The surety industry has enjoyed strong growth and consistent profitability since the last economic recession. This expansion has not gone unnoticed by insurance companies, leading to new entrants, softening terms/conditions, and excess capital. This combined with the renewable energy sector accelerating faster than ever has created more opportunities for firms to tap into larger surety facilities.
Surety bonds in the renewable energy sector can be used for a variety of applications to improve your cash flow and profitability. Contractual obligations for renewable firms to government entities and utilities will typically require financial guarantees, in many cases cash or letters of credit. In some scenarios, those credit guarantees can be replaced with a surety bond.
While surety bonds are governed by the department of insurance and issued by insurance companies, they are technically credit instruments. There are three parties to a surety bond, the principal (typically contractor or developer), the obligee (party requiring the bond), and the surety company. In most cases a bond will guarantee the performance of an agreement. Similar to letters of credit and other forms of performance guarantees, a surety will have recourse to the principal in the event of a claim or loss.
There are a variety of applications for bonds in the renewable sector, but there are four key areas where the majority of surety support is needed.
How we’re different
Financial assurances for service charges from utilities are common in interconnection agreements. These assurances can be satisfied through corporate guarantees, surety bonds, cash, or letters of credit. Depending on the bond forms being utilized, these can be considered a hazardous obligation by the surety company. Renewable Guard works with the owner, principal, and bonding companies to utilize acceptable bond forms that will result in the best possible terms and conditions for your firm.
POWER PURCHASE AGREEMENTS
PPA’s often require that you provide financial assurances in the event power generation does not meet the terms of your agreement. While these are most frequently accomplished with cash and letters of credit, surety bonds are becoming more prevalent to meet all or a portion of the obligations.
Many government entities will require solar decommissioning bonds to guarantee that land is restored to its previous condition after the solar assets have reached the end of their useful life. Due to the long duration of the bonds, surety companies may require a specified term in the bond form, collateral, or both.
In some rare cases bonds can be used in lieu of cash deposits for solar panels, inverters, racks, and other high dollar materials. While we typically only see these acceptable where the developer has a strong relationship with their supplier, they are becoming more prevalent in the renewable bonding sector.
In conclusion, the use of bonds has become more prevalent in the Renewable Energy Industry. In support of our clients, Renewable Guard has retained the services of seasoned surety specialist who can execute the types of bonds outlined above. We advise all Renewable Energy Developers to establish bonding capacity by providing us with their financials. Renewable Guard can then setup formal bonding capacity for near term or future use. Please contact our agency Principal, Michael Cosgrave for more information.