale solar industry — we’re definitely not talking about residential here. Basically it is to help facilitate financing for the projects, by assuming the risk of potential under-performance for the developer, for the financier or for the investor. 

In other words, that performance guarantee encases the credit worthiness of a project, and supports more favorable financing conditions and terms that are coming from financing institutions and lenders that are resulting in better premiums being offered by the insurers. Better premiums result in premiums that are offset by savings of dollars from more debt costs because of the actual performance. It guarantees the actual performance.

(This interview was edited for brevity and clarity.)