Index‐based renewable energy insurance for Taiwan Solar Photovoltaic Power Plants

Solar energy is one of the fastest‐growing renewable energy resources globally, with solar photovoltaic (PV) technology being a promising application designed to add usable solar power to the national energy mix of several countries. The Taiwan government announced that the targeted amount of electricity generated from renewable sources shall increase to 20% of its total energy supply by 2025, in which 20 GW capacity is expected to be achieved by solar PV power. This study aims to design index‐based insurance to manage the volatility risk of solar radiation on energy production. We apply auto‐regressive integrated moving average models to predict monthly and annual energy production for a solar PV power plant in Taiwan and use the estimated results to calculate the pure premium rates for the designed insurance product. The daily data on solar irradiation are from NASA surface meteorology and solar energy, spanning 35 years from January 1984 to December 2018. The analyzed results reveal that the index‐based insurance approach can protect against the impact of insufficient solar radiation on solar PV energy production to strengthen investment security for solar PV projects.