“The technological evolution of BESS is occurring both at record-breaking speeds, and also differently across markets, which continuously changes the underwriting landscape and makes it difficult to understand the risks.”
Despite the rapid expansion of BESS globally, most underwriters agree that BESS is still a nascent technology. They have therefore encountered diverse experiences with the technology, which range from market to market. In this article, I explore some of the key underwriting considerations of BESS from GCube’s perspective that affect its insurance, risk management and Business Interruption (BI) cover.
Challenges of underwriting BESS
The landscape of BESS insurance rates varies across major markets, including the UK, US, and Australia. This variance stems from underwriters’ levels of comfort and familiarity with the technology. For instance, the US witnessed substantial growth in local insurer protection for BESS, as many US-based insurers initially covered risks related to BESS projects. This trend, however, is waning as risks become more specialised. This shift has led to much of the BESS underwriting now being written by specialist markets such as GCube.
Whilst this can pose challenges due to differing legal frameworks, communication barriers and logistical concerns, it has the advantage that in the event of a loss the insurer you are dealing with will have had prior experience of how to deal with the claim quickly and efficiently. This is a major advantage compared to dealing with local markets with no previous experience. Moreover, BESS insurance rates and terms are influenced by variations in battery chemistry preferences. While Lithium Iron Phosphate (LFP) dominates, due to its combination of energy density and fire safety, alternative chemistries like Lithium Nickel Manganese Cobalt Oxide (NMC), Lithium Titanate Oxide (LTO), and Sodium-ion (Na-ion) offer distinct pros and cons. These alternatives, coupled with varying market adoption rates, mean that underwriters must consider different certifications when assessing BESS project risks. Adding complexity is the diverse revenue generation methods across different BESS markets.
Some employ fixed energy storage agreements, while others rely on market-based mechanisms. Grasping the revenue potential of different BESS projects is vital for understanding BI coverage. Unfortunately, however, due to limited data on claims and revenue analysis, accurately calculating revenue potential for BI cover remains a significant challenge.
5 key considerations for underwriters
1. Thermal runaway risk and spacing
Managing the risk of thermal runaway is crucial for underwriters assessing BESS.
Understanding thermal runaway requires evaluating factors like battery chemistry, design, and operational conditions. Underwriters must also consider the expected battery lifetime, warranty, and the effectiveness of monitoring and maintenance systems. As part of assessing the thermal runaway risk, underwriters need to examine spacing optimisation and density concerns. Reduced spacing in a higher density environment may increase the risk of thermal runaway by challenging heat dissipation.
Evaluating engineering and design considerations related to optimised spacing is vital for effective safety measures and thermal controls. Moreover, the impact of spacing on accessibility for maintenance and monitoring is critical. Proper spacing ensures technicians can conduct routine inspections and replacements without compromising safety. Developers should provide detailed plans and documentation on spacing rationale and safety measures, enabling underwriters to make informed decisions on the BESS risk profile.
2. Augmentation and compatibility issues
Another challenge is how to deal with augmentation, which is the process of either adding more batteries to a site in the future or replacing old ones. Augmentation can be done to increase the capacity or extend the lifespan of a BESS project, particularly as batteries degrade over time.
However, it can also introduce compatibility issues between old and new batteries, which can affect the performance and safety of the system.
It is important for underwriters to evaluate the compatibility of new and old batteries before approving augmentation. They also need to review the business plans of developers to understand their future intentions and expectations. Moreover, they need to update the insurance policy accordingly to reflect the changes in the system value, performance and risk profile.
3. Technological evolution and diversity
The technological evolution of BESS is occurring both at record-breaking speeds, and also differently across markets, which continuously changes the underwriting landscape and makes it difficult to understand the risks. For example, China is reported to be focused on producing batteries with new chemistries, such as lithium- sulfur (LiS), lithium-air (Li-air), or solid-state batteries, which have different characteristics and risks than the dominant LFP.
In this evolving market, underwriters need to be adaptable to technological changes and update their policies accordingly. They need to keep track of the latest developments in battery technology and research their performance, safety, reliability, cost-effectiveness, environmental impact, etc. They also need to compare different technologies across different markets and regions, as they may have different regulatory standards, quality controls, testing protocols, etc.
4. Transit & cargo
While it is a positive to see BESS shipped using containers, there are variations in shipping and packaging methods. Some batteries have to be packaged differently to comply with the regulations and standards of different countries and regions. Therefore, it is important for developers and shippers to be aware of the variations in shipping and packaging requirements and to follow them accordingly.
Another challenge for BESS transportation is the weight limitation of the containers and the vehicles. BESS containers are typically dense and heavy, and sometimes packed tightly. Therefore, they require experienced haulage contractors who can handle such loads safely and efficiently. They also require suitable vehicles that can accommodate the weight and size of the containers without compromising the performance or safety of the vehicles. In one case, for example, a vehicle’s brakes caught fire because the load was too heavy, which in turn set light to the BESS system being transported.
This shows the potential hazards and damages that can result from improper weight management. Therefore, it is essential for developers and shippers to choose reliable and qualified haulage contractors who have the expertise and equipment to transport BESS containers.
5. Liability
Underwriters need to closely examine the potential risks to public safety and health associated with BESS projects. Inadequate safety measures during the production, deployment, or maintenance of battery systems can lead to accidents, fires, or other hazardous situations. Liability considerations should encompass the potential harm to individuals and communities, ensuring that robust safety protocols are in place to prevent accidents and protect public well-being.
In addition, underwriters must consider the potential liability risks associated with the environmental and social impact of BESS. This includes assessing whether BESS projects adhere to sustainable and ethical practices throughout their lifecycle, such as evaluating the supply chain, waste management, and recycling processes. Any adverse environmental or social impact resulting from the BESS project can expose developers and operators to legal and financial liabilities. Therefore, underwriters should scrutinise the project’s commitment to environmental and social responsibility and ensure that adequate risk mitigation measures are in place.
Advice for BESS developers and owners: involve OEMs
With these challenges, developers need to involve original equipment manufacturers (OEMs) as much as possible in their BESS projects, especially when it comes to engineering, procurement, and construction (EPC) and operation and maintenance (O&M) processes. OEMs are the companies that produce the battery cells or modules that are used in BESS projects. They have extensive knowledge and experience in battery technology and can provide valuable guidance and support for developers.
With a lack of skilled or bespoke contractors in this new space, the proactive transparency and guidance from OEMs can help raise awareness of risks and best practices amongst developers.
For example, OEMs can help with site selection, system design, installation, commissioning, testing, monitoring, maintenance, decommissioning, and recycling. By involving OEMs in these processes, developers can ensure the optimal performance and safety of their BESS projects, as well as reduce the likelihood of claims and disputes.
- GCube – Oliver Litterick, Josh Shimali; Landis Knorr and Mohammed Zeeshan Junedi