Insurance has the potential to help early-stage clean energy technologies bridge the financing gap that often prevents or slows their development, according to a white paper released last week by the California Clean Energy Fund (­CalCEF).

The white paper outlines insurance solutions that isolate technology risk and allow clean energy projects to access the debt and equity markets, said Eliot Jamison, entrepreneur-in-residence at ­CalCEF and co-author of the report.

In examining the current insurance market for clean energy, the authors found that some insurance products exist to handle particular risks. For example, solar module manufacturers can buy insurance for the 25-year warranties that they commonly offer. But current products only provide limited assistance in managing technology risk and do not go far enough in bringing early technologies to the point of being financeable, Jamison said.

“In order for [insurance] products to come to market that are truly going to address the financing gap for early technologies and really accelerate their development, some form of public-private partnership is going to be needed,” he added.

The Department of Energy (DOE) should create a reinsurance programme with requirements to provide insurance solutions to truly emerging technologies, according to the white paper. The benefit of such a risk-sharing mechanism is that it would encourage private insurers to write the policies by limiting their potential losses while ensuring affordable and reasonable policy terms and prices for renewable energy companies.

Nuclear industry insurance sets precedent

There is precedence for government involvement in insurance for particular industries. In 1957, the US Congress passed legislation to support nuclear power development through the creation of a catastrophic liability insurance protection programme. The legislation requires nuclear producers to purchase as much private market insurance as is commercially available, about $375 million at current levels per plant, the report noted. Beyond this level, the federal government pays claims in response to a catastrophic event, with the nuclear industry repaying the government after certain thresholds are surpassed.

“None of them are precisely spot on, but they gave us guidance as to how a solution might be shaped,” Jamison said.

But convincing Congress of the merits of a government reinsurance programme for clean energy will be difficult in the current political environment, he acknowledged, particularly in light of the controversy surrounding bankrupt solar panel manufacturer Solyndra.

“I think there’s no question that it’s a challenge,” Jamison said. “There are some reasons to believe it could get broader political support, but it’s one of a number of things that should be pursued.”

Supporters could emphasise its public-private partnership structure and its targeted nature as it would focus solely on addressing technology risk rather than the overall risks of these projects, he suggested.

In a DOE-supported reinsurance programme, it would initially be important to have the full credit support of the US government, but the public exposure could be reduced over time, the white paper notes.

In the absence of government involvement, the private insurance industry can take incremental steps to expand its current slate of product offerings for the clean energy sector, Jamison said.

For example, the industry could create a managing general agent (MGA), a wholesale insurance intermediary, to focus on developing extensions to its available warranty and system performance insurance products. In a new MGA, the participating insurers could put in capital and share in the underwriting results, bringing much-needed additional capacity to the market.

“We think that could be viable on a private-sector only basis,” he said.