Navigating risk, insurance in the battery energy storage market
Mitigation strategies are key to ensuring the safe, reliable deployment of clean energy.
As the world seeks to move away from fossil fuels and embrace renewable energy, Battery Energy Storage Systems (BESS) offer a crucial solution to one of the biggest challenges facing clean energy: Intermittency.
The renewable energy market has experienced explosive growth, with global capacity skyrocketing from 12 gigawatts (GW) in 2021 to more than 48 GW in 2023. The ability to store energy from sources like wind and solar and deliver it when needed has made BESS an essential component of modern energy systems.
Consequently, the need for BESS grid stabilization services is surging as renewable energy integration and the ensuing demand for energy resilience continues to rise. According to a Lloyd’s article in the 2024 Solar Risk Assessment, BESS installations are expected to expand by 13 times in the coming years, with an additional 181 GW of capacity either planned or under construction.
While an important leap forward in the energy transition, the explosive growth in BESS also brings unique challenges, particularly in safety and risk management, which can impact the ability to insure installations.
Insurance is a necessary form of capital for the continued growth and adoption of renewable energy, and yet, the lack of data on the new and rapidly evolving technology, combined with a history of high-profile loss events have made insurers cautious in their approach to covering BESS. Battery storage asset owners will increasingly look to their insurance brokers for help navigating the complex insurance landscape.
There are a few critical ways that brokers can help asset owners position their BESS projects favorably in the eyes of underwriters, as carriers begin to look beyond mere compliance with safety practices and instead seek evidence of a comprehensive, proactive approach to risk management.
Mitigate thermal runaway risk
Thermal runaway, widely considered the most profound safety challenge to this asset class, occurs when a battery cell enters an uncontrollable self-heating state and spreads rapidly from one cell to the neighboring cells.
Electrical or mechanical abuse and internal failures can all result in thermal runaway events. If the risk is not properly managed, thermal runaway can result in fires, explosions, toxic gas releases, and system-wide failure. In large-scale BESS installations, a thermal runaway event can lead to catastrophic consequences, including extensive property damage, long system downtimes, and potential harm to first responders.
The first line of defense in mitigating thermal runaway is using a robust Battery Monitoring System (BMS). Asset owners should be using a BMS that not only remotely monitors for overcharging, overheating and other conditions that could lead to thermal runaway, but also provides early warnings of potential anomalies, and autonomously implements corrective actions before they escalate. Demonstrating real-time monitoring and rapid intervention capability to insurers is a must.
Fire suppression techniques have evolved but should be thought of as a backup line of defense to a BMS in the case of thermal runaway. As such, the industry is adopting a thorough, multi-layered approach to fire protection, combining suppression systems with advanced monitoring and control technologies.
Demonstrating comprehensive thermal runaway risk mitigation to insurers requires thoughtful design, a sophisticated monitoring system, adherence to evolving standards and safety codes, and thorough documentation of all preventative measures in place. Proving this level of active prevention measures and preparedness to insurers is paramount to receiving coverage at favorable rates.
Design for safety
The design and layout of BESS installations play a critical role in risk evaluation. Insurers pay particular attention to the spacing between enclosures. Although a minimum separation of eight feet, which is more conservative than the six-foot National Fire Protection Association standard, is commonly used as a guideline, asset owners must be ready to justify their configuration based on detailed risk assessments.
Given that thermal runaway results from internal chemical reactions, both gaseous and water-based suppression systems have inherent limitations. Therefore, fire suppression strategies must be multi-layered and customized to the specific installation. Asset owners should be able to explain the reasoning behind their chosen suppression system and how it is optimized for the setup and environment.
Insurers view projects that engage experienced Operations & Management teams who work closely with regional resources favorably. For example, commitment to safety should extend to cooperation and coordination with local fire departments to provide specialized training on the BESS installation.
Adhere to evolving standards
Complying with continuously evolving fire and building codes as well as fire suppression standards establishes a foundational level of safety and resilience. Regular updates are essential for mitigating risks and meeting regulatory requirements, things insurers will require.
Document! Document! Document!
Clear and thorough documentation of risk mitigation procedures is essential, as insurers expect to see well-detailed information across several key areas. This includes complete site plans, in-depth specifications for the BMS, and comprehensive details of the fire suppression system. Additionally, providing relevant testing certifications, maintenance procedures, and staff training programs is crucial.
All of this information should be presented in a way that highlights how each component plays a role in the broader risk mitigation strategy. By contextualizing these elements, asset owners can better demonstrate the overall safety and reliability of the installation.
Given the significant role BESS plays in our energy future, a focus on understanding risk and employing mitigation strategies and best practices is essential to ensure the safe and reliable deployment of clean energy, secure favorable insurance terms, and by extension, unlock the financing necessary for new projects.
Jason Kaminsky is the co-founder and CEO of kWh Analytics, an MGA that offers specialty insurance products for renewable energy assets, including Property Insurance. He has helped grow the company into the leader in climate insurance and is passionate about activating insurance capital into climate forward opportunities.
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