Sure, putting solar panels on a house might be good for Mother Earth and could save money in the long term, but what if they break in two years and you are out $5,000 before having recouped your investment?
Unfortunately, good karma points are not going to pay the power bill. But insurance might.
Increasingly, insurers are stepping in to bridge the gap between green intentions and actual capital outlays on green technology.
They are backstopping warranties on solar panels, helping start-up companies with short track records offer multidecade guarantees on their products and win over skeptical customers and project financiers. They are studying weather patterns to offer protection in the event of, say, unusually weak winds that fail to spin turbines, or a volcanic ash cloud from Iceland that diminishes the output of a solar energy facility in Spain.
They are advising companies on how best to incorporate renewable energy systems into their factory operations and offering property insurance that will pay not just to rebuild a structure in the event of a loss like fire but reconstruct it in a more environmentally friendly and energy-efficient way.
They are even offering coverage to carbon traders. So, if you are a European utility engaged in an emissions offset program in China and a devastating earthquake damages your partner power plant in Sichuan, you have some peace of mind.
Cynics might say that insurers are just the latest industry to see green — i.e., money — in the green movement. But Dr. Nikolaus von Bomhard, chief executive of Munich Re, says climate change should not just be an opportunity for insurance companies to sell more policies for loss prevention.
Insurance, he argues, can play an important “pace-making” function, helping accelerate the adoption of green energy by assessing, quantifying and spreading risk.
Insurance can support the modernization of economies and societies by encouraging the development of new technology and enhancing innovation
The task of crunching the numbers and pricing new green insurance products falls to teams of mathematicians, engineers, physicists, lawyers and other analysts in groups like Munich Re’s special enterprise risk unit. In 2007, they were asked by a solar panel manufacturer to come up with some insurance that would backstop the 20- or 25-year warranties that prospective customers were demanding.
“A performance warranty creates a liability on a company’s balance sheet,” explained Christian Scharrer, a risk analyst with the unit. “Most companies don’t have the capital structure to keep it on their own balance sheet,” he said, let alone pay out a hefty claim.
Munich Re spent months investigating the engineering and manufacturing methods. While solar photovoltaic panels might all look the same on the outside, Mr. Scharrer said, “if you dive into the details of the manufacturing process, they’re different in terms of quality.”
After more than a year and a half of analysis, Munich Re sold its first such policy in 2009 to Signet Solar and now counts eight other panel manufacturers as clients.
Jim Tynion, a partner at the law firm Foley & Lardner of the United States and chairman of its energy practice, predicts that this segment of the business will “explode” in the next five years, particularly as the United States increasingly introduces mandates for green energy.
“Manufacturers are going to have to produce more,” Mr. Tynion said. “The Chinese and other manufacturers from around the world want to come to the U.S. market, but many don’t have a history or a credit standing. They are not financeable in the U.S. They don’t have a warranty claims process in the U.S. — if something breaks, who do you call?”
But if these manufacturers “can go out to the insurance company, and the insurance company does the research, that’s going to help the market.”
Todd Roberts, chairman of Solartech Renewables, a company in Kingston, New York, that recently started making solar panels in an old I.B.M. facility, said the number of insurers offering warranty insurance policies had expanded in the past 6 to 12 months from a few players to about a dozen. A 25-year policy, he said, adds about 1 percent to the cost of panels but provides a competitive edge.
Insurers like FM Global, meanwhile, are advising clients like Johnson & Johnson on issues like how to install solar panels on their factories without causing drainage problems, increasing the risks of fire or compromising the structure of the building.
“Alternative energy is becoming a huge part of our business,” said Jonathan W. Hall, an executive vice president with FM Global. “We have plan services and plan review. Clients send in plans to us to help engineer the projects right from the get-go. Have you developed the building adequately to hold the weight? Checked the fire hazards? You don’t want to create a problem that would shut down your business.”
Once in a while, he said, he has to tell clients that their well-intentioned plans to make their businesses more sustainable might not be the best idea. “Green roofs are not appropriate in a typhoon zone,” he noted, because strong winds could turn loose plant matter, rocks or landscaping into projectiles.
As more companies adopt large solar, wind and other renewable energy systems, many are looking to generate power for themselves and sell energy back into public grids. Other companies that embrace energy-saving technologies want not only to cut their power bills but also to take advantage of tax credits — credits that might be sold or traded to other investors.
“That’s one of the big reasons companies are spending all this money on green energy systems,” said Michael Meehan, founder of Enxsuite, a San Francisco firm that helps companies manage and improve their energy use.
Some of his clients are pouring hundreds of millions of dollars a year into green energy initiatives, and the deal-making is getting increasingly complex, Mr. Meehan said. With so many dollars at stake, more and more players are looking for hedges and safety nets.
“At that level,” he said, “the whole notion of insurance becomes so much more important.”