Insurance Premium in The US Solar Market Up by 400% in the Last Two Years

Property and casualty insurance premiums have increased by nearly 400% in the solar market over the last two years in the United States, and some types of coverage may not be available at any price, according to the project finance report published by the global law firm Norton Rose Fulbright.

The last few months have witnessed the gradual hardening of the market for property and casualty insurance for solar projects in the United States. The current hardening of the insurance market is taking place globally, and it has caused significant disruptions in the project finance markets. For the renewable sector, this trend has been more pronounced given the rapid growth of the renewable industry and the increase in extreme weather conditions that lead to unexpected losses.

The report mentions that against this backdrop and the accumulation of losses, solar project owners face several challenges in the market. Large solar projects are facing greater difficulty in securing capacity above $20 million (~$270,782) for critical risks amidst increased solar development in areas that face severe convective storm exposure.

Some of the significant challenges for solar developers are:


  • The buyers are seeing increased premiums for coverage, with asset owners reporting an increase of up to 400% in the past two years
  • Policies have higher deductibles. During soft market conditions, deductibles were capped at 2% to 5% of the total claim value for catastrophic events, which have now increased to 5%
  • Insurers introduced natural catastrophe sub-limits for losses, mainly from severe storms, such as hail, tornados, and wind
  • Insurers have introduced more policy restrictions, such as microcracking exclusions
  • The market is witnessing inconsistency among insurers regarding policy terms, including terms associated with microcracking, sub-limits, contingent coverages, and deductibles

This current trend has led to a major focus on solar risk management, with emerging technologies and certifications that can help in managing the losses due to unwanted natural disasters.

Most investors have started to focus on the risks before the issuance of term sheets. In some cases, the lenders require the asset owners to offer a guarantee for uninsurable losses, and the market is adapting to these changes.

According to the report, the focus has now shifted to solar power projects and risk management. Solar projects are growing, prone to losses from natural disasters. Insurance may no longer be the basis for transferring risk. It has now become essential for project developers, purchasers, and financiers to take care of the selection of sites, traditional risk management measures, and technology selection to counter extreme weather conditions. The year 2020 has witnessed a rapid growth in asset owners’ insurance, exceeding the supply.

In 2021, with many solar projects being developed in natural catastrophe-prone areas, it remains to be seen if a balance could be achieved.

Green Hydrogen

Project financing, especially in nascent industries, is a long-term, fixed-price offtake contract. The power sector and public transportation provide probably the best early opportunities for hydrogen project developers to sign such agreements. Currently, financiers are focused on technology risk. While green hydrogen is only on the cusp of viability and still developing, electrolysis technology has been around for quite some time.

The fundamentals of green hydrogen are relatively well understood, and the technology is less risky than what solar technology was a decade ago. As technology has started to be commercially deployed, different electrolysis technology variations are competing for pre-eminence. The cost of green hydrogen has been declining in recent years and will probably do so more as deployments accelerate. Lenders may require significant maintenance reserves, and there is a need for manufacturers to be backed by insurance to provide credit support.

The report adds that government support would be necessary to get the green hydrogen market moving.

“In some aspects, hydrogen can be compared to renewables 15 years ago when the government’s support in the form of feed-in tariffs, tax credits, or guarantees was necessary to accelerate the pace of deployment and, in turn, reduce the cost,” the report noted.

Energy Storage

In energy storage, developers are looking for contracted revenue streams and ways to mitigate the risks associated with it. One thing that can help in this endeavor is a commodity hedge.

There are several revenue generation strategies for battery storage projects, including pricing (buying energy at low prices and selling at high prices), sale of capacity or ancillary services, or transmission-related services.

According to the report, capital costs involved in battery projects would ultimately decide pricing, making these products attractive to developers.

The report states that a ‘revenue put’ is, in many ways, like an insurance product. The ‘revenue put’ is an option contract between the project company and the hedge counterparty (typically a bank). The developer pays a premium to the counterparty upon execution. Often the ‘revenue put’ is executed simultaneously with the financing documents so that the developer can use the project’s credit facilities to deal with the payments. The premium is a one-time payment rather than an annual payment. The idea behind this is that the counterparty will true up the project company each year if its revenue over the last year is lower than the predetermined amount.

The ‘revenue put’ could be restructured for a battery storage project. The developer would pay a premium to the hedge provider. The developer will have downside protection if the battery’s assumed revenue is below the negotiated threshold.

One of the attractive aspects of a ‘revenue put’ structure is that the project’s market upside is retained. The project would maintain the flexibility to carry on with other revenue streams.

Last year, the Unfriend Coal campaign showed how the insurance companies are exiting the coal sector because of the growing risk of unmanageable climate breakdown. It said that over 17 companies had by then ended or limited their cover for coal projects, which accounts for 9.5% of the primary insurance market and 46.4% of the reinsurance market. This points to a growing trend among insurers as they move away from the coal sector.

Meanwhile, in India, the lack of insurance products for solar PV modules in India is a problem that needs to be addressed.

The Ministry of New and Renewable Energy earlier issued a circular in January this year stating it had held talks with the Department of Financial Services, Ministry of Finance, and the Insurance Regulatory and Development Authority of India regarding the availability of insurance products for domestic solar modules. The insurance of solar products is a crucial component for developers in the solar ecosystem, and currently, there are not many players in this business.