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Battery energy storage systems (BESS) continue to play a vital role in the pursuit of net zero carbon emissions. But the technology used in this growing sector is not as benign as it might first appear, and the fire risks associated with BESS are potentially significant.
BESS represent a simple and relatively inexpensive way to balance the power grid and help manage unavoidable peaks and troughs in power generation from renewable energy sources such as wind and solar.
Battery storage also helps to decentralise energy networks, increasing their efficiency by locating sources of power close to where it is needed. Technology that is compact and quick to build reduces the requirement for transmission infrastructure and the energy losses that come with it.
As efforts to decarbonize energy supply gather pace, new BESS facilities are being built at a rapid pace to meet growing demand. Consultancy Wood Mackenzie forecasted that the total energy storage market would double in size in 2021 to reach 56 GWh, with that number expected to increase seventeenfold by 2030.
The U.S. Department of Energy has recorded more than 1,600 storage facility projects worldwide, including nearly 600 lithium battery facilities. The total annual energy storage market in Europe was expected to reach 3,000 MWh in 2021, almost double the annual storage deployments seen in 2020, according to the European Association for Storage of Energy.
Most large battery storage facilities currently use lithium‑ion batteries due to their higher energy density and more compact nature relative to longer-established technologies such as lead acid or nickel cadmium batteries. However, other battery designs are under development, such as systems with sodium‑ion as well as iron‑air cells, and other alternative technologies are on the drawing board.
A drawback of existing battery technology is that lithium is highly reactive and fires involving lithium‑ion batteries (which are mostly based on lithium-iron-phosphate or lithium-nickel manganese-cobalt) are very difficult to extinguish once thermal runaway has occurred.
Losses have been seen the world over. For example, in South Korea between 2017 and 2019 there were 23 major battery storage fires, with total damages upwards of USD 32 million. In the U.S., a serious fire in 2019 claimed the lives of two firefighters at a 20 MW facility that had been in operation since 2018.
Europe has experienced two big lithium‑ion fires: one near Brussels in Belgium in 2017, and another in Liverpool, UK, in 2020.
In August 2021, a lithium‑ion battery module caught fire during a test at one of the world’s largest storage facilities – with a capacity of 300 MW/450 MWh – in Victoria, Australia. Around 150 firefighters and 30 vehicles were deployed to fight the fire, which took three days to extinguish.
Because lithium‑ion battery fires can be so difficult to extinguish, measures need to be taken at the planning and construction stages to prevent them from happening or to limit them when they do. As safety guidelines and standards have been slow to evolve worldwide, without international consensus, (re)insurers need to be closely involved early on.
To assess their exposure and determine the insurability of new projects and existing facilities for stakeholders, including investors, underwriters should set out a comprehensive checklist. Here’s a sample of some of the issues we look for, though this is by no means exhaustive:
Loss experience has repeatedly shown that fighting fires in large-scale battery storage facilities presents specific challenges.
When planning a large-scale battery storage facility it is important to involve the local fire brigades and response teams from the start to hear their concerns and jointly develop emergency strategies.
Lithium‑ion battery cell fires cannot be extinguished easily using traditional approaches but require complex and protracted fire-fighting operations. Worryingly, fire protection measures can avert property damage to only a limited extent, especially if thermal runaway occurs. In such an event, firefighting operations are focused on cooling the affected units to help reduce radiant heat generated by the fire and the risk of fire spreading to other nearby units. Where spatial separation is inadequate, firefighting efforts may be severely hampered and the risk of multiple units being involved is increased, thus increasing the risk of property damage and business interruption losses.
Carefully determining and evaluating the exposure during the underwriting process is therefore vital in order to price exposures and determine appropriate underwriting capacity.
Much of the risk assessment needed for large-scale BESS will be familiar to insurers already involved in industrial and production facilities. But it’s important to remember that energy storage is a fast-moving sector in terms of the technology and the business opportunity itself.
It follows that underwriters would do well to understand the commitment to risk management of all stakeholders, asset owners and operators. Where return on investment is a big consideration, could some optional fire protection systems be seen as “expensive” among backers?
Find out who has control of (and will maintain) the facility in question. Is it the client or a third-party contractor? Will the storage capacity on the site be increased in the future?
The world needs large-scale BESS to balance intermittent renewable sources if we are to eliminate our dependence on fossil fuels. In order to facilitate the transition to renewables, ensuring that projects are well arranged, managed, protected and ultimately insurable is essential. However, the insurance industry can sustain its provision of capacity only if it has a full understanding of the risks it is writing.
To find out more about large-scale battery storage and suggested underwriting considerations click here.
