Making battery energy storage systems bankable

Battery storage project owners and lenders need to successfully manage risks and secure appropriate coverage to be profitable. Read more to identify and overcome common insurance challenges.

Energy Storage

This is the final article in a four-part series on battery energy storage systems. Read the first, second, and third articles here.

Project owners and their lenders must ensure that the risks their projects face are effectively considered, managed, and, if appropriate, transferred. Insurance is fundamental to that process. But to make a battery energy storage system (BESS) project bankable, you need the right insurance.

New technology and the unknown

Typical insurance risks are priced according to years of loss history data. Historical data gives underwriters an indication of the average claims they should expect to pay per policy period for specific types of property.

With new technologies, however, this data is not available, so underwriters are often apprehensive. They are especially circumspect about battery systems, given the potential for thermal runaway and fire risk.

With thermal runaway, even small faults can result in large losses due to the negative feedback loop that can occur. That said, while the exposure to battery fires is high, many traditional risk exposures, such as weather-related incidents, typically have less of an impact on batteries.

Underwriters are still working out how best to price battery projects. Further complicating matters is that projects sometimes struggle to find “homes” within underwriting teams; while some insurers have specific teams for renewables, they may not have a wealth of experience with energy storage, so the learning curve is steeper than those with renewables teams that have grown out of conventional energy and power teams.

The positive that can be drawn here is that the market is responding to the evolving risk landscape. Underwriters are seeing more battery sites every week, and with this comes a greater volume of data.

High-profile losses

Recent high-profile battery system losses — notably, in the US, Asia, and Australia — represent a sizable concern for insurers. Claims are a fundamental component of insurance, and losses of this nature can occur across all lines. Nevertheless, they are high profile and widely reported which could adversely affect battery systems’ reputations and deter new carriers from entering the market.

These incidents aren’t all bad news, though. More publicity can draw greater interest and research into the issues that cause thermal runaway and subsequent loss events.

The difficulty with new updates and technology developments is they are often treated as prototypical by insurers, which generally require data and evidence. While positives can be drawn from the fact that the technology is progressing so rapidly, it is important that insurers are reassured by thorough testing regimes and certifications.

Fire protection and management

Fire protection remains a key consideration for risk managers and insurers alike. Strict testing standards must be followed in order to ensure that the risk is best understood and the fire response protocols are outlined clearly.

Site developers and operators must engage early and establish relationships with local fire services. In some fire losses involving BESS — where clear protocols were not established in advance — the immediate actions taken have actually worsened the situation. It is crucial that all parties involved know how to respond when a fire or other significant incident occurs.

An important factor for fire risk is whether BESS are situated in buildings. This is not seen as desirable by insurers, as it makes separation and fire management more difficult and increases the likelihood of a total building loss. This must be considered as early as the project proposal stage.

Batteries are showing a great deal of promise and are no doubt a crucial component of the green energy transition. If project lenders, financers, and operators want to construct and run a successful battery project, they need to make them bankable, which cannot be achieved without appropriate and affordable insurance coverage.

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