Rosa van Rijk, Senior Underwriter g-cube
Last year was an unprecedented year for the US solar industry for two contrasting reasons. This year was the first time that solar power accounted for 50% of all new capacity added in the country, but hazards from natural disasters such as hail caused extensive damage, prompting a reduction in solar installations. It was also the most disruptive year to date.
While some are optimistic that the industry will strive to meet its ambitious installed capacity targets, another year of damage on the scale experienced in 2022 would be huge for the future growth of solar. The challenges are clear to everyone in the industry.
As a result, it is imperative that we learn from last year’s losses and develop robust, long-term strategies to mitigate the risk of extreme weather that could become more destructive as the impacts of climate change take hold.
Natural disasters will become more serious
2022 was a notable year for insured and uninsured losses to solar installations. Current patterns show an increase in both the number and severity of events. Projections of future weather patterns based on current global warming projections show that weather-related events of similar or even more catastrophic intensity are expected.
Across all industries, national insured property losses from natural catastrophes increased from $74 billion in 2020 to $92 billion in 2021, both up from the past 10-year average of $48.4 billion. doing.
Solar panels have unique vulnerabilities, felt the impact of this. Tornadoes in Louisiana cost an estimated $30 million in losses in March 2020, and the 2019-2021 West Coast wildfires cost the solar industry a total of $67 million. But last year those losses seemed small. Texas’ early summer hail alone cost more than $300 million.
To put this into context, this damage turned out to be almost 10 times more expensive for solar power than the damage caused by Hurricane Hannah in 2020. This highlights the fact that extreme hail and storms are increasingly high on the list of severity for weather-related damage claims. It contrasts with more traditional extreme weather events such as hurricanes and floods.
The increasing frequency and severity of “unmodeled” events now pose a greater threat to U.S. solar plant operations than easily modelable hazards such as floods and storms. . Over the past three years, 40 severe storms characterized by high winds, hail, tornadoes and derechos have been recorded.
In contrast, only 13 traditional storm events, such as named hurricanes, were recorded during the same period. Given the susceptibility of solar panels to hail and the regular occurrence of extreme weather events with strong hail, the solar industry must adapt to ensure the profitability of solar projects. I have. The emerging flood crisis in California’s Central Valley highlights just how diverse, pervasive and unpredictable the threats to solar power plants are.
Short-term thinking makes developers vulnerable to natural disasters
Current thinking in solar power development does not adequately address the growing risks posed by natural disasters. Despite multiple solar losses exceeding policy limits (over $50 million in some cases), new external threats to project viability have not been given due consideration. This should be thoroughly considered during the pre-construction stage of the project.
In particular, the solar power sector is currently hampered by a short-term stance and due consideration of the risks that undermine profits. Even with strong support for solar power from the Inflationary Restrictions Act (IRA), grid constraints remain a major obstacle.
To meet ambitious deadlines, it is tempting to sacrifice other aspects of site suitability in favor of viable grid connections. Similarly, development on more affordable land is often a false economy if the assumption is made that cheaper land represents better overall value. Higher premium rates may be set as project viability may be compromised if land in difficult geographical areas is underutilized.
Last year’s losses were unprecedented, but historical weather data show that the timing and location of the severe hail storms were not surprising. A key indicator of whether a potential location is suitable for development of a photovoltaic project should include past weather patterns. In remote and uninhabited areas this can be difficult to determine. Even sites that offer competitive leases and viable grid connections experience severe hailstorms, struggle, or fail to secure insured capacity from one year to the next. It may eventually prove unsuitable for development.
Problems related to short-term planning in the solar power sector are exacerbated by problems in the solar power supply chain. Owners and operators now have to consider not only direct losses from damage, but also prolonged business interruptions due to delays in replacement parts and soaring parts costs. The combination of these impacts during and after a natural disaster causes higher bills as project downtime hampers profits.
How the solar industry can reduce the risk of natural disasters
Most insurance policies are offered on an annual basis and are rarely guaranteed after that 12 month period. In extreme scenarios, when a site suffers catastrophic damage resulting in high insurance claims, the insurance market may not be able to provide the coverage required by project owners, or at least provide the coverage expected. You may not. Affordable.
Developers should consider how the project will progress during the multi-year contract. The reality is that insurance, once considered a control item, has become a non-negligible and unpredictable cost. If solar power plant sites have historically been exposed to extreme weather, the impact is likely to worsen in the coming years as the global trend toward increasingly harsh weather patterns continues. Therefore, choosing a suitable location for your solar power project is of utmost importance.
Developers can not only identify sites outside of high-risk areas, but also address supply chain diversification, spare parts inventory building, and other post-loss risk management techniques. As the insurance market tightens in response to these losses, project owners must demonstrate a high degree of risk management to achieve their desired insurance coverage.
Recently, some developers underestimated the cost of insuring their projects, and as a result the projects never got underway. This tightness in the insurance market was a direct response to the losses suffered over the past three years. Few actions can be taken retroactively to minimize weather risks in solar projects, making the pre-construction planning phase critical to ensuring projects are truly sustainable. Become.
More than just a risk transfer vehicle, the insurance market is a necessary element in supporting the growth of the US solar sector. Project owners can use the network of insurance companies to access spare parts, for example, or better understand how to de-risk their projects.
Last year’s losses are undoubtedly a symptom of a new and devastating weather threat. Not only because natural phenomena are becoming more extreme, but also because the number of locations and potential targets increases with each passing year.