Battery energy storage system (BESS) technology is expected to transform the energy sector, helping countries to wean themselves off a reliance on fossil fuels; and add flexibility to aged grid infrastructure. In addition to powering electric vehicles, battery technology is now playing a broader role in the energy market, from supporting renewable power generation through to creating grid efficiencies, or even arbitraging electricity spot prices. 

With improved technology and falling costs (units are now almost a fifth of the cost of 2010) the battery storage market is growing rapidly. By 2050, companies will have invested about $550 billion in home, industrial and grid-scale battery storage, according to Bloomberg.

Powerful solution

BESS technology is increasingly being employed by large scale utility companies through to standalone projects to help manage the peaks and troughs of electricity supply and demand, as well as deal with the demands placed on overstretched infrastructure. 

EDF, for example, recently completed a 49 MW battery storage facility, one of the last of eight commissioned to provide 200 MW storage capacity for the National Grid as part of their Enhanced Frequency Response project. Last year Tesla built a Lithium Ion 100 MW BESS facility in South Australia within 100 days after the region suffered a series of power outages.

Battery storage is increasingly a solution in the renewable energy sector, where it is being incorporated into new build projects, or retrofitted to existing projects. This is transforming wind and solar projects from peaking plants to base load electricity providers, maximising periods of peak generation. In areas of high reliance on renewable energy generation, particularly wind; Battery energy storage systems are helping to decongest substations and mitigate curtailment risk. BESS is also an appealing solution for large industrial and commercial users of electricity (from manufacturers to data centres and shopping centres) who are using battery storage to manage their power consumption and mitigate peak usage charges as well as provide emergency back up.

A $1bn solar project being built in Australia will have the world’s largest battery storage capacity at over 100 MW, while Europe’s largest battery storage plant (a 50 MW project) was recently completed by NEC Energy Solutions in Germany to support nearby wind farms.

Traditional risks

Insuring BESS projects is a growth area for insurers, providing risk transfer mechanisms for protecting assets and liabilities from transit and construction through to operation and performance. 

Battery storage facilities are exposed to a number of physical hazards, such as fire, explosion and flood, as well as emerging risks like cyber. Although rare, some battery technologies present a risk of fire and explosion – fire destroyed a battery storage system in Belgium during commissioning last year and at a wind farm storage facility in Hawaii in 2012. Familiarity with the growing sector, the emerging technologies and the lessons learned from past losses helps ensure appropriate design of insurance solutions.

Performance hedge

While traditional perils like fire are a key risk, insurance is proving particularly relevant to protect the different revenue streams that BESS projects can generate and to enable Lender financing. This is an exciting growth area where Miller is experiencing interest in specialist and bespoke insurance solutions.

With some current battery technology, battery performance can deteriorate over time, which has historically been a concern for Lenders offering debt on projects with payback over a number of years. Miller have worked with insurers to create performance guarantee insurance solutions for BESS projects that protect revenues in the event of under-performance, giving lenders confidence to finance projects at bankable terms.

Revenue protection

Battery storage owners and operators are vulnerable to business interruption, both direct and contingent. While a fire or a flood could cause significant disruption, revenues are also exposed to risks outside the operator’s control. For example, a storage facility might be reliant on a wind farm for its charge input or a non-owned substation to sell into the grid. 

Miller has worked with insureds and specialist insurers to design contingent revenue insurance that addresses third party exposures for battery storage systems, in addition to direct business interruption risks under a property damage policy. The contingent revenue cover can be very bespoke, tailored to the particular risks and contractual relationships of each project.

Facilitating growth

With growing demand for renewable electricity and the move toward smarter grids and technology, the battery storage sector is set to grow rapidly. The technology is continually evolving while innovative uses are being found for the technology and BESS projects are increasing in size. 

The insurance market is well positioned to respond to the specific needs of BESS projects. Innovative insurance solutions, such as those Miller has previously designed for performance guarantee and revenue protection, will support the growth in the BESS sector, enabling it to attract competitive financing and mitigate risk exposures.