HDFC Ergo Launches the First Solar Energy Shortfall Insurance Policy in India


HDFC Ergo General Insurance Company a joint venture between HDFC Ltd., and ERGO International an insurance entity of Munich Re Group has launched the first solar energy shortfall insurance policy in India that gives solar project developers the ability to insure certain causes of solar power generation loss.

The newly available policy will provide a missing part of the puzzle by enabling developers to mitigate some of the risks associated with solar development and operation and providing them greater predictability in their investments.

According to the company, the new policy is designed to account for non-physical damage related risks that solar projects regularly face. The policy can cover anything from utility-scale solar farms and green fields across India, to portfolios of rooftop installations for commercial and residential builds.

The causes of generation shortfall recognized under HDFC Ergo’s insurance policy include unintentional errors in the calculation of target production, defects in the insured energy installation, and cases where actual solar radiation falls short of estimates. To receive insurance money, the energy shortfall must arise solely from one or more of these causes.

HDFC Ergo’s policy would pay for the energy shortfall during an energy shortfall policy year, provided that it is reported to the insurance company within 45 days of the end of the applicable energy shortfall policy year.

As per the company’s insurance policy document, the maximum amount HDFC Ergo would pay for a loss arising from any one energy shortfall policy year is the amount shown as the Energy Shortfall Annual Limit in the Declarations/Policy schedule. In the event that the “energy shortfall policy year” is less than one year in length, the applicable Energy Shortfall Annual Limit would be reduced proportionately.

HDFC Ergo’s policy would not apply to insured energy installations that are under construction or in operational testing.

A similar insurance has been available through reinsurer Munich Re for many years in the U.S. and other countries. The goal of the solar shortfall insurance is to eliminate risks associated with lower power production due to lower than expected solar irradiation, errors in calculation thereby improving creditworthiness of a project. The insurance premium paid towards shortfall insurance is supposed to pay for itself through drop in borrowing costs due to reduced risk profile.

In a recent interview with Mercom, Indian Solar Association President C. Narasimhan said, “All solar projects in India should be covered under exclusive solar insurance. This means a generation guarantee.”

Narasimhan went on to say that a generation guarantee would be dependent on solar irradiation. “If there are 300 sunny days and the estimated projection of power generated is being made on that, then the developer will face a loss if the number of sunny days gets reduced due to weather changes or something else.”

With such an insurance policy in place, Narasimhan said that developers would not stand to lose out for the days when they cannot generate due to causes outside of their control. He added that the International Solar Association had invited reinsurance companies to India to work out a policy under the National Solar Generation Guarantee Coverage and that such a policy was expected to be established in six months.

Energy Shortfall Calculation Example

Actual Energy Yield