Building on renewable energy #1 - Solar power
Solar power is produced by the absorbing of the sun's rays by solar panels. The photovoltaic (pv) cells contained within the panels convert sunlight into electricity, which (after conversion into an alternating current) can then be exported to the grid or used to power the sites on which the panels are situated. This all sounds simple enough, but solar pv arrays can present some challenges from a design and construct perspective.
Solar developers will typically, and particularly on large projects, outsource the design of the arrays to third-party professionals. Design decisions may include the number and type of the arrays (e.g. fixed vs tracking, mono- vs polycrystalline, battery storage etc.), and site layout. Site viability surveys (daylight hours/strength modelling etc.), are often relied upon in making such decisions.
Solar pv technology continues to develop (see the emergence of bi-facial arrays), and both insurers and insureds alike should be alive to the fact that good industry practice may change. Continued professional development will mitigate the risk of design/specification-related claims.
Sub-contracting is commonplace in the construction industry, and Insurers are well-aware of the issues that may present themselves both pre and post-inception of the policy.
Contract control, including fitness for purpose warranties and performance guarantees potentially contained within the oft-used 'turn-key contracts,' is of real import.
Arrays rarely require piling. Accordingly, the main construction issues tend to relate to cabling linking the arrays with grid connectors. Ensuring that cables are laid deep enough to prevent damage, are adequately protected when above ground, and appropriate protections are in place when situated near or crossing waterways, roads and/or pipelines, is of paramount importance: cable damage may render the site inoperable for a lengthy period. Developers and their contractors need to ensure that they hold appropriate insurance for the works (including PL, CAR and Environmental Liability / D&O).
We anticipate that cabling design and construction will only increase in importance as solar pv arrays become more challenging in scope (floating arrays and the Australian/Singaporean 'Sun Cable' being two examples). The experience and claims history of cabling contractors and sub-contractors will be key to Insurers' decision whether to underwrite a risk, and at what premium.
As noted in our introductory article and annual insurance review, many companies and institutional investors are divesting from traditional energy and investing in renewable energy resources. Large solar sites are being sold (individually or packaged with several other sites in special purpose vehicle companies) to institutional investors. Investors will require minimum returns, so the smooth operation of a site will be key.
In this regard, Operation and Maintenance ("O&M") contractors play a key role (keeping pv panels clean, secure etc.). Developers may retain this role upon the onward sale of a site or appoint third-party professionals. O&M contractors may not be alive to the potential for design liability when specifying replacement parts. Adequate insurance is key.
Investors and lenders are becoming more sophisticated with their due diligence (including seeking greater information as to site construction and performance, the parties' financial strength etc.). We anticipate an increase in the number of warranty and indemnity insurance policies being taken out in relation to renewable resources.