Recently extended federal tax credit programs for clean energy investments should help spur continued interest in renewable energy projects and energy efficiency upgrades.
But when it comes time to finance a project, incentives alone aren’t all that’s needed to get a project done if there’s potential that the system won’t perform to projected expectations. Mitigating that risk takes more than incentives. It takes insurance.
Solar energy is a good example.
The past decade has witnessed a tremendous surge in the use of solar and photovoltaics. Improvements in the technology and the manufacturing processes – along with those federal tax credits and similar incentives – have driven down the cost of building and installing solar technology to the point where it can be quite attractive financially.
And unlike some other renewables, solar technology is modular, readily available and relatively quick to install. Putting up solar arrays can generate fast, positive returns on paper – but that assumes that everything goes as planned.
Unexpected shortfalls can be costly
Will enough sunlight shine on the solar array? Will the equipment function as well as intended? There are unique risks inherent to clean energy projects that can bring troubling uncertainty for investors. But there are some innovative risk solutions that could help.
Solar shortfall coverage, for instance, could be used to mitigate some of those exposures. The coverage allows investors to recoup some losses if their system fails to perform to expectations.
This can include coverage for unintentional error in a project’s calculations, defects or underperformance in the solar installation, and below normal levels or solar radiation – i.e. sunlight.
Mitigating risks add value in several ways
Covering these risks brings value to solar projects in multiple ways. Not only does it transfer some of the risk off the balance sheet – but it can also enhance creditworthiness in the eyes of lenders and thereby open the door to potentially more favorable financing terms.
As a result, the cost of solar shortfall coverage can be offset by the savings generated through lower debt costs.
That winning formula – insurance plus incentives – holds true for more than just solar, however. Take energy efficiency, for example.
Making sure ‘efficiency’ pays off
There are incentive programs available for property owners and occupiers who make energy efficient upgrades. Those upgrades can include swapping in LEDs and adding thermal window films, or even more costly upgrades like newer boilers or HVAC equipment.
Financing these energy efficiency initiatives often requires securing a project against future energy cost savings, so there’s a crucial need to protect the installed assets, revenues they generate and the potential savings they produce.
Although cost savings through energy efficiency can be calculated and priced, there’s still an inherent performance risk. Luckily insurance coverage exists that can help mitigate that exposure.
An energy efficiency policy, for instance, could be used to protect against the loss of revenue in the event of equipment failure, or to cover a shortfall in energy saving for assets that don’t perform as expected.
Maximizing value takes flexibility
By eliminating risk through innovative coverage, insurance can be an important piece of maximizing the value of tax credits and incentives for clean energy investment.
Getting that formula requires a flexible approach to coverage. No two energy projects are the same, so using a one-size-fits-all approach is not an optimal strategy. That’s why we focus on individual transactions, so we can work with customers to develop products that support what they need.
By leveraging innovative risk solutions, we can help clients evaluate whether clean energy investments will pay off the way everyone hopes.
To learn how HSB can provide solutions to your renewable energy practice, email me at john_stokes at hsb.com or call me at (770) 392-6296.
© 2016 The Hartford Steam Boiler Inspection and Insurance Company. All rights reserved. This article is for informational purposes only.