The Warranty Risk of Solar and its Mitigation - Munich RE - Dr Ronald Sastrawan

The Warranty Risk of Solar – and its Mitigation Dr. Ronald Sastrawan Director Green Tech Solutions Special Enterprise Risks Corporate Insurance Partner 6 0 6 5 7 0 7 5 8 0 8 5 9 0 9 5 1 00 0 5 10 15 20 25 P er cen t ag e of nominal module po w er Y ear E x ampl e of a 2 5 y ear P V P erf orm anc e W arr an ty Li near Warran ty [9 7.5 - 0 .7 p .a.] Seri al d efec t e x c ess i ve degr adation regular frequenc y los ses ser ial d efect fail ure ser ial d efect exces si ve d egradation Warranty claim s gu aranteed perform anc e PV module degradation rate a long-term technology risk Standards in PV Performance Warranty Backsheet annual deg. of 0.7 for 25 years Dual Glass annual deg. of 0.5 for 30 years . . . 0.45 for 35 years . . . in 20XX Origin not only technical, but marketing, competition, term of feed-in-tariffs, etc. Financial model highly depends on this assumed annual degradation rate Supplier’s Performance Warranty acts like an insurance i repair, ii replace, or iii compensate underperformance. However, the Supplier usual does not have the financial ratings and diversification of an insurance company How to protect the balance sheet The Warranty Risk of Solar from two perspectives How to protect the long-term investment From the perspective of the project developer / investor From the perspective of the PV module supplier underperformance of the PV modules default of the PV module supplier default of the PV project large number of warranty claims not enough warranty reserves default of the PV module supplier The Warranty Risk of Solar Risks during operational phase of a solar park Irradiation of sunPerformance RatioPark Availability Energy Yield Grid Availability Feed-In Tariff Revenue Physical damage due to sudden loss, such as natural hazard Design risks of solar park Maintenance issues, such as soiling, shading Weather fluctuations Pollution, natural hazard, such as volcanoesDowntime of equipment, especially inverters due to internal damage serial defects Degradation of PV modules Risk pyramid to prioritize requirement for insurance The Warranty Risk of Solar is a fundamental risk Sun BI due to non- physical damage or OM issues BI due to Physical Damage Risk Business interruption BI due to Political Risks Warranty Risk of Solar External Physical Damage Risk such as natural hazards Temporary loss of revenue Threat to material assets of the project Sev erit y of the ris k Highest priority for insurance for the base of the pyramid Traditional insurance Traditional insurance PV module supplier Low Warranty Risk  High Bankability How to protect the long-term investment From the perspective of the project developer / investor Key features of bankable PV modules 1. PV Module quality assurance a Certifications and Bill of Materials b Factory inspections and supervisions c Extended reliability tests d etc. 2. Supplier’s credibility a Track record b Financial strength c “Tier 1” Label 3. Warranty Insurance a Back-stop in case the risk occurs b Technical endorsement by due diligence of the insurance company underperformance of the PV modules default of the PV module supplier default of the PV project The Warranty Risk of Solar Balance Sheet Protection PV Sales Buyers Cover The new industry standard in insuring the Warrranty Risk of Solar Underwriting is handles by the Supplier Underwriting  Easy to obtain The Buyer asks the Supplier to provide insured modules  The Supplier has an insurance policy and can add Projects to the Insured Sales as required  A minimum size per Project applies Claims Handling  The Supplier handles all claims and gets indemnified by the insurance I ns ured s ales M odu le Sup plie r U nins ured s ales P roje ct A P roje ct B P roje ct C M odule Supplier P roje ct A P roje ct B P roje ct C Local insurance c om pan y reins ured by M unic h Re S B I ns ura nc e S tructu re *L imits an d r et en tion s ap ply W a rr a n ty Cl a im s W a rr a n ty Cl a im s W a rr a n ty Cl a im s  In the event of the Supplier’s insolvency, claims can be addressed directly to the Insurer Local insurance c om pan y reins ured by M unic h Re *L imits an d r et en tion s ap ply I n c ase of M odu le Supplier ’s I ns olv en c y S B I ns ura nc e S tructu re W a rr a n ty Cl a im s W a rr a n ty Cl a im s W a rr a n ty Cl a im s P roje ct A P roje ct B P roje ct C Investment Protection PV Sales Buyers Cover The new industry standard in insuring the Warrranty Risk of Solar Claims Handling  In the event of the Supplier’s insolvency, claims can be addressed directly to the Insurer Local insurance c om pan y reins ured by M unic h Re *L imits an d r et en tion s ap ply I n c ase of M odu le Supplier ’s I ns olv en c y S B I ns ura nc e S tructu re W a rr a n ty Cl a im s W a rr a n ty Cl a im s W a rr a n ty Cl a im s P roje ct A P roje ct B P roje ct C Investment Protection PV Sales Buyers Cover The new industry standard in insuring the Warrranty Risk of Solar Enhancing Sales by Protecting the Buyers Key features of the PV Sales Buyers Cover  High and dedicated limits  No “first-come-first-serve”  25 years cover without limit reduction  Deductible does not erode the limits Claims Handling No real risk-transfer for project owners, due to “first come, first serve” Evolving standard Perspective has shifted from Supplier to Buyer “How much insurance capacity belongs to my project” A project should own a limit of at least 5-10 of the total module value New industry standard High and dedicated limits Old industry standard Low and shared limits limit of insurance capacity c ap ac i ty r e s e r v e d f o r oth er proj ec ts C B A proj ec t C proj ec t B proj ec t A oth ers proj ec t B proj ec t A oth ers oth ersc ap ac i ty tak en by A The Warranty Risk of Solar – and its Mitigation PV Sales Buyers Cover and Top-Up Cover SPV Solar Park Owner Sponsor Bank DebtEquity PV Sales Buyers Cover transferable to Buyers in the event of Supplier’s default 1 Requirements limit dedicated exclusively to the SPV no reduction of limit for 25 years Optional Top-Up Cover customized to specific requirements 2 Options limits up to 100 loss of revenue coverage transport or labor covered SPV is locally insured Default of Supplier Warranty Large-scale PV projects can be registered with Munich Re for warranty back-stop with exclusively allocated insurance capacity for each project. Solar warranty partners of Munich Re October 2018, list not complete Green Tech Solutions within Munich Re the world’s largest reinsurer’s financial strength for a greener world  World’s largest reinsurer by premium volume  Founded in 1880  Total Assets EUR 260 billion  Approx. 43,000 employees Rating A.M Best A Superior stable Fitch AA Very Strong stable Moody‘s Aa3 Excellent stable SP AA- Very Strong stable Munich Re Group B o g o t B u e n o s A i r e s C a r a c a s M e x i k o S a n t i a g o d e C h i l e S o P a u l o London M a d r i d M a l t a M i l a n M o s c o w M u n i c h P a r i s Z u r i c h A c c r a C a p e T o w n J o h a n n e s b u r g N a i r o b i P o r t L o u i s A u c k l a n d M e l b o u r n e S y d n e y B e i j i n g C a l c u t t a D u b a i H o n g K o n g K u a l a L u m p u r M u m b a i S e o u l S h a n g h a i S i n g a p o r e T a i p e i T o k y o A m e l i a A t l a n t a C h i c a g o C o l u m b u s H a r t f o r d M o n t r e a l N e w Y o r k P h i l a d e l p h i a P r i n c e t o n S a n F r a n c i s c o T o r o n t o V a n c o u v e r Thank you very much for your attention For further questions please contact 149th Asia Solar Energy Forum 21-23 March, Beijing Dr. Ronald Sastrawan Director Green Tech Solutions Tel. 852 2536 6942 rsastrawanmunichre.com