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RISK IN CONTEXT

The rise in Battery Energy Storage Systems (BESS)

Posted by Jack Wieland on 14 June 2021

Welcome to the first of our four-part blog series on Battery Energy Storage Systems (BESS). Batteries are an increasingly crucial component of the global energy transition towards a carbon-neutral economy. In this blog, we will outline some key reasons for the surge in demand for BESS globally, and later in the series we will be exploring some of the key insurance issues observed to date. 

Supply, demand and pricing

One of the critical challenges in the energy transition process is modulation – how do we power our homes and businesses when the wind stops blowing and the sun isn’t shining? BESS allow renewable energy to be efficiently stored and supplied to the grid when required. This optimisation of energy output to the grid means that renewable energy projects can provide power at both peak and non-peak times, stabilising the distribution network. This also allows investors and stakeholders to realise increased revenue income resulting from limited wastage while reducing costs for consumers.

Increased storage capacity and rapidly declining costs of the battery units are driving a global rise in demand. A survey conducted by Bloomberg predicts that by 2030, demand for Lithium-ion (Li-ion) battery capacity will have increased to 9300 GWh globally — over 10 times the current demand. Li-on batteries have a broad variety of applications and can be used at grid-scale, utilised to power phones and electric cars, or for energy storage at residential and commercial properties. The versatility of these systems has been key to the global uptake.

Projected global cumulative storage deployment by country 2018–2030

Source: Bloomberg New Energy Finance

The two principle metrics driving the adoption of BESS are cost and efficiency. Li-ion batteries are leading the pack as they have significant capacities, relatively low cost, efficient storage, and lengthy lifespans. In 2020, Li-ion battery pack prices hit an all-time-low of $137/kWh, a fall of 89% since 2010, according to Bloomberg.

Despite these developments and the growth in this field, there remain some key insurance issues to address. The sharp rise in demand in recent years has brought more attention to issues, some of which have led to costly insurance claims, particularly battery fires and thermal runaway, contractor errors, and machinery breakdown events. Most notably, there have been an estimated 25 Li-Ion BESS fires across South Korea, as well as a number of major fire events in the US and the well-known explosions in Samsung telephones.

Need for standards

The speed of the battery storage evolution and widespread use of these systems will inevitably bring new challenges. The broad range of technologies and relative lack of standardisation means that insurers face challenges in keeping pace with the evolving technical risk aspects of the technology. Typically, risks have historical loss and performance data that allows insurers to calculate the chance of losses occurring; with the rapid emergence of prototypical and developing technologies there are a lot of unknowns. The insurance industry is on a constant learning curve as new products upscale in capacity, technology continues to advance, and global demand surges.

Similarly, the regulatory framework must also keep abreast of the rapid development of the industry. A growing number of codes have therefore been developed to ensure safety and a degree of standardisation in the installation and operation of these systems, but these must keep pace with the technological advances in the industry to ensure that development isn’t hampered by overregulation.

The next blog in this series will be a deep-dive on battery fires, looking at why they happen, the implications, and how they can be prevented. Look out for further blogs covering risk management for BESS at solar and wind farms, and technological developments in commercial-scale units.

If you have questions around BESS, please contact your Marsh advisor.

Jack Wieland

Assistant Vice President, Renewable Energy, Energy & Power, Marsh Specialty