A fire in at least one container in the Victoria Big Battery, a 300 MW grid-scale battery storage project in Geelong, has left battery energy storage system (BESS) developers and operators vulnerable to costly premiums and other issues related to risk management.
The incident has emphasised the renewable energy sector's insurance woes as insurers continue to face declining profitability due to a dramatic number of claims arising from assets in the renewable energy sector.
BMS Risk Solutions, a unit of international specialist insurance broking group BMS, stated in its latest report that insurance costs for renewable energy projects including lithium-ion BESS are likely to rise.
Richard Nunny, the head of energy (Australia) for BMS Risk Solutions, stated that BESS owners and operators are now vulnerable to costly premiums, more restrictive coverage, and larger deductibles to manage key risks, such as thermal runaway, a catastrophic fire that can start with excess heat in a single-cell caused by defects, mechanical breakdown, or incorrect operation.
Other major risk factors include construction design, contractor inexperience, shortcomings in or changes to operations and maintenance practices, and the site's exposure to natural disasters, such as floods, bushfires, cyclones, or earthquakes.
“Australia has the largest interconnected electricity grid in the world. It is one system, built around large, state-owned coal-fired power stations which provided significant stability to the grid through inertia,” Nunny said.
“The challenge is to move from a small number of these large-scale operations to many more geographically spread, inverter-based renewable assets – from a baseload, synchronous-generator-based supply to an intermittent supply. BESS assets can provide significant stability to the grid.”
In response to insurance data in the renewable energy sector, BMS partnered with the renewable energy team at AXIS Capital to review the key risk factors for BESS projects and provide insights into best-practice considerations for the development, construction, and operation of projects in the sector.
In the report, Nunny suggested a smart risk assessment from the “very earliest stages of a project's developments” to ensure that insurers of BESS developers and operators can develop the right policy and premium structure to protect the facility.
“A comprehensive technical analysis of the project's risks including a detailed understanding of the loss scenario exposures will generate insurer appetite to offer coverage for the risk. This exercise may seem like an unbudgeted and untimely up-front cost, but it is likely to be re-couped in lower premium rate outcomes, or lower deductibles, over the lifecycle of the project,” he added.
“Insurers are not trying to avoid paying valid claims, but they need the right information to be able to construct the best coverage and premium structure. Developers and operators who have carried out risk engineering surveys, implemented risk improvement recommendations, and shared this information with insurers to support underwriting submissions have achieved more competitive terms and conditions.”
Read more: From fires to floods
Nunny also advised developers and operators to provide their insurance broker with detailed information on how the system is constructed and how it is protected from key risks, including thermal runaway, and whether it adheres to international certifications around fire safety and government standards and regulations.
In addition, prospective insurers need to understand contractor experience as contractor error remains a major cause of claims in the sector so far. They also need information on exposure to natural catastrophes, how the BESS sits within the energy generation system, and if it is at risk from damage to other interrelated projects – especially if they are co-located with generation assets and share common connection infrastructure.
“Deployment of fast and flexible battery energy storage systems will continue to grow in Australia as technology improves, costs fall, and government subsidies support the time shifting of renewable generation to maximise revenue opportunities,” Nunny said.
“It's a huge opportunity and will generate a lot of interest from renewable energy insurers both locally and globally. But developers and operators will need to proactively consider project risks from the start to secure the best possible outcomes.”
