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
Thermal runawayAnother 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, insurance brokers 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.
Equipment warrantiesMuch 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 shorter 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.
Insurance and risk transferInsurance 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. Good communication throughout the risk management and transfer chain will enable your insurance broker 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 therefore 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.
Here to help
From concept to operation, your renewable energy project is at risk, which could be caused by a lack of adherence to contractual requirements, risk management and supply chain issues. Managing these risks can help to reduce and disruption to your business. We can provide full contract advice, construction and operational insurance programs to protect your investment. For further information, read about the BESS insurance available from Marsh Commercial, or speak to our renewable energy risk specialists for help and support.
This article first appeared at www.marsh.com. Read the full, unedited article.
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