In late March one of the world's largest makers of photovoltaic (PV) solar panels in the world, Suntech Power, based in Wuxi, China, filed for bankruptcy and ceased operations. It highlights a recurring problem in solar energy, the long-term viability of the companies that make the panels and issue long warranties for their performance.
The viability of solar panel makers, long a concern within the industry, was illuminated in an April 2 analysis in the MIT Technology Review which stated: "Suntech isn't the only solar company teetering on the edge. Almost all of the world's largest solar panel makers are in danger of going bankrupt within a year, and the downturn is having an impact on innovation."
It would seem that this would be a ripe market for insurance, but the underwriting is notoriously complex and difficult. Few companies, even among the global carriers and reinsurance firms have the contacts in country and the resources to track the hundreds of different makers in China and elsewhere around the world. Only a handful of insurers will write the business, and often with strict terms and conditions.
"Solar is booming, from major utility installations to mid-sized projects at colleges and military bases, to roof-top arrays on houses," said Marshall Nadel, managing director of power specialty for Aon Risk Solutions. "At the utility level, 30 states have mandates for their power generators to have certain percentages of renewable power."
Rob Battenfield, vice president of power specialty for Aon Risk Solutions, said that "the valuation issue for solar projects is a very hot topic. Backers have to be aware of how to negotiate with lenders on how to ensure they get their full value. Right now people are wondering who will be around to honor Suntech's warranties in five or 10 years. The warrantee against degradation of cell output over time is a huge concern."
Many lenders require that developers get insurance as a back stop to manufacturers' warranties. In some cases, letters of credit or surety bonds may be acceptable, said Battenfield. In some cases, projects can go ahead without coverage for full replacement. Several market watchers note that with the plunging price of panels due to oversupply, they may start to be considered replaceable components rather than a capital investment.
Det Norske Veritas is a global consultancy that evaluates the technical viability of solar and other renewable energy projects. Davion Hill, principal engineer with DNV said that the uncertainly over panel-makers' warrantees is not the only performance concerns. "There is also corrosion, design and installation of inverters, and in many cases the cost and effectiveness of the storage system," said Hill.
DNV analyses show there is usually a 5 percent to 10 percent drop in a panel's power output in the first 12 to 18 months, and then it levels off to a degradation of just about 1 percent per year for the life of the panel. Those rates are typically plugged into the calculations of any project, but performance below that can be a concern.
In its evaluations, DNV has developed proprietary systems, but also relies heavily on commercial risk-simulation software such as @RISK, made by Palisade. "That level of risk analysis, including Monte Carlo simulation, is extremely important for solar projects because they have to be integrated with other sources of power, fossil fuels, wind in a balance," said Hill.
Whether solar power is being consumed on site, fed to a grid, or stored, the cycling has everything to do with the operating ratio of each source. "When we review a project," said Hill, "we are doing the due diligence often for an insurer or risk manager. If technology has an aggressive claim, it is very important to model the whole system and verify performance."
--By Gregory DL Morris
May 1, 2013
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