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The risks and rewards of rooftop PV solar

As time goes on, governments, investors, and the public have become increasingly committed to reducing their greenhouse gas pollution.

Power plant using renewable solar panels for energy at sunrise

As time goes on, governments, investors, and the public have become increasingly committed to reducing their greenhouse gas pollution. With buildings and construction accounting for around 40% of global carbon emissions, businesses may want to meet the moment and consider how using renewable energy may benefit the planet and their bottom line.

Photovoltaic (PV) solar energy is regarded as providing one of the best combinations of practical feasibility, commercial return, and reputational benefits. These installations leverage photovoltaic modules that are capable of transforming solar radiation directly into electrical energy.

How PV solar may benefit your business

In addition to decreasing your company’s carbon footprint and demonstrating social responsibility, there are many other reasons why your business may benefit from installing a rooftop PV solar energy system:

  • Energy independence: When you invest in a self-contained PV solar system, you may reduce your dependency on your local power company. Besides potentially saving you money in overhead costs, you will gain the assurance of knowing you have a reliable energy supply should there be power disruptions. Some PV solar systems provide the option of storing extra electricity in batteries, which can be especially beneficial in buildings that cannot tolerate a lapse in their power supply.
  • Tax benefits: Currently, under the Inflation Reduction Act of 2022 (IRA), companies that install, develop, and/or finance a PV solar project are eligible for two tax credits provided by the federal government — a 30% investment tax credit (ITC) and a 2.6 ¢/kWh production tax credit (PTC). Additional credits may be available for certain systems. Typically, a business cannot claim both on a single property. Additionally, states may offer further tax credits, government rebates, and solar renewable energy certificates.
  • Customer differentiation: As the world grows more eco-conscious, PV solar panels provide an opportunity to create a differentiated site proposition to customers that may be aligned with their own carbon reduction commitments. Additionally, installing PV solar panels can build goodwill in your community and with investors and shareholders, as it shows your company is taking the initiative to lessen its impact on the environment.
  • Financial return: As the price of traditional electricity goes up, and the cost to install solar has gone down, companies can greatly offset their monthly electricity bill, if not eliminate it. In addition to the ITCs or PTCs mentioned above, many states offer property tax exemptions for solar energy. Further, adding solar panels to your building may increase its property value.

Risk considerations

Although installing a PV solar system has the potential to greatly benefit your company, the rewards do not come without risks. Below, we have highlighted some items to consider before moving forward with installation:

  • Location: Before opting to install PV solar panels, it’s crucial to know if the location of your premises is suitable for maximizing their value, as PV solar panels produce electricity in direct proportion to the amount of sunlight falling on them. Panels located in sunnier parts of the country will have higher energy outputs. You should consider if there are any obstacles that might impact how much sunlight can fall on the panels due to the shadows they cause, such as neighboring tall buildings, mountains, and trees.

    As PV solar panels may be damaged from hailstones and severe winds, it will be important to ensure they are designed and installed accordingly, where these exposures exist. Businesses located in seismically active zones will need to consider the potential for non-structural seismic shake damage. Appropriately designed restraints to PV elements, piping, and electrical conduits may be needed.
  • Retrofitting: Existing buildings may not have been designed with PV installation in mind. Since the panels will add weight to the roof, organizations should consider if their roofs can support them. Depending on the age of your building’s roof and any existing damage, it may behoove you to replace or repair the roof prior to installing the panels. We recommend having your roof inspected by a qualified structural engineer to determine if it will be able to support the extra weight.
  • Fire risk: Although fires in roof mounted PV cell installations are relatively rare, there have been some significant property losses. Installation malfunctions, lack of proper ground fault protection, and overheated components can increase the fire risk. Electrical arcing due to improper installation, faulty wiring, or insufficient insulation are often the main causes of fire. The resultant damage can be exacerbated if it is close to other roof installations, debris, or combustible material, such as composite paneling or combustible roofing insulation.

    Additionally, panel fires can produce toxic fumes and by-products, which present a life and environmental safety hazard. For these reasons, all above-deck roof components should be made of non-combustible materials, and an emergency response plan that incorporates actions to minimize life, environmental, and property damage should be established.

    After installation, companies should update their fire safety and pre-emergency plans, as well as invite the local fire department to visit the site in order to familiarize itself with the changes in exposures and controls.
  • Installation and maintenance: As indicated above, there are many things to consider prior to and while installing a PV solar power system. To help ensure that your company will be safely installing a system that benefits your bottom line and environmental, sustainability, and governance goals, it is critical to seek out professionals that can help you make data-driven decisions and handle the installation process. Be sure to hire a reputable, experienced vendor to install your system.

    Inadequate maintenance can potentially lead to increased risk of fire or power supply disruption. Consider utilizing certified technicians for regular inspections of wirings, fuses, switches, earth grounding, and for ensuring panels are clean and free of combustibles.
  • Tax risk: Although the IRA provides some longevity to the availability of ITCs and PTCs, taking advantage of them, or any state solar incentives, is not free of implementation risk. Prior to installation, companies should evaluate whether they meet the requirements to qualify for these incentives, understand any associated risk of recapture, and consider the ways in which they will monetize tax credits.
  • Insurability: Underwriters need to be comfortable with your company’s PV solar power system, installation, and configuration. If not, then coverage or capacity may be restricted. Similarly, insufficient knowledge of the system may cause insurers to make overly conservative risk and loss estimates. Working with risk consultants who have technical engineering expertise and a strong understanding of the insurance industry can help you evaluate your options and secure optimal insurance coverage for your business.

Although installing and maintaining a PV solar power system may come with some risks, by consulting with qualified professionals and reevaluating your risk management program, you can help ensure there are mostly sunny skies ahead.

Why Marsh

Marsh combines deep technical property engineering, valuation, and risk management expertise with a strong understanding of the insurance industry and underwriting. With a global network of more than 500 specialists, Marsh Advisory Property Consulting serves our clients with data-driven risk solutions and advisory services.