How to use insurance to mitigate natural disaster risks unique to energy storage systems

Harmony Energy's 196MWh Pillswood BESS in East Yorkshire, UK, is built on a raised platform to mitigate the risk of damage in flood-prone areas. Image: Harmony Energy

Battery energy storage plays an important role in increasing the resilience of electricity networks. But we should also remember that natural disasters can also affect BESS resources, writes Ross Keady of custom battery insurer Altelium.

Natural Disaster Risk (NAT CAT)

Compared to renewable energy sources such as wind and photovoltaic solar, battery storage requires different planning and risk assessment because it involves chemical reactions.

The most potentially destructive factor to batteries in NAT CAT environments is water, especially salt water, which has been called a battery’s “death sentence.” Salt water can corrode and subsequently cause short circuits, which can lead to thermal runaway.

As my colleague Paul Markham, Electrical Energy Risk Engineer, confirms: “It’s a matter of ensuring the development is structurally capable of withstanding wind or hurricane risk and, where there is a risk of flooding, that the battery enclosure has an adequate IP rating and is built on raised platforms or raised concrete structures.”

The standards set by the National Fire Protection Agency (NFPA) in the US are considered the gold standard for this aspect of design. Although the UK is developing a corresponding standard, there is currently no comparable standard in the UK or Europe.

The National Research Council (NRC) found in a study about a decade ago that some storage systems, though not energy storage systems such as carbon capture and storage, are more likely to trigger earthquakes than fracking.

Other energy storage systems being explored, such as compressed air storage in depleted natural gas reservoirs, could pose an earthquake risk by triggering explosions through shocks.

"Fossil fuels are technically a form of stored energy, but they present a host of problems in terms of extraction, refining, distribution and transportation," Paul Denholm, a senior energy analyst at the National Renewable Energy Laboratory, wrote in Scientific American.

“We’ve basically eliminated those risk factors. Gasoline can always catch fire. Electric energy storage systems are not inherently more dangerous than oil or gas, but the risks are different.”

Battery fires are particularly worrying because they can occur days after the initial thermal runaway event and subsequent ‘original’ fire. Batteries contain energy within them, known as ‘stranded energy’, which means they can reignite days after a fire has been extinguished. But again, being aware of this means it should be prepared, and if it isn’t, insurance won’t be provided and the project is highly unlikely to go ahead.

Natural Hazard Modeling Tools

In this regard, insurance, and in particular the NAT model, plays a key role in providing environmental and financial protection.

In the battery storage and renewable energy industries, we are seeing this trend having an impact globally, which insurers and reinsurers need to understand and model to help make informed decisions.

NAT CAT software modeling programs offer several benefits and can be a valuable tool when looking at battery storage sites. They provide insights into the potential impacts of disasters such as hurricanes, earthquakes, floods, wildfires and other events.

When it comes to battery energy storage, natural disaster modeling tools are valuable in several ways:

Improved risk assessments help battery storage facility engineers, owners, operators, banks and insurers understand the vulnerability of their assets to different types of natural disasters.

2. Risk mitigation involves battery storage operators, armed with information from catastrophe models, taking proactive design measures to reduce vulnerability to natural disasters.

3. Insurance and risk transfer can help. Catastrophe modeling tools can help insurers assess the potential losses associated with insuring BESS facilities against natural disasters.

4. Transparency and data accuracy are critical. The major suppliers of CAT modeling tools for energy and battery storage systems have recognized the problem of data quality and created their own proprietary algorithms to reduce low-quality data, saying they provide the most accurate level of results.

As climate change intensifies, the frequency of natural disasters will increase, and the insurance industry will need to quickly adapt to these risks from renewable energy and battery storage. Using modeling software to help them adapt is not the only tool risk engineers will need, however, it is considered a key one in the toolbox.

If battery storage developments have the right facilities to deal with the risk of flooding or other disasters, insurance costs will not be prohibitive and good insurance rates can be secured with appropriate mitigation measures. In this regard, the insurance industry has a key role to play in supporting the transition to clean energy and addressing climate change.

(Original source: Energy Storage News Global Energy Storage Network, New Energy Network Comprehensive)