No Sun? No Problem! Solar Power Now Comes With Insurance

When President Trump slapped a stiff 30% tariff on imported solar modules earlier this year, there were warnings of a steep price hike resulting in thousands of job losses in the solar power field, and a deep malaise in the US solar industry. That hasn't quite happened. Instead, there are signs that the US solar industry is on the cusp of a new wave of growth. One of those signs is a new insurance instrument called a Solar Revenue Put that will help drive costs down, tariff or not.

New Solar Revenue Put lowers solar power risk

Weather-related risk used to be a main point of contention for solar power nay sayers. After all, your solar panels are useless when the sun doesn't shine.

That's actually not so much of a problem any more in terms of supply, considering recent improvements in energy storage and smart grid technology.

The real concern now is the risk to investors. When your solar farm is not making hay, you're not making money.

One solution is to offer solar power investors insurance against the weather.

Last week, Bloomberg reported on one such financial instrument, created by the solar risk management company kWh Analytics.

kWh describes the problem like this:

Solar assets are under-leveraged

Banks offer less debt(cheapest capital) because of performance risk

Sponsors are forced to commit more equity (expensive capital)

And, this is the Solar Revenue Put solution:

A guarantee that banks can trust

Brand-name, investment-grade insurance carriers guarantee that solar assets will perform

Banks get comfortable lending more money to solar assets

Bloomberg provides this snapshot of the arrangement:

The product that at least one insurance company is now offering is called a solar revenue put. It was developed by risk-management software firm KWh Analytics and can guarantee as much as 95 percent of a solar farm’s expected output, according an email the company sent to clients Tuesday. Swiss Re has now sold one for three Virginia projects.

Aside from weather risks, the 10-year policy also covers shortfalls related to flaws or failures related to construction of the solar farm, including the solar panels and inverters.

The prospect of a guaranteed revenue stream for solar power is attractive on its own, but there is a larger goal in mind. With the solar put in hand, solar developers can go to lenders with a demonstration of certainty. That low-risk factor can help drive down the cost of borrowing.

The result is a win-win that could stimulate more capital flowing into the solar field, which is a critical goal for solar advocates.

The solar put: how it works

kWh Analytics uses its own software and database to predict output from a proposed solar farm. Its resources are formidable:

kWh Analytics was uniquely positioned to create this product because it owns and manages the industry’s largest asset performance database( 20% of the U.S. market). This data enables kWh Analytics to accurately assess and price performance risk.

Based on the kWh information platform, the policy sets a floor on the electricity it generates. Any shortfall is covered by the insurance policy.

As reported by Bloomberg, the solar put would cost about 1 percent of the revenue from the solar farm, but it enables developers to borrow more money in addition to getting a lower rate. In other words, the solar put could pay for itself.

As for impacts across the board, kWh Analytics notes that the cost of capital is "the biggest single cost of a solar power plant." The company estimates that by shrinking the proportion of debt, the Solar Revenue Put could result in an overall cost decrease of up to 5 cents per Watt.

Five cents might sound like peanuts, but when you're talking megawatts the numbers add up.

kWh also notes that a 5-cent price drop would compensate for fully half of the 10-cent increase that analysts anticipated as fallout from the first year of the new solar tariff.

The company Coronal Energy is the first to dive into the new product. Keep an eye on them -- they're in an exclusive partnership with Panasonic, and Panasonic is an industry partner in a cutting edge PV research consortium aimed at bringing low cost perovskite technology to the market.

The solar tariff killed solar jobs...not!

Speaking of the new solar tariff, the worst damage appears to have occurred last year, when Trump was publicly mulling whether or not to impose a tariff.

That uncertainty likely contributed to a downturn in solar jobs in 2017,  coming off the peak employment year of 2016.

On the other hand, the threat of a tariff gave solar companies ample time to stockpile solar panels at the lower rate, helping to cushion the blow for customers.

The end result, so far, has been more smoke than fire. Solar jobs are reportedly on track to recover back to their record-breaking 2016 level, and possibly slip past it into positive territory.

Looking forward to the next few years, solar costs are already set to tumble. The solar tariff is designed to ratchet down to nothing in four years, and some companies have applied for -- and may win -- an exemption. Innovations in the photovoltaic field will also drive costs down.

Just one caveat: state-level policies can still make or break solar job growth. For example, the South Carolina legislature recently killed a bill that would have enabled solar growth in the state, while New Jersey Governor Phil Murphy is ready to sign a bill that will double down on his state's renewable energy portfolio.

Image (screenshot): via Coronal Energy.