Innovative solution to help project companies and operators obtain finance

London, 16 May, 2011 – Even as power generation from renewable energies continues to grow, particularly from solar – or photovoltaic – systems, project companies and operators are facing growing difficulties obtaining finance. Worries about industry stability mean that, increasingly, banks will only give limited recognition to long-term guarantees provided by solar module manufacturers as a basis for approving financing.

In order to improve the attractiveness of photovoltaic projects to financiers, Marsh has developed an insurance contract that provides coverage for project companies and operators against default risk on long-term guarantees for modules by manufacturers. It is designed to improve financial viability for photovoltaic systems, especially when combined with an all-risk insurance policy against damage to property and a reduced yield risk policy against decreased output.

“Project companies looking to expand solar energy production are increasingly concerned about their ability to obtain finance,” said Dr Michael Härig, head of the power team at Marsh Germany and developer of the previous solutions for hedging photovoltaic projects. “As well as improve financing capabilities, this new contract could help in negotiations over interest rates levels, providing opportunities for additional savings. As risks change, it is imperative that the insurance market provide these kind of tailored hedging solutions not covered by traditional insurance.”

Modules comprise around 60 percent of the costs of a photovoltaic system. Typically, module manufacturers provide their customers with a long-term performance guarantee, usually for 25 years. However, the retention of a guarantee’s value is dependent on the manufacturer's continued existence and ability to pay. If the module manufacturer becomes insolvent, not only is there no right of recourse, but any performance guarantee insurance taken out by the manufacturer also expires when it stops paying premiums.

The insurer cannot terminate the contract within its 25 year term. All contracts are subject to a technical assessment of the modules and technology used and a credit rating and market review of the module manufacturer.