A critical challenge of the energy transition is addressing the intermittency of renewable energy generation. As we reduce our reliance on thermal baseload generation, how do we power our homes and businesses when the wind stops blowing or the sun isn’t shining? Renewable energy can be efficiently stored in utility-scale battery energy storage systems (BESS) allowing power to be released to the grid when required.
The increased storage capacity and rapidly declining costs of battery units are driving a global rise in demand.
However, with limited loss data and costly claims in a number of regions, insurance markets are factoring known and unknown BESS risks into their capacity, pricing, and policy terms. The primary risk considerations include:
- Thermal runaway fires. Thermal runaway is a chain reaction where a damaged battery releases energy in the form of heat. Left unchecked, the heat can damage adjacent cells, or cause a fire. Large-scale battery fires have occurred in almost every region, notably Asia, Europe and the US.
- Collateral damage, ensuing loss. The design and configuration of BESS modules is key to containing the risk of thermal runaway fires. When assessing the insurability of an installation, insurers will need to be satisfied that there is sufficient separation within the storage modules and between critical infrastructure such as site transformers and substations. Insurers will be focused on ensuring that if an incident occurs, that the loss and damages can be minimised.
- Business interruption. Minimising single points of failure is key to avoiding contingent business interruption and impact on revenue. Insurers will typically favour projects that route power to the grid separately from the BESS. This safeguards operations and revenue, and prevents damage to one component in the event of a loss affecting another component.
- Insurance market capacity. Insurance markets generally consider energy storage to be prototypical technology. Insurance capacity for BESS projects may be limited due to limited historical loss data and varying installation, operation, and engineering standards around the world.
