IMIA have recently released an interesting new study on Solar Energy following their conference in September. The idea of harnessing power from the sun is not new, but new technologies are starting to realise the potential on a commercial scale.

In January 2007, the EU outlined a long-term strategy for a 20% share of energy consumption to be from renewable energies. The high cost of solar power technology means that it is necessary for governments to subsidise the industry to meet climate change targets. The industry’s biggest challenge, to become commercially viable, lies in future developments of solar technology. The International Energy Agency believes that solar energy could provide 11.3% of global electricity by 2050. This highlights the potential opportunities that Insurers could be writing now and in the future.

Solar Production

There are two types of solar technology:

  1. Solar panel systems, known as photovoltaic (“PV“); and
  2. Solar thermal power plants, known as concentrated solar power (“CSP“).

PV cells are made from layers of semi-conducting material that absorb and directly transform sunlight into energy. PVs are found on top of houses or, in Marks and Spencer’s case, a distribution centre, the largest PV installation in the UK.

CSP plants generate electricity by focusing sunlight and concentrating the energy into heat. The steam from the high temperature turns a turbine to create the electricity. The plants use mirrors and panels to focus the light into heat. There are four different ways of utilising the sun by CSP, with some plants combining the technology:

a) Parabolic trough; b) Linear Fresnel; c) Stirling Dish; and d) Power Tower.

The IMIA working group categorised the risks relating to solar technology into two main areas:

  1. Conventional – construction, operation, technology and natural perils.
  2. Non-Conventional – business interruption, unavailability of sun, regulatory risks, lack of performance.

Conventional risks

PV: •Operational risks are low. •Risk generally from glass/panel damage by natural perils. •The risk has been around for years and is well catered for in the market. •Theft of cable, aluminium and copper from the structures is a dominant risk.

CSP: •More complex risks because the design of the plants incorporate more technology. The experience of the local constructors and project managers are integral to the success of the construction. •Multiple single point failures can halt production for operational risks. •Manufacturing defects on individual items in the plant e.g. rotor blades in the steam turbine. •Site security and strike, riot and civil commotion are risks that could arise depending on the location.


Solar power is reliant on sun and the variability of the weather is an important factor in the production of solar energy. Strong wind also affects the efficiency of some technology because they have to be turned to safe mode. The difference in efficiency of a CSP plant by 1% can affect the revenue gained or lost by USD $600,000.

The productions costs of running the CSP plant or PV technology can be prohibitive on the operator’s profit margins.

The design of the electricity grid that the solar technology is connected to affects the distribution of the energy. The volatility of solar supply means that the grid needs to compensate the voltage when the solar technology delivers a shortfall. Therefore, grids need to upgrade to accommodate solar energy.

Governmental incentives have subsidised the production of solar technology enabling the very expensive systems to be commercially viable. The operational and start-up costs are intrinsically linked with government subsidies which may be put at risk in the face of a changing government or a change in the government’s policy.

Insurance Cover

IMIA’s paper explains the types of cover that are needed to insure the interests of the various commercial relationships that feature in the construction and operation of creating solar energy.

a) Erection/Construction All Risks – typically umbrella cover arranged by the plant owner for all interested parties. Usually covers damages during construction, testing and commissioning. IMIA recommend Underwriters focus on:

  • The project overview and whether the plant has any prototype technology.

b) Delay in Start-Up – provided to the ultimate owner. Will cover financial consequences of delay to completion arising from an insured physical damage event. IMIA recommend Underwriters focus on:

  • The detailed revenue projections, fixed costs, variable costs and the debt servicing costs.

c) Third Party Liability – cover for construction of a project would be arranged by either the contractor or the owner. The insurance would typically be an umbrella cover for all participants in the project for both their financial interest and site activities. The policy will cover legal liability attaching to the insured parties in the event of injury to a third party or damage to third party owned property. IMIA recommend Underwriters focus on:

  • The accessibility of the site to members of the public and whether there are any contracts where the insured waives their rights under those contacts.

d) Operational All Risks – generally arranged by the owners and will also cover the original equipment manufacturer participants for their on-site activities. There is a reticence to cover prototypes or unproven technology. IMIA recommend Underwriters focus on:

  • The list of contractors who built the plant, the type of technology and loss history during construction.

e) Business Interruption – insures owners, banks, financiers and parties with an insurable interest. Typical cover is for gross profit/fixed costs. The distinction between the Delayed Start Up and Business Interruption is Business Interruption claims will have an estimation of the operations, whereas the Delayed Start Up insurance has only projections. IMIA recommend Underwriters focus on:

  • The main operational monitoring programs in place and spare parts organisation.

f) Cargo and Marine Delay in Start-Up – arranged by the owners and would typically be an umbrella cover for all participants. Covers all risks of physical loss and damage during the transportation phase of the construction project. IMIA recommend Underwriters focus on:

  • Supply of a shipment list, the suitability of port facilities and whether the route has been surveyed.

g) Warranty Cover – for component manufacturers of the solar technology to cover non-performance of the supplied components during the long-term warranties provided. IMIA recommend Underwriters focus on:

  • Long term field tests or accelerated lifetime tests for typical operational scenarios.

h) Liquidated Damages – for non-achievement of warranties given by EPC contractors and subcontractors for the contractual completion date and/or guaranteed performance during the demonstration period. IMIA recommend Underwriters focus on:

  • Parties involved, location, technology and time schedule for the project.

i) Weather Derivative/Lack of Sun – links the payout to the actual loss of the insured. An amount of radiation received per surface area of the solar construction will be agreed and any level of sunlight below this amount will be insured. IMIA recommend Underwriters focus on:

  • Amount of radiation received at the location historically.

We have condensed the risks and products that IMIA have highlighted when insuring solar energy projects. For a fuller understanding of the risks described above please read the full report below:

To conclude, solar power is an area of renewable energy that historically has had significant governmental help and problems with financial viability. However, a huge potential for growth and development in the sector remains. Insurers need to be aware of the changes in the market and the growing needs of their solar clients.