A Lack of Awareness Among Key Stakeholders About Benefits Of Solar Insurance- Sudhish Ramteke, Anand Rathi

As solar has achieved scale and a future of strong growth, insurance firms have also done well to catch up and offer products for the sector. Besides the obvious role of de-risking projects for developers, insurance firms also play a key role in wider understanding and acceptance of the risks involved for other key stakeholders, especially financiers. Anand Rathi Insurance Brokers has carved out a presence in the market, and expects the insurance market for RE projects to grow by 20% annually for the coming decade. We caught up with Sudhish Ramteke, Associate Director-Head of Property Practice at the firm for his views on the big changes.

How big is the insurance market for solar projects in India today?

Sudhish Ramteke: The insurance market for Solar projects in India is still relatively small and underdeveloped compared to other markets, such as the United States and Europe. However, the Indian government has ambitious plans to encourage the growth of the solar industry and provide support for solar project developers, which will help drive the expansion of the insurance market as well.

The Solar developers and operator in India have mainly bought traditional low-cost Insurance covers which provides basic insurance protection to their solar assets. It is estimated that the Solar Insurance markets in India may be around INR 2,000 Crs [ As per a report published by the National Solar Energy Federation of India (NSEFI) and Bridge to India ]. The solar insurance market in India will grow at least 20% annually for the next 10 years driven by the huge investments planned for the growth of the solar industry in India.

Who is driving demand for insurance?

Sudhish Ramteke: The demand for solar insurance in India is being driven by various stakeholders involved in the solar industry. India’s solar market will continue to grow rapidly over the coming years and some estimates suggest that India could become the third-largest solar market in the world by 2025, behind only China and the United States. Ultimately, the pace of India’s solar market growth will depend on a range of factors, including government policies, market dynamics, and technological advances. India’s renewable energy sector is expected to boom with a likely total investment of US$ 15 billion (INR 1.24 Lac Crore) this year and bigger investments every year in near future. The private sector is also investing in renewable energy projects in India due to favorable government policies and a growing demand for cleaner energy. The investment by Indian Renewable Energy Development Agency (IREDA) is pegged at Rs 35,777 crore for 2023-24.

Solar project developers are one of the key drivers of demand for solar insurance in India. These developers invest a significant amount of money in setting up solar projects and face various risks, such as damage to the solar panels due to natural disasters, equipment failure, or theft. Solar insurance provides them with financial protection against these risks and helps them secure their investments. The lenders or financial institutions that provide funding for solar projects make it mandatory for the solar project developers to have adequate insurance coverage in place as a condition for financing. This ensures that the lenders’ investments are protected in the event of any unforeseen risks. The government, contractors, EPC (engineering, procurement, and construction) companies, and equipment suppliers also contribute to the demand for solar insurance in India.

What is the cost per MW for insurance typically? How do prices vary?

Sudhish Ramteke: For the basic traditional Insurance covers, the insurance premium cost for a solar project in India can range from 0.2% to 0.5% of the project cost. Typically for a Property Damage Insurance cover under Standard Fire Insurance policy the per MW premium can be in the range of INR 40,000 to INR 50,000/-. The cost will go up significantly if the client buys other important insurance covers such as Business Interruption, Machinery breakdown, Irradiation covers etc. The new generation insurance covers such as Solar Irradiation, Warranty Insurance may cost much higher.

The cost per MW for insurance of a solar installation in India can vary depending on several factors such as the location of the project, type of insurance coverage, the technology, the project size, previous loss experience, risk management philosophy of the client, etc. For instance, a comprehensive insurance policy that covers all risks including damage to solar panels due to natural disasters, equipment failure, and theft may cost more than a basic insurance policy that only covers a few specific risks under standard Fire & special perils insurance. Projects located in areas that are prone to natural disasters such as floods, earthquakes, or cyclones may require higher insurance coverage and, therefore, may have higher insurance costs.

What is the kind of coverage that is usually available for solar projects ? What are key exemptions?

Sudhish Ramteke: The coverage available for solar projects typically includes the following type of Insurance:

Property & Engineering insurance: This coverage typically includes damage to the solar panels, inverters, and other equipment due to natural disasters, fire, equipment breakdown, theft, and other risks to Solar energy assets (operational & under construction).

Business Interruption Coverage: This coverage typically provides compensation for the loss of income or revenue due to interruptions in the project operations caused by events like Fire, natural disasters / Act of God, equipment breakdown, natural disasters, and other covered perils.

Liability insurance: Liability insurance provides protection against legal liability arising out of third-party bodily injury and third-party property damage, product liability, environmental liability, and other risks.

Parametric insurance: Parametric insurance is a type of insurance that pays out a predetermined amount of money when a specific trigger event occurs, such as a hurricane or a drought. This type of insurance is particularly well-suited to the renewable energy sector, where weather-related risks eg Solar irradiation or loss of wind ( for Wind Power) can have a significant impact on project performance.

Cyber: With the increasing digitization of renewable energy projects, cyber risks are becoming a growing concern. Cyber Insurance can help to protect renewable energy projects from the financial impact of cyberattacks and other cybersecurity risks.

Performance guarantee & PV Warranty insurance: This type of insurance guarantees that a renewable energy project will perform to a certain level, providing financial protection to project owners if the project fails to meet its performance targets. The PV Warranty insurance also helps OEMs to insure warranty claims on PV modules and in the event of insolvency of OEM, the policy gets transferred to the buyer.

Political risk insurance: Political instability, changes in government policies, and other political risks can pose significant challenges to renewable energy projects, particularly in emerging markets. Political risk insurance provides protection against these risks, helping to ensure that renewable energy projects can be completed successfully.

There are some key exemptions or exclusions in the coverage offered for solar projects, which vary depending on the type of policy and the insurer. The common exclusions under the property damage insurance are:

Wear and Tear: Normal wear and tear of equipment may not be covered by insurance policies.

Acts of War or war like operations: Property policies exclude coverage for damage caused by acts of war however terrorism can be covered

Nuclear Hazards: Damage caused by nuclear radiation or other nuclear hazards are not covered

Cybersecurity: Property policies in India exclude coverage for losses caused by cyber-attacks or data breaches.

Which are the main firms offering insurance in the market?

Sudhish Ramteke: Almost all the General Insurance companies in India offer traditional insurance covers for Solar assets. However, the most prominent insurance companies who offer a wide range of insurance covers are New India Assurance Company, National Insurance Co, ICICI Lombard, HDFC Ergo, Bajaj Allianz, Tata AIG, Chola MS, etc.  It is worth noting that few other insurance companies in India also provide coverage for solar projects, and as such the above list is not exhaustive.

While projects are nominally expected to last 25 years and usually have PPAs for the same too, what has been your experience so far? What about data you have used and accessed?

Sudhish Ramteke: Solar projects in India are expected to have a life of 25 – 30 years or more. The power purchase agreements (PPAs) for these projects often have a similar duration. However, the actual experience of solar projects in India may vary depending on various factors such as the OEM, quality of the equipment, risk management & maintenance practices and external factors such as location and weather conditions. Because of the degradation of solar panels most OEM’s guarantee only 90% production during the first 10 years and for the remaining life the production drops to around 75-80%.

The data on the longevity of solar projects in India is limited since most of the solar projects in India are relatively new, and it may be too early to assess their longevity.

How do you view the push to indigenise modules, the largest cost component in the project, and the broader solar supply chain?

Sudhish Ramteke: It is important to note that the quality and reliability of solar modules are critical factors that influence the performance and longevity of solar projects. If the domestic manufacturers are unable to match the quality standards of the Chinese suppliers, Indian developers may continue to prefer Chinese modules despite the domestic manufacturing base. Further, the global solar market is highly competitive and there are many other factors such as life, warranty, size, availability, cost,  reliability that could influence the choice of solar modules for Indian developers. Currently, around 75-80% of the India’s Solar PV module market is controlled by imports from Chinese suppliers.  Therefore, while the development of a strong domestic manufacturing base for solar modules is a positive step for India’s solar industry, it may not necessarily mean a complete shift away from Chinese modules immediately.

How do you see this market evolving for insurers?

Sudhish Ramteke: The solar insurance market in India has been growing steadily by around 15-20% year on year. This is mainly driven by huge investments and rapid expansion of solar projects in the country. As the solar industry in India continues to evolve,  the demand for comprehensive and innovative solar insurance is expected to be introduced. The insurance markets may evolve in several ways:

Customization of insurance policies: Solar projects can vary significantly in terms of size, technology, location, and other factors, and insurers may need to customize their policies to cater to the specific needs and typical risk exposures of each project. Few insurers may come out with completely new policy form offering customized coverage for different types of risk exposures of the Solar Projects.

Package Policy – One single umbrella policy to cover all the traditional and non-traditional insurance requirements.

This ALL-Risk policy may provide coverage for property damage; machinery breakdown and business interruption cover for the Solar assets along with contingent business interruption insurance covering the Solar Irradiation / Energy shortfall.

Adoption of technology: Insurers are likely to adopt new technologies such as AI, machine learning, and remote monitoring to improve risk assessment, underwriting, and claims management processes for solar projects.

Collaboration with international insurers / reinsurers: With the global solar market becoming increasingly complex with introduction of newer technologies such as floating solar plants, hybrid Energy plants etc.  being set up, Indian insurers may collaborate with international insurers and reinsurers such as Munich Re and Swiss Re to offer comprehensive coverage for such complex solar projects.

Focus on risk management: Insurers may increasingly focus on risk management and loss prevention to minimize claims and improve profitability. This could involve offering risk management services to solar project developers and other stakeholders in the value chain.

Overall, the solar insurance market in India is expected to evolve in response to the changing needs of the solar industry, and insurers will need to be agile and innovative to remain competitive in this rapidly evolving market.

Is insurance in the sector driven by financiers, in terms of a direct correlation? What will get a developer lower insurance cost versus another developer?

Sudhish Ramteke: The insurance may also be driven by financiers for Solar Projects. The financers / lenders are the ones who have a direct financial interest in the project and want to ensure that their investment is adequately protected. Banks, financial institutions, and other investors who provide debt or equity financing for solar projects often require project developers to obtain certain minimum insurance coverage to protect the assets against risks such as equipment failure, natural disasters, and business interruption. However, the insurance costs for a solar project may not necessarily be directly correlated with the level of financing. The insurance costs for a solar project mainly depends on coverage required, total project cost, the size of the project, the technology used, the location, the quality of the equipment, and the experience of the project developer, etc.

The insurance premium for property insurance products is mostly driven by guideline rates. As such there won’t be much difference in the premiums from different insurers. The Indian Insurance markets are going through a major reform. It is very likely that in the near future the premium pricing will be completely de tariffed. A developer with a strong track record of successful solar projects and a good reputation in the industry and favorable claims experience may be able to negotiate lower insurance costs compared to a developer who is relatively new to the industry or has a less impressive track record. Similarly, a project that uses high-quality equipment and is located in an area with low risk of natural disasters or other hazards may have lower insurance costs compared to a project that uses lower-quality equipment and is located in an area with higher risk. In general, project developers can lower their insurance costs by taking proactive measures to mitigate risks and improve project performance.

By proper risk management techniques and reducing the overall risk profile of the project, the developers may be able to negotiate lower insurance costs and improve the overall financial viability of the project.

Do you see the need for any policy action to develop the and broaden the insurance market for the sector?

Sudhish Ramteke: There may be opportunities for policy action to develop and broaden the insurance market for the solar sector in India. Some possible policy actions that could help stimulate growth in the solar insurance market include:

Promoting awareness: One challenge in the Indian solar market is a lack of awareness among project developers and other stakeholders about the benefits of solar insurance. The government could work to promote greater awareness and education about the importance of solar insurance and the types of coverage available, which could help increase demand for insurance products.

Facilitating insurer – developer partnerships: The government could facilitate partnerships between insurance companies and solar project developers by providing incentives or other forms of support to encourage collaboration. This could help to create more customized insurance products that better meet the needs of the solar industry.

Supporting research and development: The government could provide support for research and development of new insurance products and technologies that are specifically designed for the solar sector. This could include funding for academic research, partnerships with industry groups, and other initiatives to promote innovation in the insurance industry.

Overall, policy action could help to stimulate growth and innovation in the solar insurance market in India, which could ultimately benefit the entire solar industry by reducing risks, improving project viability, and attracting greater investment.