On July 30, during testing at Australia’s largest Tesla battery project near Geelong in Victoria, a container holding 13-tonne lithium-ion battery caught fire.
The Victorian Big Battery blaze raged for three days. Multiple fire investigations, including by Tesla, the Country Fire Authority, and the French owner Neoen, are still trying to uncover the cause.
“It’s unknown at this stage. They’ve still got plenty of investigations to do,” said Richard Nunny (pictured above), head of energy (Australia), for BMS Risk Solutions.
In the wake of the big battery fire, BMS, an international insurance broking group, is warning of rising costs for owners, developers and operators of battery energy storage systems.
“In this loss we’ve seen an example of a multimillion-dollar project which was very close to completing construction, having a significant fire. So, the underwriters are going to be quite keenly attuned to those kind of risks and underwrite accordingly,” said Ben Humphries (pictured below), client director, construction and energy, for BMS.
Humphries said lithium-ion battery systems are the prevalent technology in the market because of their very high energy density. However, he said, this technology presents different risks than other battery chemistries and other forms of energy storage.
“This is something we saw in the Victorian Big Battery fire in the sense that this is a relatively new technology in terms of being deployed at utility scale. You therefore risk seeing teething problems in these projects,” he said.
Humphries warned of a disconnect between the client, dealing with the pressure of putting together the finances and delivering the project on time and on budget, and the insurance market, in terms of premiums, breadth of coverage and deductibles.
“But at the same time,” he said, “The insurance market for renewables has been unprofitable for a sustained period of time, and it isn’t sustainable for insurers to continue doing what they’re doing now. So, insurers have to push for profitability in the way that they are approaching underwriting risks in this sector.”
Humphries said the first risk you’d look out for at any construction project is the natural perils risk presented at the chosen construction site. Contractor selection and technology are also risk factors.
“For battery energy storage systems (BESS), like in any major construction project, contractor selection is a big risk. I think for BESS projects probably as much as, or maybe more than, other projects in the renewables sector, your technology risk is very significant factor as well, so picking the right technology, picking the right manufacturer and the right system design will all have an impact on the insurance outcome ultimately achieved.”
But once the project is underway, what can brokers do?
“I think as brokers, the most important thing we can do is stay as close as we possibly can to the project team and to the project to understand what’s happening and what challenges they’re facing, so we can advise accordingly,” said Humphries.
He added that brokers are well positioned to advise clients on any other losses in the market. For example, for a loss like the Victorian Big Battery fire, if the broker had any other clients using similar technology, they could consult with insurers on their client’s behalf and get any feedback that could be fed back into the project to improve outcomes.
“I think it comes down to a process of managing expectations and working with our clients from the earliest possible stage, so that rather than setting unrealistic positions in project financial models and in terms of a project’s contractual insurance requirements, we as their brokers need to be advising them all the way along to say, ‘Actually in the current market, this is where the market’s at and if you need to improve the outcome, here’s the levers you have available to you to alter that position.’ And then we need to work together to get to a solution that is closer to what the project needs it to be,” said Humphries.
He said that might be through increased retentions, more restrictive cover or inner sub-limits where the project has the ability to assume the additional risk.
Nunny said insurers can help too.
“Insurers just need to have open communication with brokers around their appetite for risks,” he said.
