The rise of BESS technology

17 February 2021

2020 saw the rapid expansion of Battery Energy Storage System (BESS) technology and the pace continues into this year, with an even swifter uptake in the planning and implementation of these projects. This recent increase in development has been driven by a combination of the falling price of Lithium-Ion batteries and better BESS warranties from some manufacturers, coupled to the wider growth of renewable energy projects around the globe.

As renewable energy capacity increases so does intermittency in electricity distribution networks, this caused by the natural fluctuations in supply from wind and solar projects. This increases the need for flexible power providers to stabilise the electricity grid. BESS projects do this by acting as a regulating system to improve the stability of distribution networks. The projects are often connected directly to renewable energy projects, such as wind farms (onshore or offshore) or solar farms. They offer the ability to charge and discharge electricity from the grid and ramp up and down at split-second speeds that traditional generators, such as diesel and gas, cannot match. This ability to balance distribution networks is useful anywhere, but particularly so in parts of the world that suffer from both poor distribution infrastructure and lack of capacity, meaning BESS projects can really speed up the will to provide an integral part of global electrical infrastructure for years to come.

What are the risks associated with BESS projects?

Naturally the emergence of these new technologies is also linked to new risk exposures, and in the wake of several high-profile BESS losses the insurance market is still treading carefully whilst it gathers the knowledge and experience to better understand and price the risks. The main risks associated with BESS projects are the following:

  1. Fire
  2. Third Party / Environmental
  3. Mechanical / Electrical Breakdown
  4. Contractor Error

Lithium-Ion batteries are prone to catching fire, often caused by a process called Thermal Runaway, where multiple cells in a battery fail due to a failure starting at one individual cell, in a domino effect. Thermal runaway can occur due to exposure at high temperatures, external short circuits due to defective wiring, or internal shorts due to cell defects within the batteries. The solid electrolyte interface begins to break down at around 120°C and when it gets to 200°C the temperature will start to increase exponentially and cause a fire to start. Furthermore, the rupture of the battery cell enclosure causes a release of combustible gasses, which if ignited can result in an explosion and severe damage to the battery and surrounding area, which is why third-party liability cover is an important consideration.

Fire is invariably the biggest risk associated with BESS projects, so mitigations such as fire detection and suppression systems are of huge importance. Fire protection standards have been set by different bodies, such as the National Fire Protection Association and the International Fire Code, that address the design, installation, and deployment for a successful emergency response in the event of a fire to a BESS project. The United States NFPA 855 code is the most commonly accepted standard and aims to ensure that all installations are done in a way that takes fire and life safety into consideration. Underwriters will carefully scrutinise these measures when determining whether to take on the risk.

There are also environmental liability considerations as batteries can leak when subject to overheating, leading to a release of sulphuric acid.  Additionally, Lithium-Ion batteries can release hydrogen fluoride which becomes hydrofluoric acid when it comes into contact with water. Both are very corrosive acids and require swift decontamination measures to be taken to prevent detrimental damage to the surrounding area, so the location of the BESS project will also be looked at closely by the underwriter.

Mechanical and electrical breakdown can affect BESS projects the same way as other renewable energy technology. For example, the inverter is a vital component in charging and discharging the batteries but is also a common point of failure. Likewise, the main HV transformer is a single point of failure associated with renewable energy projects in general, so underwriters will look at the availability of spares and lead in times for these critical components.

Another issue with BESS projects is sub-standard workmanship by the contractor, who may not have much experience of working with these new technologies or might not follow appropriate procedures in order to cut costs. A common cause of loss might be that the contractor is heavy handed during the installation process, or the batteries were badly packed during the transportation. External impact can pass through the battery casing damaging the cell membranes leading to a fire. The experience and track record of the contractor, and the provisions for transportation of the components to the project site will therefore be taken into consideration by the underwriter.

What are the current insurance market conditions?  

We have outlined here some of the risks associated with BESS projects; but we are seeing confidence grow in the insurance market as more is understood about the technology. However, although there are several leading insurers who support BESS projects, there remain many specialist renewable energy markets who are steering clear of the technology for now, meaning insurance capacity is still somewhat limited.

As we move towards a greater reliance on renewable energy sources BESS will increasingly form a vital part of our electrical infrastructure and therefore cannot be ignored. The growth of BESS technology requires the support of the insurance market, so we expect to see a wider pool of insurers providing capacity in 2021.

Price Forbes has successfully placed several BESS projects in diverse global regions into the London and international insurance markets. Please feel free to get in touch with a member of the team if you have any BESS related enquiries.

Contact Sam Northcote-Green for further details.

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