Insurance is rarely the first thing EPC contractors or project developers think about when planning a solar project — but an inadequate insurance programme can destroy project economics, derail lender approval, and leave asset owners exposed to multi-million-euro losses from theft, storm damage, fire, or third-party claims. This guide explains how to structure a comprehensive insurance package for solar EPC projects, covering the construction phase, operational phase, and the performance bonds and guarantees that lenders require before financial close.
A Construction All-Risk (CAR) policy — also known as Contractors All-Risk or Erection All-Risk (EAR) for mechanical/electrical projects — provides "all perils" coverage for physical loss or damage to the works during the construction period, subject to named exclusions. The policy typically has three sections:
Standard CAR policies contain exclusions that are particularly relevant to solar construction and which must be addressed through endorsements:
| Coverage Type | Standard Inclusion | Typical Sublimit | Extension Needed |
|---|---|---|---|
| Material damage (works) | Yes | Full contract value | DWM LEG 2/3 wording |
| Hail damage | Partial | Often sublimited | Full-value hail endorsement |
| Flood / storm | Yes | Often 50–70% sum insured | Full-value endorsement |
| Transit (ex-China) | No | N/A | Institute Cargo Clause (A) |
| Testing & commissioning | No | N/A | T&C extension |
| Third-party liability | Yes | €5M / event | Cross-liability clause |
DSU insurance (also called ALOP in the UK/Australian market) compensates the project company for the loss of revenue during the period a physical loss event under the CAR policy delays the Commercial Operation Date (COD). For project-financed solar plants under a Power Purchase Agreement (PPA), even a 3-month delay to COD can result in €500,000–€2 million in lost revenue and potential PPA penalty payments. DSU is a separate policy or endorsement that pays the projected daily revenue of the plant (based on the P50 energy yield model) for each day of delay, after a deductible waiting period (typically 30–60 days).
Key DSU parameters to specify: maximum indemnity period (typically 12–24 months from the original COD); daily indemnity amount (based on the Bankable Energy Report P50 yield × PPA price); waiting period (the deductible expressed in days); and the linkage to the CAR material damage policy (DSU only pays when a covered CAR loss causes the delay).
Once the plant reaches COD and is handed over to the owner, a separate operational insurance programme replaces the CAR policy:
Lenders and offtakers require financial guarantees in addition to insurance. The most common instruments in solar EPC contracts are:
Chinese solar equipment manufacturers (LONGi, Jinko, JA Solar, Sungrow, Huawei) typically sell on CIF or DAP Incoterms. Under CIF, the seller's marine cargo insurance covers transit to the named port; under DAP, the risk transfers at the destination. EPC contractors should confirm that: (a) the seller's marine insurance is adequate (Institute Cargo Clause A, not the weaker ICC C); (b) the policy is assignable to the buyer; and (c) the insured value includes module replacement and transport cost at destination prices, not the lower factory price. Econo Solar routinely coordinates marine cargo insurance for module and inverter shipments, providing clients with insurance certificates meeting lender requirements. For a procurement quote with integrated insurance coordination, contact us at our insurance and procurement page.
Project finance lenders (commercial banks, DFIs, ECAs) require the project company to maintain minimum insurance coverages and name the lenders as "additional insured" and "loss payees" on all major policies. Standard lender insurance requirements for a utility-scale solar plant include: CAR policy with DSU maintained throughout construction; PAR with BI from COD for the full loan term; and a minimum sum insured equal to the full replacement cost (not the book value). Lenders appoint an independent insurance adviser (insurance technical advisor) to review the insurance programme and confirm compliance with the loan agreement's insurance schedule. EPC contractors should engage their insurance broker early in the project development phase to ensure the insurance programme is lender-compliant and to avoid delays at financial close.
Best practice is a "wrap-up" or "principal-controlled" CAR policy taken out by the project company (or its lender) that names all contractors, subcontractors, and the employer as named insureds. This avoids gaps caused by contractor insolvency, eliminates subrogation claims between project parties, and simplifies lender endorsement. Contractor-controlled policies are simpler to administer but may not meet lender requirements in project-financed deals.
Yes, theft is typically covered under Section I (Material Damage) of the CAR policy, subject to a deductible and evidence that adequate site security measures were in place. Many insurers impose a theft sub-limit (e.g., €500,000) and require: a perimeter security fence, CCTV, and an alarm system that is active outside working hours. Module theft is a growing concern in some markets; discuss site security requirements with your broker before construction begins.
A performance bond is a financial instrument guaranteeing the EPC contractor's contractual obligations (completing the works, passing performance tests) and is callable as cash. A module performance guarantee (power output warranty) is a manufacturer's contractual commitment to replace or compensate for modules that degrade faster than the warranted rate (typically max 2% in year 1, 0.45%/year thereafter for TOPCon). They protect against different risks: the bond protects against contractor default; the module warranty protects against long-term yield shortfall.
Certified modules and inverters with full export documentation — Econo Solar supports your insurance and lender requirements.
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