With BESS failures having increased ten-fold, here’s your guide to getting skeptical insurers onside and boosting insurers’ confidence in BESS projects.
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More BESS means more failures
Battery energy storage system (BESS) failures have increased ten-fold since 2016, with “issues pertaining to the quality and performance of BESS” among the major causes, according to a new study published by a leading renewable energy insurer. The report from GCube Insurance – ‘Batteries Not Excluded: Getting the insurance market on board with BESS’ – said the available data on BESS failures suggested the nascent market was “characterized by ongoing challenges and uncertainties across design, installation, operation, and maintenance”.
Hybrid projects are more at risk
The report also indicated that hybrid solar-plus-storage projects were at particular risk of failure, with 48 per cent of publicly reported failures occurring at such projects. The report acknowledged that solar-plus-storage projects have benefitted from incentives such as the Inflation Reduction Act in the US and therefore such hybrid schemes represent a large proportion of installed BESS capacity worldwide. Indeed, figures from Berkeley Lab – a US Department of Energy Office of Science national laboratory managed by the University of California – show that solar and battery storage is by far the fastest growing resources in the queues.
Combined, they accounted for more than 80 percent of new capacity entering the queues in 2022. However, the GCube report added that the “predominance of solar-related failures still raises questions around the unique challenges and associated risks of combining battery technology with solar power”. It also concluded that project owners with combined generation and storage contracts may face both the challenges unique to BESS plus the “natural perils risks affecting solar, such as hail and wildfire”.
Recommendations to boost confidence in BESS projects
GCube said a number of lessons could be learned from the analysis of BESS failure data. Specifically, the report said: “An enhanced emphasis on reliability and quality standards is essential to avert substantial losses and foster the sustainable development of the energy storage industry.”
The availability of BESS insurance varies from market to market, partly due to insurers’ level of comfort and familiarity with the types of technology being used. How can asset owners and developers boost the confidence of underwriters in their assets and projects? GCube has recommended five steps:
Note that insurers prefer to underwrite lithium-iron-phosphate batteries over nickel maganese cobalt batteries, for example – it may be worth considering other non-lithium options, due to their lower fire risk. LFP batteries have a longer cycle life and lower cost per kWh than NMC batteries, but lower energy density and higher weight.
When designing the layout of BESS, ample spacing between battery modules, racks, containers or buildings will mitigate fire and explosion risks. Anything less than 8 feet or 2.5 meters between containers or clusters “significantly affects insurers’ exposure and may pose challenges for clients seeking coverage,” GCube said.
Supply clear and detailed information about the qualifications of the key project participants, and ensure they comply with the relevant standards and regulations. Conduct a thorough review of the site layout and precise measurements of BESS components to enhance risk mitigation and streamline insurance negotiations.
Make sure the BESS’ interaction with solar or wind generation – and how it works if part of the project is offline – is clearly understood. Insurers will evaluate revenue and electricity flow models, and exposure to weather-related risks, and may require additional coverage or mitigation measures if the risks are significant.
Conduct a complete root cause analysis and devise a corrective action plan for any past mechanical breakdown losses and implement them effectively. Insurers monitor the claims history and performance of the battery manufacturers and system integrators and may adjust the rates or terms accordingly.
In the longer term, GCube recommended that the market takes three steps to advance BESS technology in a “sustainable, safe and reliable manner”:
- Develop spacing standards for BESS units
To minimize thermal runaway risk, the industry needs to develop and adopt standardized guidelines for the minimum spacing between BESS units. Crucially, these guidelines should account for the different types and characteristics of battery technologies and chemistries. - Define a liability framework for BESS projects
The BESS market should develop a clear and transparent framework for liability in case of failures or incidents. It should specify the roles and responsibilities of different parties, such as developers, OEMs, and insurers. - Involve OEMs in the entire BESS project lifecycle
Developers and project stakeholders should engage OEMs from the early stages of the project, and involve them in the decision-making process regarding the selection, configuration, integration, augmentation, and testing of battery systems and components.
If you wish to learn even more about BESS, we cover the current state of the EU battery storage market and its trends here. You may also explore how we assist developers with getting the right funding for their storage projects.
About the author
Ben Cook is the Insights Director at Tamarindo. Tamarindo delivers insights, connections, and communications for the global energy transition. He heads up Tamarindo’s Energy Storage Report. An experienced editor and journalist, he has worked as a writer and contributor for national newspapers, including The Guardian and The Times. He also spent six years as the Madrid-based editor of a legal magazine and website and previously worked as chief editor for a Paris-based legal and financial ratings agency. He has also previously worked as chief editor for a Milan-headquartered legal publisher.
