First solar revenue “put”
in 2018, we were also involved in the development of a pioneering risk transfer solution for the solar energy sector. Solar farms are faced with an inherent risk: output is unpredictable to a degree, because production rises and falls with the length and intensity of local irradiation conditions as well as actual panel and equipment production. In 2018, Swiss Re Corporate Solutions and our partner Kwh Analytics (www.kwhanalytics.com) collaborated to sell the industry’s first solar revenue “put”, an insurance product that can guarantee up to 95% of a solar farm’s expected output.
The solar “put” works like this: the Swiss Re policy sets a floor production level for electricity output from the solar farm. Our client pays a premium, and if the plant does not generate enough power to reach the floor, Swiss Re covers the difference. Underlying this new risk management solution is a large database of historical production of US solar power plants, developed by kWh Analytics.
As offered, the solar “put” significantly reduces the financial risk of a plant and makes debt financing available on better terms. This in turn lowers the plant’s overall cost of capital, enabling developers to fund more solar projects and contributing to the “decarbonisation” of the US power generation stock.