Brian Tyluki of Axis Insurance uses one word to describe growth in the renewable energy sector: “staggering.”
Global investment in renewable energy development in 2015 was more than double that of coal- and gas-fired sources, and a whopping $2.3 trillion has been invested in renewables since 2004.
Solar energy growth
The brightest star in the renewable sector: solar energy. “This is a fast and furious time in the solar-development world. We’re seeing a record number of builds on the commercial and residential side,” says Tyluki, who serves as Axis’ assistant vice president of renewable energy. In the United States, solar capacity exceeded 25 gigawatts for the first time in 2015 and is set to add 16 gigawatts this year.
Several factors are driving growth in renewable energy, including the recent extension of investment and production tax credits by Congress, major utilities expanding their portfolios, and private equity firms acquiring and developing assets in the sector. Activity in solar is also being propelled by regulation at the state and local level, such as San Francisco's building ordinance passed earlier this year requiring that roofs of all new homes and businesses under 10 stories include solar panels for electricity or heating starting in 2017.
Wind power continues to expand
Although the current rate of solar energy construction is strongest in the renewable sector, wind power continues to expand as well. The U.S. wind market reached a milestone of 70 gigawatts of generating capacity late last year and is on track to generate a fifth of the country's electricity by 2030.
“We’re in the midst of an industrial revolution with wind, thanks to cost reductions in manufacturing that make it the cheapest power to build right now,” says Erin Lynch, managing director of the global energy practice at specialty broker Beecher Carlson.
Need to manage risks
With this growth comes the increased need to manage the risks of renewable power generation. Fortunately, ample capacity means buyers are having little trouble finding coverage and renewals are often seeing double-digit price decreases.
“I don't know of another market that has seen such an influx of capital as renewable energy has,” says Lynch. “There are dozens of markets — too much capacity, to be honest.” Insurers, she adds, are “beating each other up” to get accounts. “It's a great time to be a client.”
Carriers are competing on coverage as well. “We are seeing new products like extended warranties, cost caps, and weather hedges,” Lynch notes. “Markets are trying to differentiate themselves outside of price.”
Renewable energy presents a significant growth opportunity for agents and brokers because much of the new construction is taking place with independent power producers, in contrast to large public utilities. “Nearly all of our energy clients are independent power producers, including developers, owners and operators. Today, half of that business comes from renewables,” says Lynch.
Agents can target coverage needs both during and after construction of renewable energy facilities. “Insurance is required to meet needs of the owners and lenders during development and construction; it is needed to deal with equipment and building leases and other contracts; it's needed after project completion to manage the risk of who is on site and who is going to operate the facility,” says Christi Edwards, clean tech segment manager, North American commercial onsurance, for Chubb.
Find your niche
Agents can also find prospects in businesses dependent on development in the renewable energy sector. “Any project involves parts manufacturing, transportation and construction. Figure out where your niche is,” says Pete Wilcox, national underwriting officer for Travelers Global Renewable Energy.
“Also think about the growth in the job market that renewable energy is providing,” which impacts the growth in workers’ compensation premiums, says Eileen Kauffman, head of Travelers Global Renewable Energy. “Just in solar alone the job market has increased three-fold.”
Agents can market to contractors
On the other end of the spectrum from businesses that generate power for sale are those that produce it for themselves. Agents can market to contractors who install power-generating equipment at homes and businesses or to property owners.
“When you look at all the construction going on in rooftop solar, a retail or national broker or agent should be taking the time to educate themselves on all aspects of solar to be best positioned to help their clients,” Kauffman says.
“Agents may already be finding that their clients are coming to them because they are thinking of putting solar on their building and asking what they need to know. That's a great opportunity,” adds Wilcox.
Growing risk, but few claims concerns
Part of the education on solar is that panels do present additional risk to property owners, including fire.
“The new risks come from a combination of new ignition sources and additional combustible material,” says Jim Breitkreitz, executive technical director of risk engineering for Zurich North America. “Electrical systems are one of the most common ignition sources for commercial and industrial fires.”
Many of those solar installations, which are highly complex electrical systems, are put on roofs that aren't necessarily designed with that fire risk in mind. “Installations change the combustible loading of the roof because solar panels contain a significant amount of plastic. The panels also create a concealed space that can magnify the intensity of the fire and encourage horizontal fire spread,” Breitkreitz explains.
Additionally, solar panels add to the weight load carried by roof support systems, which is of particular concern in retrofit solar installations. Panels can also trap debris and snow and make snow removal more difficult. And if a fire does occur, panel placement may complicate the firefighting process.
“Firefighters typically will not go on a roof that has a solar panel installation if that roof is on fire because they are concerned about the risk of electrical shock,” says Breitkreitz. “Water and electricity don't mix, and the only way to completely shut off the electricity generated by solar panels is to wait for the sun to go down.”
Questions from underwriters
Although agents shouldn’t find any problems placing rooftop solar arrays, they can expect underwriters to ask some questions. “When a client puts a solar asset on a roof, we want to know about the occupancy under that roofline,” Kauffman says. “Is it a dorm, hotel, elementary school or manufacturing plant? We can consider all insurable aspects including the liability exposure to the occupancy in that building.”
“Underwriters want to know the standards by which the systems are being built,” says Edwards. However, answering that question can be a challenge because of the immaturity of standards.
“With any rapid technology expansion, such as solar, products can get out to market before electrical and building codes are adopted, and not every state adopts codes at the same time,” Kauffman says.
Despite fire risk concerns around solar, most of the loss frequency in renewables currently comes in the wind energy sector due to mechanical breakdown. “Gearboxes are a big-ticket item. We are seeing a host of mid-2000s-era projects out there with gearboxes that are failing or lasting half as long as some project owners thought,” says Lynch.
Expanded global capacity
Whether those losses turn into insurance claims depends on the purchase of cost cap or other mechanical breakdown coverage. Wilcox reports that Travelers is generally willing to offer the coverage with underwriting review despite the potential for claims.
“We are going to examine maintenance agreements and the capabilities of the manufacturer or contractor to fulfill those agreements,” he says. “We will look at whether a company has a condition-based maintenance program where they monitor the turbines to get ahead of potential loss, because nothing is worse than having a turbine go down during the highest period of wind production.”
The rapid pace of solar power construction is expected to continue on both a national and global basis.
Business income exposure
“Companies are not just building globally; they are also getting supplies from across the world, which raises a contingent business income exposure. Depending on the location, they might need either a local admitted placement or a simple extension onto their package. And as they travel overseas, they need foreign voluntary work comp. It can become very complex,” says Edwards.
Travelers recently expanded its global capacity to write business in the Renewable sector by adding a dedicated wind and solar specialist in its Lloyd's syndicate. “We continue to look at all aspects of renewable energy; beyond wind and solar to bioenergy, hydroelectric and geothermal,” adds Kauffman. “The expected growth in Renewable Energy over the next decade is over 265%, and we want to be positioned to capitalize.”