Oregon projects incorporate solar output insurance in financing


Originally posted on Utility Dive.

Dive Brief:

  • On Wednesday kWh analytics announced it has structured financing for a series of solar projects in Oregon that include insurance to protect cash flow when the sun does not shine.

  • The financing covers four solar projects in Oregon with an aggregate capacity of 50 MW being developed by GCL New Energy, a Hong Kong-based solar developer, and financed by PNC Bank.

  • The deal structure includes a “solar revenue put” from kWh Analytics that uses the company’s proprietary actuarial model and risk management software, HelioStats. The company’s product provides a data base of solar performance statistics that is designed to provide the actuarial data needed to be able to make the premiums on a solar output insurance policy affordable. It says it has data on about 20% of U.S. solar projects.

Dive Insight:

With a put in place, kWh Analytics says financial institutions can more easily finance solar projects on favorable terms.

The company developed the “solar revenue put” as a way to drive down investment risk and encourage development of solar energy. The put guarantees up to 95% of a solar project’s expected energy output. It is essentially an insurance policy that kWh Analytics places with a provider — for the Oregon projects, Swiss Re — that protects a project’s lenders against shortfalls in irradiance, panel failure, inverter failure, snow and other system design flaws.

The first solar revenue put was signed in January. “It is a brand new product and so far kWh Analytics is the only provider,” Christine Brozynski, a senior associate at Norton Rose Fulbright, told Utility Dive.

Revenue puts have been used for years in the financing of merchant gas plants as a way of protecting lenders and investors from the volatility of natural gas prices and the attendant fluctuations in power prices. The output of a gas plant can be controlled by the owner, but some party has to assume the price risks associated with gas and power prices.

Revenue puts were designed to hedge the volatility of a gas plant. The put establishes a floor or minimum amount of revenue for a gas-fired generator. If the revenue from the gas plant does not meet that floor, then the hedge provider pays the difference.

Unlike a gas plant, the pricing of solar power is known; it is guaranteed in a power purchase agreement. What is not known is the amount of power that will be available — that depends on the sun.

The combination of predictive analytics and an insurer with a strong balance sheet can enable a financial structure that requires less equity and more leverage or debt, which enables developers to improve their returns.

“In general, these types of insurance products are helpful in securing financing or at least financing at a lower cost,” Caileen Kateri Gamache, senior counsel at Norton Rose Fulbright, told Utility Dive via email. “Developers frequently ask whether there is insurance available to cover unique risks, so it is not surprising that the market is rising to meet the demand.”

Other solutions are also beginning to emerge in the solar market as a result of the low pricing in solar PPAs. Developers are looking for ways to lock in revenues, Brozynski said.