Solar Risk Assessment Shines Light on Key Industry Challenges

Extreme weather, operational and battery risks — insuring the growing solar industry brings insurance companies, agents and brokers face-to-face with evolving challenges.

“We’re seeing burgeoning growth in solar, wind, and battery storage,” said Jason Kaminsky, CEO at kWh Analytics in the firm’s 2024 Solar Risk Assessment, intended to be a guide for investors who recognize the importance of allowing data-based insights to inform the deployment of capital. “However, to meet renewable energy deployment goals, the focus needs to be on smart growth — relying on data to inform decisions and utilizing resilience measures to protect assets.”

Modeling Can Vastly Underestimate Solar Project Losses

Traditional modeling assumptions fail to capture the unique characteristics and risks of solar photovoltaic (PV) systems, Nicole Thompson, senior data science manager, kWh Analytics, wrote in the report.

PV systems generate electricity by collecting light through panels and converting that energy into a usable form before being used as power or stored in a battery. A review by kWh Analytics found that standard modeling assumptions underestimated losses due to physical damage by more than 300% in Texas and California, among other states.

“This inaccuracy could have serious implications,” Thompson wrote. “Incorrect or unreliable models can drive insurers to have outsized reactions to natural catastrophe losses (decreasing capacity and increasing insurance premiums for solar), while pushing investors to seek higher levels of insurance limits due to their inability to accurately quantify the risk.”

How does this happen? PV’s have distinctive features that are not accurately captured by standard natural catastrophe models using proxy structures to estimate insurance losses and determine premiums, Thompson added. These distinctive features enable resilience and expose vulnerabilities.

A slim glass sheet facing the sky or a set of large format modules mounted on metal racking, “will fare differently than a building in different perils,” Thompson wrote. But, as she and other authors in the report noted, systems outfitted with trackers can assume various configurations in the event of a storm that limit breakage probability.

Advanced, PV-specific modeling methodologies enable insurers to more effectively assess and price risk, ensuring the financial viability and sustainable growth of the solar industry.

Risk Solutions for Long-Term Viability

The frequency and severity of natural catastrophe events continue to grow, and the increase in renewable energy projects in storm-prone states has led many to forecast a continued insurance availability gap, Alliant Insurance Services added to the report.

With this backdrop, a team from Alliant pointed to the value of using technology such as thick, heat-tempered panels and trackers that can protect against hail loss. More sophisticated renewable energy insurers can differentiate projects that prioritize technology selection and operating procedures, the team wrote in the report.

“Solar project owners who invest in designing, building and maintaining resilient solar sites in combination with bespoke insurance solutions can achieve up to a 50% reduction on rate loads for highly exposed natural catastrophe zones,” Alliant wrote.

Battery Energy Storage Systems Poised for Massive Growth

In the assessment, Lloyd’s of London reported that the global battery energy storage systems sector experienced a 60% increase in installed capacity of grid-scale batteries between 2020 and 2021. Planned projects will multiply the total amount currently in use by 13.

Insurance underwriting, appetite and capacity for the systems are growing, but insurers are closely watching the risks of battery failure, thermal runaway, control system failures and extreme weather effects on the systems.

“As investment grows, and BESS operators expand the number of planned plants globally, the insurance industry must remain agile, responding innovatively to technological change and working with clients to navigate the challenges of project deployment,” wrote Alain Caplan, head of research & strategic partnerships, Lloyd’s of London.

Go Deeper

The full report features sections highlighting portfolio aggregation, solar performance problems and component failure. It can be accessed on the kWh Analytics website.

“Overcoming these challenges will require ongoing collaboration and innovation among industry leaders,” said Isaac McLean, Chief Underwriting Officer at kWh Analytics. “In this dynamic landscape, asset owners play a critical role in protecting renewable energy investments by securing comprehensive insurance coverage and seeking multiple quotes from brokers to ensure accurate protection.”