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Do the positives outweigh the negatives? Battery storage and insurance risks

  • Market Insight 30 April 2021 30 April 2021
  • Asia Pacific

Why is battery storage important?

The increased development and installation of renewable energy technologies in an attempt to reduce the reliance on fossil fuels has not been without its difficulties. Without a secure and reliable storage facility, the power generated by solar, wind and hydro renewable energy plants is not always readily available to continuously balance the supply and demand of renewable energy, particularly during substandard weather conditions.

The use and development of battery technologies in storing and releasing renewable energy provides the ability and capacity to divert and store excess energy to be used at a future point in time. Incorporating battery storage systems in renewable energy projects has many advantages, including the mitigation of market pricing exposure and the diversification of revenue streams.(1)

Network construction and infrastructure however is costly, and the sharing of this infrastructure between battery storage and renewable projects is practically and economically beneficial for investors and operators. Developers should though be aware that sharing can lead to export constraints for the combined facilities.

Battery storage capability in Australia

Australia is considered one of the world leaders in utility battery storage. The first notable utility-scale battery in Australia was the Hornsdale Power Reserve installed in 2017, also known as the Tesla Big Battery. Since then, a vast number of utility-scale batteries have been installed which are often co-located with utility scale wind and solar farms. North-Western Victoria is home to the Gannawarra Energy Storage System , which contains a 25 MW/ 50MWh lithium-ion battery, and the Gannawarra Solar Farm, which share common infrastructure.

There has also been an increase in private investment in renewable energy, as evidenced by the uptake in residential battery storage. As New South Wales operates on an 'on and off peak' energy pricing system, using energy from the main grid can be costly at certain hours. This has incentivised the use of residential solar panels and other storage batteries, as utilising the stored energy instead of energy from the main grid at peak hours is a way to drastically mitigate daily energy expenditure.

Medium-sized batteries, often referred to as community or suburb-scale batteries, are also being seen as increasingly viable. These batteries are installed in suburban streets and connected to the distribution network, with power capacities of up to 5MW (as compared to 0.03 MW for a residential battery). One of the benefits of this system is that local residents in a suburb can export their solar generation to charge the community battery during the day rather than all residents diverting power to their houses individual 'behind-the-meter' battery.

Where Australia's current energy grid infrastructure was not built to handle a two way flow of electricity, proper, regulated transfer back to the grid requires additional 'balance-of-systems' equipment. The use of suburb scale batteries can circumvent this, and has the potential to be a markedly more cost effective alternative than returning power to the grid.

Western Australia is spearheading the trend for community batteries in Australia, with the installation of 13 community batteries on the Western Power network.(2) With the objective of offering the broader community with better grid and price stability, a series of community batteries will also be installed across the inner-city suburbs of Melbourne in areas of high rooftop PV uptake, with the first battery expected to be trialled later in 2021.(3)

Insurance considerations

Lithium-ion batteries

Lithium-ion is the most common type of battery used to store electricity. However, lithium-ion batteries are prone to overheating if there is a short circuit issue or damage to a cell, which can result in the battery catching fire. Battery fires are intense and difficult to control and may take weeks to fully extinguish. This fire hazard has to some extent dissuaded underwriters from covering risks associated with grid storage.

The most significant exposure associated with grid storage however is not physical damage to the battery itself but the potential for resultant business interruption. The best way to mitigate both the triggering physical damage and resultant business interruption is to ensure there is an approved device to preclude, detect, and control 'thermal runaway'.

Thermal runaway occurs when the heat generated within the battery exceeds the amount of heat that is dissipated to its surroundings. This condition worsens if the cause of the excessive heat is not remedied, causing the internal battery temperature and battery current to rise. The rise in temperature in a single battery will then begin to affect other batteries nearby and so forth.

Unfortunately, current models of detection devices are themselves prone to failure, and can be inefficient and simply result in larger, more cumbersome battery products.

Alternatively, proper maintenance of the batteries themselves, correct charging docks and discharge outlets can to some extent mitigate the thermal runaway risks.

There have also been several instances in recent years of manufacturers purchasing poor quality or counterfeit lithium-ion batteries, which are generally more prone to runaway overheating. This risk is further exacerbated during transport where multiple batteries are stored in close proximity, which, due to the volatile nature of lithium batteries, can lead to rapid fire growth. It is therefore suggested that retailers ask their suppliers to name them as additional insureds on their product liability policies.

There may also be significant practical difficulties in identifying whether lithium battery damage has been caused by human error, electronical error or runaway overheating. Insurers may thus find themselves with limited root cause information available where there is minimal battery material remaining post-fire.

Community or suburb-scale batteries

The main exposures associated with community or suburb-scale batteries relate to liability and accountability.

Firstly, there may be question marks over stakeholder participation and approvals. Difficulties arise when determining the terms of participation in community batteries, particularly as certain arrangements i.e. a tariff or subscription model, may not benefit all customers equitably. Approval is also needed from local councils, electricity service providers, representatives of the traditional owners of the land and any other relevant authorities responsible for planning.

Secondly, where a medium-sized battery exists for community use, there may be no apparent owner, which raises queries as to how its use is regulated.

This is concerning from an insurance standpoint given that, if the operation of the battery is affected, it may be difficult to ascertain who is ultimately responsible for the loss.

Going forward

The use of batteries is increasing and shows no signs of slowing. Notwithstanding the potential exposures, Insurers need to find a way to work with these risks.

Stringent underwriting policies may be required until battery technology is more reliable. Insurers should focus on requiring the insured to use only high quality batteries, potentially providing the insured with an approved list of suppliers. Insurers should also make certain that their insureds are storing the batteries in containers with effective fire prevention mechanisms, and that they engage in regular maintenance.


(1) Andrew Stiel, 'Co-location renewables and batteries: Assessing the Operational Implications' Energy Magazine Issue 12, November 2020, 12.

End

Additional authors:

Kayaneh Mouradian

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