With the rapid boom in the solar power market in India, increasing competition, and collapsing tariff bids, Indian insurance companies have launched products to protect lenders as well as developers.
HDFC ERGO General Insurance Company has launched a solar energy shortfall insurance policy. The policy protects lenders and developers against any shortfall in the expected solar power generation due to non-physical damage. Non-physical damage would include sub-optimal design, lower-than-expected solar radiation, and error in determination of yields during the design phase.
The insurance will safeguard the project operators from financial liabilities that they may face in case they are unable to supply the volume of electricity promised in the power purchase agreements. The policy duration has been set for five years.
Another company, ICICI Lombard, has issued a product to cover reduced generation as a result of physical defects in the solar panels. The insurance coverage is set for a period of 15 years. Project developers will be guarded against loss in generation due to faulty manufacturing and unexpected degradation of solar panels.
“The viability of solar power projects depends largely on the performance of solar modules. Also, the risks associated with this industry are different compared to the conventional power generation sources, such as thermal power plants. Thus, a comprehensive solar panel insurance product would help in covering the various risks associated with developing, building, operating, owning and investing in solar power projects,” said Alok Agarwal, Executive Director, ICICI Lombard General Insurance.
India’s aggressively growing solar power market has gave birth to another market — insurance for project developers. A total of 15.5 gigawatts of solar power capacity was operational in India on 31 October 2017, the government plans to auction 77 gigawatts between January 2018 and March 2020, and a substantial volume is under construction. The goal is to have at least 100 gigawatts of operational solar power capacity by March 2022. Thus, a massive market opportunity awaits insurance companies in India.
As solar power tariffs collapse with high competition and solar power module prices fall, the requirement for such insurance products will increase significantly.