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What’s next for BESS – an important link in the renewables chain

The role risk expertise and management are playing in cementing the UK’s position as a leader in Battery Energy Storage Systems.

22/04/2022 · 4 minutes read

Battery energy storage has, and will increasingly play, an important role in the development of renewable energy sources in the UK. Grid-scale batteries are often co-located with renewable energy projects, charging during energy production and then discharging to the grid when demand is highest. Whereas, standalone BESS projects are used to balance grid demand fluctuations by charging and discharging directly from the grid.

This is an area that is attracting a great deal of attention. Marsh recently attended the 7th annual Energy Storage Summit in London and will be sponsoring the 2023 event. The summit attracted record numbers of attendees - more than 570 - from 28 countries representing all parties in the energy storage chain. Discussions were lively and optimistic, reflecting both the huge opportunities in battery energy storage, and the leading position that the UK is taking in this fast-developing field.

A flexible regulatory approach to battery energy storage has enabled the UK to forge ahead in this area. As a significant growth area, the technology is continually being developed and upgraded. While this provides opportunities, there are also several risk and insurance coverage areas that developers need to be aware of when considering embarking on projects.

Risk and insurance role

Another well-documented risk associated with BESS is thermal runaway. Thermal runaway is the result of a chain reaction whereby a misused or damaged battery begins to release energy in the form of heat, this leads to further damage in a negative feedback loop which results in rapid heating that can cause the build-up of an explosive atmosphere and fire. This is a potentially serious risk and there have been incidents when lives have tragically been lost. Again, risk advisers have insights into these exposures and can help project developers to mitigate and assess risks both in the planning stages and throughout the life of a project.

Much of the equipment used in the development of BESS projects will be subject to warranties. When underwriting these projects, insurance markets often will take these warranties into account; if a warranty covers certain risks associated with equipment malfunction, for example, insurers may feel comfortable that they do not need to price coverage for that eventuality into their quotes.

When warranties expire, however, the cost of insurance often increases accordingly. Frequently, a battery’s lifetime is of far shorter duration than a Power Purchase Agreement (PPA) entered into by a BESS project. For example, a battery life might be 10 years while a PPA could be for 30 years.

Batteries, therefore, will likely be swapped out and replaced at least once - and very possibly several times - over the course of a PPA. This changes the risk profile of the system being insured; every time a new battery is used a new warranty will come into effect.

The charging and discharging of BESS assets is typically controlled by intelligent software to both protect the battery and maximise revenue. This brings obvious efficiency benefits, but developers must be mindful of potential cyber threats. Risk advisers are well versed in cyber risk and can help project developers to understand, mitigate and manage these potential exposures. It’s also important that this is an ongoing dialogue; cyber threats are evolving apace, as are insurers’ requirements. Security procedures and risk management measures must therefore be frequently tested and updated.

Insurance and risk transfer will play an important part in enabling the development of BESS technology. Projects require insurance coverage to get off the ground, which means developers must be able to demonstrate to the insurance market that they understand and have managed the risks to their projects. As this technology is relatively new and continually developing there is not yet a comprehensive claims history for insurance markets to draw upon when underwriting these risks.

It is therefore vital for project developers to keep up to date with the latest market developments and changes in technology and regulation. Risk advisers are gaining expertise in this area every day and good communication throughout the risk management and transfer chain will enable us all to build up and share this knowledge to make risks more transferable.

With the UK’s installed BESS capacity forecasted to double in the next two years, and the national grid stating that the UK needs 13 GW of energy storage by 2030 to enable a net zero future, there is no doubt that the field will continue to evolve. With rapid development, both the risks and opportunities will also grow. It is hence vital that we continue to share knowledge and best practice, to learn lessons and to understand new technology to enable the growth in this exciting area.

If you have questions about battery energy storage systems, please contact your Marsh advisor.

Meet the authors

Alastair Nicklin

Alastair Nicklin

Business Development Associate, Power and Renewable Energy

  • United Kingdom

Placeholder Image

Kerry Westlake

Account Executive, Power and Renewable Energy

  • United Kingdom

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