Agile Advantage - Rising cost of insurance : Impact on solar assets

Introduction

Businesses across Australia are grappling with rising insurance costs, driven by factors such as extreme weather events, supply chain disruptions, and increasing claims. For companies investing in renewable energy, particularly solar assets, insurance expenses present a significant financial challenge. Understanding these costs and how to mitigate them is crucial for businesses aiming to optimise their solar investments.

The Rising Cost of Business Insurance in Australia

Over the past decade, insurance premiums for businesses have surged, largely due to:

Climate-Related Risks: More frequent and severe weather events, including bushfires, storms, and hail damage, have led to higher claims and increased premiums. Since 2010, natural disasters have resulted in over AUD $34 billion in insurance claims in Australia, with flooding (38%) and storms/hail (34%) being the biggest contributors.

Inflation & Supply Chain Issues: The cost of rebuilding and repairing properties in Australia has climbed 27% since COVID-19, further pressuring insurers to raise rates.

Rising Reinsurance Costs: Global reinsurance premiums have increased by up to 30% in 2024, significantly impacting overall business insurance expenses.

The Specific Challenge of Insuring Solar Assets

While solar energy provides long-term financial and environmental benefits, it also comes with unique insurance considerations, including:

Physical Damage Risks: Hailstorms, strong winds, and other extreme weather events pose a significant threat to solar panels.

Theft & Vandalism: Solar farms and rooftop installations are vulnerable to theft or deliberate damage, increasing security- related insurance costs.

Performance Guarantees & Business Interruption: Insurance policies must cover potential downtime due to equipment failures, ensuring businesses maintain revenue stability.

Industry-Specific Premium Increases: Some solar asset owners report premium hikes exceeding 50% year-over-year, making it more expensive to maintain coverage.

Strategies to Mitigate Insurance Costs for Solar Assets

1. Risk Assessment & Prevention Measures

• Conduct regular site inspections to identify and mitigate risks.

• Invest in durable solar panels with higher resistance to extreme weather.

• Install advanced security systems, such as surveillance cameras and fencing, to deter theft and vandalism.

2. Choosing the Right Insurance Policy

• Work with brokers experienced in renewable energy

• Compare policies that offer comprehensive protection against environmental and operational risks.

3. Transitioning to a Power Purchase Agreement (PPA)

Easiest way to avoid the direct financial burden of insurance costs is by shifting from owning solar assets to a Power Purchase Agreement (PPA). Under a PPA, a third-party provider owns and maintains the solar system, including handling insurance, while the business benefits from stable energy pricing. This model removes the liability of asset ownership, significantly reducing insurance-related expenses.

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