7 Jun 2018

Data begins insuring output for solar systems in Virginia

Written by Jim Pierobon

A new, data-driven, service backing two large solar systems in Virginia promises to ensure systems deliver at least 95% of their projected output.

The service is a “solar put.” It was developed by kWh Analytics in Silicon Valley for Coronal Energy and its clients Dominion Energy and the Central Virginia Electric Cooperative.

Solar developers can buy solar puts on their systems to persuade banks and other institutions to help finance the siting, permitting, construction and deployment costs.

The actual insurance product is housed at Swiss Re, the giant wholesale re-insurance company based in Zurich, Switzerland. With at least 95% of a system’s output ensured, the risk of a system underperforming for weather or any technical or equipment mishaps shifts from the developer to Swiss Re and its AA- credit rating.

This way, said Richard Matsui, founder and CEO of kWh Analytics, “banks can provide better financing terms to the solar developer and help the developer get more money out of their asset.”

In what has been the solar-challenged Southeast U.S., solar puts are poised to help developers overcome the still somewhat stubborn culture favoring monopoly utilities’ preference for natural gas and nuclear generation and early financing hurdles which are now further complicated by tariffs on steel and solar panels imposed by the Trump administration. At the same time, solar suddenly is in a position to help fill the void created by the failed construction of two nuclear reactors in South Carolina and utilities’ struggles to maintain the viability of their nuclear fleets.

Matsui conceived the idea of a solar put in early 2017. He and his colleagues began collecting data on how large solar systems were performing anywhere they could capture it.

“Every asset class has a third-party repository on how that asset class performs,” Matsui said. “Without that repository, it is very hard for investors to understand and trust how those assets are performing.”

Solar puts helped develop the 10 MW Martin Palmer Solar Center for the Central Virginia Electric Cooperative. CREDIT: Central Virginia Electric Cooperative

As 2017 came to close, kWh said it had collected data on how about 20% of the solar systems in the U.S. are performing from roughly 100 different solar system owners and equipment suppliers. “We are the only guys in the industry with this actuarial perspective so we set out to convince insurance companies how solar works,” Matsui said.

In making sales calls and speaking at various solar power conferences, Matsui said he kept running into Ed Feo, president of Coronal Energy. Feo said he grasped the concept quickly and deployed for Power Purchase Agreements to sell the output of its 10 MW Martin Palmer Solar Center to the Central Virginia Electric Cooperative (commissioned May 22) and power from its 20 MW Essex Solar Center to Dominion Energy in Eastern Virginia.

“Broadly speaking,” said Matsui, “insurance pricing is somewhat analogous to other more familiar forms of insurance, e.g. car insurance.

“When insuring a car, the insurance company needs to know the age of the driver, how many years they’ve had a license, past driving history, etc. The insurance company can’t tell you the formula. But they can tell you what factors go into pricing and what they’re going to insure.”

“Our pricing formula is structured accordingly,” Matsui explained. “We use physics modeling and our data repository of solar project data.” This includes location, hardware, installer and past performance.

This slide captures the essence of a solar put. CREDIT kWh Analytics

At the recent Solar Power Southeast conference in Atlanta, Matsui said kWh serves “50% of the tax equity market with four of the top seven investors.” They include Google and clients of US Bank and PNC Bank.

Tax equity is money that for-profit companies are willing spend in buying solar systems and the tax credits that come with them to offset their tax liability.

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