The G8’s ‘historic’ agreement to cut global carbon emissions by 50% by 2050 has placed greater emphasis on the development of green technologies, including solar power.
The agreement, reached in L’Aquila, Italy, in July, puts the onus on industrialised countries—with a target to reduce their collective emissions by 80% by 2050.
It also paves the way for the UN’s Copenhagen climate summit in December.
Investment in renewable energy is expected to gain significant pace. Around $155bn was spent on the sector in 2008.
While 44% went into wind power, solar energy is the next fastest growing area, accounting for 26% of the current investment.
“Just about everywhere in the world is going to increase renewable energy and in particular there seems to be a big move in the US and China using photovoltaics,” says Ray Noble, PV sector specialist at the Renewable Energy Association.
“There’s talk in Europe whereby you could have as much as 13% of Europe’s energy coming from solar by 2020 and the predictions are that 30% will come from solar by 2030,” adds Noble.
Developing technologies
There are two main technologies associated with solar-generated power. The first is photovoltaics (PV), where solar panels are used to generated electricity directly from the sun’s rays.
Initially developed for the space industry, PV technology can be used to power individual homes or even massive solar plants.
Price was once a major limiting factor but the growth of the PV industry has seen costs come down significantly in recent years. China has led the way in manufacturing.
“Now not only is there an abundant supply of solar, where there’s always been a shortage, the prices are dropping quite significantly,” says Noble.
New technology
While the traditional crystalline panels used for PV generation have been around for 50 years or more, Noble is less confident about the newer thin-film PV panels.
Thin-film has long been touted as a cheaper replacement for crystalline cells, but it has yet to be fully tried and tested.
“I used to be in BP Solar and we had a world lead in this technology,” he says. “We found their life was nothing like we’d expect them to be so I’m very wary what might happen.”
Sun, sand and the Sahara
After photovoltaics, the other main solar technology is concentrated solar power (CSP), or solar thermal power.
This is where solar radiation is concentrated by mirrors or lenses to drive up the temperature, which then powers steam or gas turbines to create electricity.
Recent years have seen a shift towards CSP technology, as the scale of solar power stations has grown.
Solar energy on an industrial scale
The recently announced Desertec initiative will use CSP to exploit solar energy on an industrial scale in the deserts of North Africa. It hopes to supply 15% of Europe’s electricity needs by mid-century.
Among the 12 blue chip companies involved in the $555bn project is Siemens, Deutsche Bank, E.ON and reinsurer Munich Re.
“In the Desertec concept, CSP plants located in the deserts of the MENA region play the main role,” says Munich Re spokesperson Alemander Mohanty. “The technology has been in commercial use for a long time. Since there are 360 days of sun per year in the Sahara, lack of sun is not really a threat.”
Other deserts around the world are being tapped for their solar power.
Desert potential
Using CSP, it is believed that less than 1% of the world’s deserts could generate enough electricity to meet current demand.
The Mojave Desert in the US is already home to several solar plants, some of them built in the 1980s. But there are further plans for expansion.
Southern California Edison and BrightSource Energy have signed a series of contracts to develop 1,300 MW of solar thermal power over seven separate projects.
Southern Spain, Chile’s Atacama and the Negev of Southern Israel are also sites for solar plant development.
While the cost of collecting solar thermal energy equivalent to one barrel of oil is currently around $65, it is expected to drop to around $26 in future.
Insurers lead the way
As use of solar energy grows, there are opportunities for the insurance sector to support the development.
This will require new products and specialist underwriting skills.
For example, Munich Re, Marsh and photovoltaic producer Signet Solar recently launched an insurance solution to protect against the deterioration of PV cells.
Current insurance challenge
At present, the challenge for the insurance industry is in assessing the potential exposures of a technology that has yet to be tried and tested.
The exposures vary depending on the type of technology in question as well as the location, explains Warren Diogo, underwriter for Ascot Renewco.
“California has been a big developer of solar power – so as an underwriter you’ve always got earthquake exposure to deal with," he says, "which has pricing and aggregate implications. In terms of other risks it really depends on the specific projects and the technology being deployed.”
Range of risks
Rooftop mounted PV cells are also at risk from fire. “The industry has seen some isolated large losses, some of catastrophic nature when a host building with rooftop PV panels has been consumed by fire, which has destroyed the roof, including the panels on the top,” he reveals.
Potential exposure to strong winds is also location dependent. While solar plants are not generally built in storm-prone areas, mounts for solar cells are being built to better withstand high wind speeds.
In deserts, dust is not a major risk, although it can be problematic. Cells require regular cleaning to keep dust layers from building up and affecting their efficiency.
CSP plants are more prone to wear and tear than PV technology, which have fewer moving plants.
With their large steam turbines and other rotating equipment, machinery breakdown is a common risk for solar thermal plants.
Building up a loss record
Until the technology builds up a longer operating history, cover will remain largely bespoke. Underwriters need to consider all the individual components of a particular project before being able to tailor their policies.
“For the more prototypical technology such as CSP, a huge part of what we do involves the review of the design and technical aspects of the project including risk assessment reports that typically the client has had to undertake as part of the due diligence process,” says Diogo.
He thinks there will be greater commercialisation and standardisation in future as the technology and the industry becomes more mature:
“Once there is more data on operating experience and loss history, it will be possible to start developing more of an actuarial approach to the underwriting process.”
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