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Lender requirements are a significant driver of insurance policy purchases for renewable energy projects, which can secure a better rating and therefore financing with the right insurance policy.
Performance warranty insurance can help free up capital and secure more favorable financing terms, although lenders require specific coverages and wordings in these policies, said Michael Schrempp, head of green tech solutions for Munich Reinsurance Co. in Munich. “If you have a photovoltaic plant or a wind farm or a fuel cell installation, it’s easier to raise capital or receive debt if you have insurance in place, which ultimately covers if the technology does not perform,” he said.
Munich Re began covering the performance risk of solar photovoltaic projects in 2009 and has expanded the coverage to wind and other clean energy technologies since then.
“The insurance industry actually identified this as a very attractive risk,” Mr. Schrempp said. “In the last one or two years, we have seen more serious insurance players entering this market.”
Fitch Ratings Inc. rates renewable energy projects that incorporate insurance elements, and a primary concern is what is not covered by the policy, said Gregory Remec, a Chicago-based senior director.
“We have to do a very deep dive into those policies to understand in what kind of a situation could the coverage be denied,” he said. In the case of one privately rated renewable energy project, the facility’s performance is dependent on a particular manufacturer staying in business because it uses the manufacturer’s proprietary technology, Mr. Remec said. Enter the insurance policy, which guaranteed the performance of that manufacturer and would step in if the manufacturer went bankrupt or was unable to fix a technological issue that led to a shortfall in performance.
“That’s an example of a very strong policy that was deemed sufficient to bring that project to investment-grade rating,” he said.
Clean energy projects continue to grow in the United States, and insurers generally see them as attractive risks, although weather-related losses are mounting in the solar sector.