Let’s face it – for most of us, insurance isn’t the most exciting subject. But it’s also essential. That’s as true in our personal lives as it is in the business realm. For solar developers and investors, insurance comprises a critical part of their financial modeling and risk-mitigation strategies – no project goes anywhere without insurance included on the spreadsheet. Yet it has also been a weak link when it comes to covering solar power plant underperformance and manufacturer warranty issues—until now.
PVEL and its insurance partners, underwriters Ariel Re (Argo Group member and Lloyd’s of London syndicate) and brokers Beecher Carlson, have launched a new program called PV PlantProtect. The program combines technical due diligence and A-rated insurance to fill the gaps in traditional insurance policies and manufacturer warranties that have left utility-scale project developers and investors exposed to revenue risk.
Put another way, PV PlantProtect is a cohesive package that offers solar developers revenue certainty and a path to monetizing the value of reducing the risk of an underperforming power plant. And that’s how we’ve made insurance exciting!
In this article, I’ll cover the three most important aspects of PV PlantProtect for utility-scale developers and investors.
PV PlantProtect Addresses an Unmet Insurance Need
PV PlantProtect offers coverage and protection that’s been missing from the global marketplace, augmenting the suite of insurance products available to large-scale solar developers. The program provides the only insurance that incorporates technical due diligence best practices (that’s where PVEL and its technical partners come in) so that when developers mitigate risks, they receive insurance benefits (that’s where Ariel Re and Beecher Carlson come in).
This winning combination helps developers gain insurance pricing visibility in the early stages of development, adding value to the project when they’re building out their financial models. PV PlantProtect also facilitates improved project economics by driving better debt terms and revenue certainty, ensuring power plant reliability and performance, and covering the current gaps in property insurance and Original Equipment Manufacturer (OEM) coverage.
A hypothetical case study done with a major U.S. utility-scale project developer looked at the credit enhancement benefits of PV PlantProtect. The model focused on the debt sizing of a 170 MWDC solar plant in Texas, priced at $40/megawatt-hour with a 15-year power purchase agreement (PPA). The results show that lenders can make a positive adjustment in the standard debt service coverage ratio, which translates to several cents per watt and a multimillion-dollar increase in debt proceeds.
Technical Due Diligence Covers the Entire Solar Power Plant Life Cycle
The special ingredient in PV PlantProtect is a comprehensive technical due diligence effort, coordinated, overseen and executed by PVEL with the help of its team of technical partners. Importantly, the key steps in this program are already standard practice for most developers
The technical due diligence process starts with site-specific solar resource characterization and resource management, which uses on-the-ground data collected by a meteorological station instead of satellite data in the models, and measures site soiling conditions over the course of a year. The next step is a module and inverter vendor selection process using PVEL’s Product Qualification Program (PQP) testing regimen to ensure bill of materials (BOM) and final product quality and reliability. The manufacturing of the products and factory processes are covered by batch testing and factory acceptance test (FAT) witness as well as a preproduction factory audit, production oversight and pre-shipment inspection. All of these activities minimize the likelihood of defects showing up in the installed equipment.
Installation and commissioning inspection and field testing comes next. Our process relies on aerial thermal imaging of the entire plant to ensure DC availability and identify any obvious hotspots as well as field electroluminescence (EL) testing on a statistical sample of modules to confirm there is no existing module damage caused by rough handling during construction. Field EL testing also collects baseline data for possible future insurance claims. Once the plant is operational, annual aerial thermal inspections are conducted, and weather data is collected to ensure accurate performance ratio calculations. In the case of major weather-related or other force majeure events at the plant, PV PlantProtect also includes the Incident Response service offered by PVEL and Heliolytics, which uses information collected from aerial visual and infrared scans and field EL testing to quantify the full extent of damage to support insurance claims.
The Insurance Policy Behind PV PlantProtect is Well-Established and Flexible
The policy issued through PV PlantProtect is a PV Power Outage Insurance, or PV PO, underwritten by Ariel Re. This is a rock-solid insurance product covering revenue losses caused by low irradiance, underperforming components, faulty system design, soiling and operations and maintenance (O&M) issues, and other insured causes of loss. The insurance is tied to the duration of the revenue contract, typically ~15 years.
PV PlantProtect is flexible: it’s not a one-size-fits-all program. Rates are negotiated for each project and depend on the specific requirements of the developer and project conditions, which ensures that developers can buy the insurance product that aligns with their project’s specific needs.
Technical Due Diligence + A-Rated Insurance = Reduced Financial Risk
Here’s the bottom line: PV PlantProtect is the first program that improves project economics with revenue protection, ties technical best practices to robust insurance benefits, and reduces revenue risk for all stakeholders in the project.
To find out more about PV PlantProtect’s benefits for large-scale utility solar developers, contact Andrew Sundling, PVEL’s Head of Downstream Business Development, at andrew.sundling@pvel.com