Solar Panel Contractors: Insuring a New and Booming Industry

With the rise in the use of solar energy also comes the need to address the exposures that contractors face in installing solar panels, and the insurance coverage needed to protect them.

Drive through any neighborhood across the US, and you'll likely notice more solar installations on rooftops and dotting the landscape. It's not your imagination — they're multiplying. In fact, the future is blindingly bright for the installation of solar panels, also known as photovoltaic (PV) panels. The global market is projected to be worth more than $155 billion by 2028, including residential, commercial, industrial and utilities applications.¹

And that market growing at record speed. The US solar industry installed a record 6.1 gigawatts of capacity in the first quarter of 2023, a 47% increase over the same period last year.²

The growth in solar installation is due in part to new product launches; the decreasing cost of PV systems; the increasing adoption of residential applications to manage higher energy costs; and federal and state credits and rebates to go solar. Add to this the stress being placed on electric grids due to record-breaking temperatures, and the push for alternative solutions becomes more commonplace.

How Solar Panels Work

Let's start at the beginning. How exactly do solar panels work?

PV cells in solar panels turn the sun's energy into electricity. These cells are placed between semiconducting layers. Each layer has unique electrical properties that activate when photons from the sun strike them, creating an electric field. This photoelectric effect generates the current required to make electricity.

Solar panels produce direct current (DC) electricity, which an inverter then converts to alternating current (AC). If the homeowner or business owner has a grid-tied solar energy system, electricity can run both to and from the power grid. Through a policy known as net metering, homeowners and business owners can receive credits from the power grid when they send electricity back to it, which makes the overall cost of electricity less expensive.

Tax Incentives to Go Solar

Homeowners who qualify may receive a federal tax credit of up to 30% of the total cost of the solar panel system. The total cost of the solar panel system includes not just the panels themselves but also labor, installation and energy storage equipment.

Each state also has a different mix of tax credits, rebates and net-metering policies that can offset the cost of a solar installation. States with a high number of solar incentives include California, Texas, Minnesota and New York.

Businesses that purchase solar energy systems are eligible for one of two federal tax credits: ³

• The investment tax credit (ITC) reduces the federal income tax liability for a percentage of the cost of a solar system that's installed during the tax year.
• The production tax credit (PTC) is a per kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying technologies for the first 10 years of a system's operation. It reduces the federal income tax liability and is adjusted annually for inflation.

Generally, a business owner cannot claim both tax credits for the same property.

Installing Solar Panels: Beyond General Liability Exposures

With the rise in the use of solar energy also comes the need to address the liability exposures that solar-panel installers face, and the insurance coverage needed to protect them.

Whether the systems are residential or commercial, rooftop or ground, solar installers have exposures that go beyond general liability, including pollution, professional and cyber liability risks — none of which is properly addressed within a General Liability policy.

We turned to Basil Tsefrekas, RPS Environmental Practice leader, Northeast Region, for his insights on the risks solar installers face and how to best address them. Tsefrekas was educated as a chemical engineer and worked in the semiconductor and solar industries, where he co-authored papers on solar cell development and how to improve their efficiency. He also worked for a manufacturer of solar panels before transitioning to the insurance industry more than eight years ago.

Here's what Tsefrekas had to say.

Pollution Liability Risks for Solar Panel Installers

"The most frequently overlooked pollution exposure rooftop solar installers face is mold growth," says Tsefrekas. "Water intrusion from improperly sealed roof penetrations can create points of entry for moisture.

"For example, during the installation process, penetrations are made in the roof to attach the solar panels and secure the mounting system," he explains. "If these penetrations aren't sealed correctly or if the flashing and sealing materials used are of poor quality, water can find its way into the roof structure, leading to leaks, water damage and potential mold growth."

Another pollution risk involves the installation of solar panels on the ground. "Installers of ground arrays face unique exposures, such as soil erosion/sedimentation as well as site contamination," explains Tsefrekas.

"Inadequate erosion control measures during construction and operation can result in soil erosion and sedimentation of neighboring properties, causing an environmental impact. Also, if the ground array is being installed on a site with preexisting contamination, the contractor may be held liable if, during the installation process, the ground is disturbed, potentially releasing pollutants or contaminants into the environment."

In addition, solar panels typically have a 15- to 20-year life span, with some panels deemed hazardous due to the various materials/chemicals (lead, cadmium and selenium) used to produce them. These panels must be managed and disposed of safely when replacing or upgrading a system.

"There are state guidelines for proper disposal of solar panels that a contractor must follow. If not handled properly, the hazardous waste can cause a pollution risk," says Tsefrekas.

These and other pollution risks are properly addressed within a Contractor's Pollution Liability policy.

Professional Liability Risks for Solar Panel Installers

Solar installers may also be liable for any errors in design or installation as well as in compliance with state and federal filings.

"Since every house and building is different, there is a customization component involved in the installation of solar panels," explains Tsefrekas.

For example, if a solar installer makes an error in designing the system — such as miscalculating size, placement, or material selection — clients may experience financial losses. In addition, improper installation of solar panels, wiring, inverters or other components can lead to electrical issues, malfunctions or safety hazards. Clients might experience system failures, increased maintenance costs or even fires caused by installation mistakes.

"A solar contractor is also responsible for complying with guidelines for state and federal incentive programs and completing the filing on behalf of a client. If a system is found to be non-compliant, solar installers may be held responsible for any required modifications or penalties," says Tsefrekas.

Proper documentation of the installation process — including diagrams, schematics and records of work performed — is crucial. Inadequate documentation can make it difficult to troubleshoot issues or demonstrate compliance with industry standards.

A Contractor's Professional Liability policy addresses these and other types of errors and omissions that may occur in the installation of solar panels.

Cyber Liability Risks for Solar Panel Installers

Advancements in software have enabled remote monitoring and control of solar panel systems. If these systems aren't effectively protected, they may be exposed to malicious attacks, which can result in access of data, system settings manipulation or even the shutdown of solar activities.

"Such attacks can disrupt operations, cause financial losses and damage the solar installer's reputation," says Tsefrekas.

A Cyber policy helps protects contractors from data breaches, network security failures, ransomware and other exposures.

To address these and other exposures, it's important to round out a contractor's General Liability coverage with Contractor's Pollution Liability, Contractor's Professional Liability, and Cyber Liability insurance. At RPS, we can address a solar contractor's exposures with a broad-based approach.