Solar projects face specific risks at each stage of their life: equipment damage during construction, hailstorm damage during operation, revenue loss during extended outages, and liability claims from third parties injured on-site. Getting the right insurance coverage — at the right time, with the right limits — is not optional for lender-financed projects, and is strong risk management practice even for equity-funded ones. This guide covers the coverage types, typical exclusions and minimum requirements.
Construction phase insurance
Construction All-Risk (CAR) / Erection All-Risk (EAR)
CAR/EAR insurance covers physical damage to the project under construction — panels, inverters, mounting structures, cables and other equipment from arrival on site through to commissioning. Standard coverage includes:
- Accidental physical damage during installation (dropped panels, crane incidents)
- Fire, theft and vandalism during construction
- Storm, flood and natural catastrophe during construction
- Testing and commissioning damage
Typical limit: the full replacement cost of the project (contract price). Deductible: typically $5,000–$25,000 per event for C&I projects, higher for utility projects.
In lump-sum EPC contracts, the contractor typically carries CAR insurance and the owner is an additional named insured. In owner-supply arrangements (where the owner procures equipment directly), the owner should carry CAR insurance from delivery to site and notify the EPC contractor of coverage terms.
Contractors' Third-Party Liability (TPL)
Covers bodily injury and property damage claims arising from the construction activities. The EPC contractor carries this coverage, but the owner should verify that limits are adequate (typically minimum $5 million per event) and that the owner is an additional insured.
Operational phase insurance
Operational All-Risk (OAR) / Property All-Risk
Covers physical damage to the plant during operation. Unlike CAR insurance (which covers damage during construction), OAR covers the plant's full operational life. Key coverage elements:
- Storm, hail, wind, ice and snow damage
- Fire and arc fault damage (AFCI technology reduces this risk but not to zero)
- Flood (check whether flood is included or excluded — it is often sub-limited or excluded)
- Equipment breakdown (internal mechanical/electrical failure causing physical damage)
- Theft and vandalism
Typical limit: full replacement cost of the plant on a new-for-old basis. Sub-limits often apply for flood and named storms in high-risk zones.
Business Interruption (BI)
BI insurance compensates for lost revenue when the plant is unable to generate due to a covered physical damage event. This is the most commercially significant coverage for revenue-generating plants:
- Coverage period: typically 12–24 months of revenue loss (the indemnity period)
- Trigger: a covered physical damage event that reduces generation by more than the deductible
- Coverage basis: the projected revenue from the damaged section, calculated against a reference period or the P50 energy model
- Deductible: typically 30–60 days of revenue loss before BI pays out
BI is typically required by project lenders (see below). For equity-funded plants where the owner can absorb short-term revenue loss, BI coverage is optional but recommended for plants above ~500 kWp.
Third-Party Liability (TPL)
Covers bodily injury and property damage claims by third parties arising from the plant's operation — for example, a visitor injured on site, or a fire spreading to an adjacent property. Minimum recommended limit: $5 million per event; project lenders typically require $10–20 million per event.
What project lenders require
If your solar project is debt-financed (project finance, commercial bank loan, green bond), the lender will specify minimum insurance requirements as a condition of drawdown. Typical lender insurance requirements:
| Coverage type | Typical minimum limit | Additional requirements |
|---|---|---|
| OAR / Property | Full replacement cost (no sub-limits for named perils without lender approval) | Lender named as loss payee for claims above threshold |
| Business Interruption | 12–18 months of projected revenue | Indemnity period must exceed debt service reserve period |
| TPL | $10–20 million per event | Lender named as additional insured |
| CAR (construction) | Full contract price | Lender named as additional insured from first drawdown |
Key exclusions to watch for
- Gradual deterioration: Normal panel degradation, soiling and weathering are not covered — only sudden physical damage
- Mechanical breakdown without physical damage: An inverter failure that doesn't cause physical damage may not be covered under OAR (it may be covered under Equipment Breakdown endorsement, which must be added separately)
- Hail sub-limits: In hail-prone regions, hail coverage is often sub-limited or requires a higher deductible. Check this carefully — hail is one of the most common causes of large solar insurance claims
- Grid failure / curtailment: Revenue loss from grid outages or utility curtailment is typically not covered under standard BI coverage
- War and terrorism: Standard exclusion; can be added in most markets for additional premium