US SOLAR UPDATE ON IRA-BOOSTED DOMESTIC PRODUCTION AND DEMAND

According to the Solar Energy Industries Association (SEIA) Q2 Market Insight Report, the first quarter of 2023 went down as the best Q1 in US solar market history in terms of installed capacity. 6.1 GW of solar capacity was installed this year, making a 47% increase on the first quarter of 2022.

Though this may have been led by delayed utility-scale projects coming online and represented a decrease from the final quarter of 2022 by 19%, this progress is encouraging given the ongoing and chastening supply chain troubles.

By 2028, the SEIA are expecting US solar to nearly triple in size, adding 236 GW to an installed base of 142 GW (as of the end of 2022). This bullish outlook is buoyed by the long-term policies laid out in the IRA, however the success still depends heavily on the easing of supply chain issues.

Another threat to these encouraging projections is the potential recurrence of weather-related losses akin to those experienced last year. The ambition to reach 50 GW of domestic solar module manufacturing by 2030 in the US indicates the significant impact the IRA is having in cultivating a domestic solar supply chain. While this can help satisfy demand from new projects, more years of sweeping hail has the potential to add strain to demand.

Growing Nat Cat risk

In GCube’s North American Nat Cat Update last year, we illustrated that the average for the total value of insured properties losses between 2009-2019 (USD 48.4 billion) were almost doubled by 2021’s USD 92 billion total. Renewable energy projects have suffered a similar fate.

Since 2020, solar installations have been more susceptible to natural perils than wind energy sites and this is evidenced in both the frequency and severity of claims.

If a clear example were needed to demonstrate that US solar may be underestimating weather-related risks, look no further than Texas in Spring 2022. Hail and rainstorms across Texas caused more than USD 300m of damage. For context, this value was ten times greater than combined renewables losses after Hurricane Hanna in 2020.

When compared with modelled weather events like hurricanes, unmodelled hailstorms top the list for severity of projected claims. As weather patterns continue to generate severe outcomes, it’s crucial that we invest in technology used to model ‘non-traditional’ weather events.

Under the International Electrotechnical Commission’s guidance, hail tests currently use projectiles of 25mm. This is half the size of the average hailstone a solar panel will endure in ‘very severe’ conditions. 

Suppliers operating in the US with the overarching goal of making themselves attractive to domestic developers will need to prove that their product has been modified with the risks of the US landscape in mind. Thicker glass, better casing, intuitive tracking and stow capabilities will all assist in improving the reliability of their products under extreme conditions. 

Poor weather years in the US, coupled with supply chain issues, have created a dramatic rise in average business downtime by 78%.  Pressure on insurance capacity providers has pushed pricing upwards and a number of developers are finding that their budgets have not accounted for a harder insurance market. In some cases, the project has been deemed financially unworkable and construction is abandoned. 

Risk Management Strategies

What can be done therefore to ensure that the insurance industry is able to support the ambitions of the US solar market? 

Developers can improve their chances of accessing favourable insurance terms by developing sites in locations outside of the typical catchment area of natural catastrophes. 

All of the most extreme hail events reported in recent years have occurred within the expected weather windows for their respective states, following a pattern that can be assessed and used for proactive planning against hail. This knowledge equips operators with a degree of foresight to stow their assets. Hailstorms which are, by nature, connected with cloudy weather should provoke sites to stow panels as output will be lower during times of reduced solar irradiance anyway. Those persons monitoring weather, often from as far away as other states, need to err on the side of caution during these periods of adverse weather. 

The ambitious growth plans laid out at the beginning of this article are exciting and give rise to significant job creation. They will also serve to decarbonize the US energy market. Whilst the expansion is overarchingly positive, it’s important that the industry is sensitive to creating projects that will provide long-term reliability. Without this in mind the insurance industry, which serves to de-risk projects, will not be able to support the aspirations of the industry. 

By Rosa Van Reyk, Senior Underwriter, GCube Insurance