The goal of this paper is to understand how efficacy insurance could be used to reduce the cost and increase the availability of financing for projects using emerging clean energy technologies. These are technologies that have succeeded in lab and pilot testing but have not yet been used—or used only a small number of times—at commercial scale. Commercial lenders generally will not provide financing for such projects until the technology is commercially proven and other financing options can be considerably more expensive.

Current insurance products in market, such as warranty insurance for solar PV and wind projects, cover certain performance-related risks for established technologies but do not address the gap for first and early commercial technologies. However, there exists an encouraging level of interest from the insurance companies, and there is precedent from other industries, such as satellite launch, for insurance that covers technology-related risks. There are also a number of existing examples of joint public-private approaches to insurance in markets that are challenging for private insurers on their own, such as terrorism risk or nuclear energy.

Our approach encompassed:

1. Analysis of current insurance offerings that relate to the performance of renewable energy technologies or projects;
2. Review of examples from other industries where insurance mechanisms have been used to manage technology risk and/or where risk sharing exists between government and private insurers;
3. Consideration of how to encourage the availability of efficacy insurance for clean energy projects, what the key terms of such policies might be and what supporting public policy changes may be required.