Lockton has released a new report detailing the changing risk profile for commercial and industrial solar energy projects in Australia.
The report addresses the increasing complexity of insuring solar installations as climate volatility rises and insurer capacity tightens.
According to Lockton, the rapid growth of solar adoption across commercial properties is occurring in a landscape marked by heightened climate risks and more restrictive insurance terms.
The report highlights several key exposures for solar photovoltaic (PV) systems. Fire and electrical hazards are prominent, with roof-mounted panels sometimes obstructing fire detection and suppression systems, and increasing the risk of electrocution during emergency situations.
Structural concerns are also noted, as the additional weight of solar panels can strain existing roofs. Weather-related threats such as hail, wind, snow, and fire embers further increase the vulnerability of these installations.
The report also points to risks from lightning strikes, earthquakes, and environmental hazards, including the potential for toxic material liability from older modules containing substances like cadmium.
Theft and vandalism are becoming more common, with high-value panels and copper wiring being frequent targets.
Liability risks can extend to third-party or leased systems, broadening exposures related to product performance, installation, and environmental impact.
Lockton’s report observes that traditional risk management and insurance approaches may no longer be adequate in the current environment.
As insurers reduce capacity and tighten policy terms, developers and investors are being urged to demonstrate robust risk management and resilience.
To address these challenges, the report recommends several strategies. Independent third-party engineering reviews are advised prior to system commissioning, to verify that installations meet cabling, mounting, and certification standards.
Parametric insurance is identified as a potential solution, providing payouts based on measurable indices such as solar irradiation or energy generation shortfalls, which can offer quick liquidity when outages occur.
Layered liability insurance models, including umbrella and excess policies, are increasingly relevant as insurers cap coverage limits in higher-risk areas.
The selection of certified, durable equipment is also emphasised to reduce the likelihood of system breakdowns and improve acceptance by insurers.
The report further advises incorporating thermal barriers, designing for roof load, and using fire-resistant materials to enhance resilience.
Technology is playing a growing role in risk management, with real-time monitoring, data analytics, and remote sensing being used to improve risk visibility and potentially lower premiums.
FM’s survey of 650 executives and investors found that nearly all solar and onshore wind developers expect to increase output within three years.
However, the report notes that access to capital remains a constraint, with most lenders and investors indicating that demand for funding exceeds available supply.
The ability of a project to withstand operational and natural disruptions is now a critical factor for investment, influencing not only willingness to invest but also valuations and contract terms.
During construction, rising equipment costs, regulatory challenges, and logistical delays are among the top concerns.
Once operational, projects continue to face risks from severe weather, mechanical breakdowns, and supply chain disruptions for replacement parts.
Despite these issues, a majority of energy providers surveyed expressed confidence in their projects’ resilience, though they acknowledged significant gaps in knowledge. These gaps include limited transparency from equipment suppliers, incomplete understanding of local environmental risks, and the fast pace of technological change.
Respondents cited increased construction costs, higher insurance premiums, and difficulties securing comprehensive coverage as consequences of these uncertainties.
The Willis Energy Market Review notes that energy insurance pricing continues to soften, with high levels of available capital and competition among underwriters.
While 2024 saw relatively few major losses in the downstream energy sector, early 2025 has already seen losses exceed the previous year’s total, introducing uncertainty into the market.
In the upstream sector, a 5% increase in underwriting capacity is contributing to further rate reductions.
Underwriters are seeking to expand their portfolios by taking lead positions, although much of the 2025 capacity has already been allocated to construction risks, an area with historically thin margins.
As the renewable energy sector expands, insurance professionals are encouraged to stay informed about emerging risks and market shifts to ensure effective coverage and risk management for solar and other renewable projects.
