Introduction - the Lithium revolution
To increase reliance on renewable energy, we need to find ways to store it. Will the new range of battery energy storage systems provide what the world needs?Jamestown, South Australia is a blip on the map; 200 kilometres from Adelaide and hometo fewer than 2,000 people (as well as a lot of sheep). It’s an unlikely place for a world first.But it is the site for the world’s largest Lithium-Ion (Li-Ion) battery, built by US technologygiant Tesla for French company Neoen’s Jamestown wind farm. This 100 megawatt batteryrepresents the evolution of a technology that will shape the future of renewable energy.Promoted on a number of occasions by techpreneur Elon Musk, the battery representsa quantum leap forward for governments pushing greater uptake of renewable energy.This project is part of South Australia’s ambitious A$550 million push to solve the state’senergy woes. Willis Towers Watson is proud to be the insurance advisor and broker to theTesla project.
Renewables become economic
Power is being transformed: the energy and technology sectors are driving the transitionfrom a carbon past into a green and clean future. Electrical energy from renewablesources provides great potential to meet today’s and tomorrow’s energy requirements ina sustainable manner.In many jurisdictions around the world, prices for energy derived from the renewablesectors have started to decrease. In the UK for example, offshore wind energy has movedfrom being one of the most expensive forms of renewable energy to, in some cases,being cheaper than nuclear. Private investment is growing and government legislation isencouraging the move.Wind and solar, as well as the longer established hydro, have been part of the renewablelandscape in Australia and around the world for a significant period. The issue with windand solar to date has been the inability to store the energy from these forms of generation,at a high enough level, to ensure stable supply.
BESS - the storage solution
The answer is Battery Energy Storage Systems, or BESS. Technology has come to the foreto develop such systems, but it has not been a linear progression; indeed there havebeen some spectacular failures that have blunted the risk appetite for some players in theinsurance industry. Despite that, renewable energy insurance provider GCube estimatesthat, within the next five years, up to 4,000 MW of these systems are expected to beconstructed10. There is clearly a growing market opportunity for insurers.But Li-Ion technology appears to be developing at the fastest rate, driven by implementationcosts that have been falling around 70% every 18 to 24 months11. However, in future thecost saving is expected to slow.
Is BESS a bad risk?
The Kahuku legacy
Insurers have a long memory and the fire disaster at the Kahuku wind farm on the Hawaiianisland of Oahu in 2012 led many to believe that battery technology is a bad risk.That incident – the largest single loss recorded to date globally for a BESS – concerneda legacy-style lead battery rather than Li-Ion technology. Nevertheless, it has put riskmanagement under intense scrutiny.
GCube research shows the sector is now approached from two standpoints; ensuring thatinstallations are designed and constructed with the best fire protection practices in mindand identifying factors that contribute to BESS failure, looking specifically at preventivemeasures.Charlie Richardson, Senior Underwriter at GCube comments that “whilst BESS is not newas a concept or indeed as a storage reality, it still presents a substantial risk for developers,investors and insurers alike. The unprecedented growth of renewable energy projectshas more recently been coupled with an increased demand for grid stability, power ondemand and energy storage capability in order to maximize grid availability, to addressdemand cycles and to prevent power outages.“This demand has driven a far greater interest in the sector from technology manufacturersand therefore of increased production volume, the strive towards improved energy densityand naturally a drive towards ever reducing costs per MWh of output. However, quality assurance concerns remain in what is still a fragmented and relatively immature marketof suppliers and installers with varying levels of expertise, professionalism and financialstanding.
“Moreover, BESS is increasingly prevalent in areas with weaker grids, notably remotelocations or island based projects that present limited specialist labour pools, longer leadreplacement times and, often, higher natural catastrophe risk. Ever since experiencinga very large BESS fire loss in 2012, GCube has been working closely with technologymanufacturers and developers to deliver a well risk managed, suitably protected andultimately an insurable BESS format for projects around the world.”
Michael Stuckings, operations vice president, group manager, field engineering for FMGlobal, one of the world’s largest commercial and industrial property insurers, says therehave been many advances in battery management systems that control the operation,safety and long-term reliability of the BESS.“Lithium-ion battery energy storage systems have been leading the market in newinstallations of the past few years and continue to grow in market share,” Stuckings said.“Most systems we see now use this technology, and a lot of effort hasbeen undertaken by the industry to understand the risks posed by BESS.”
Understanding the Li-Ion risk
FM Global has extensively researched Li-Ion technology, coming up with a property lossprevention data sheet for electrical energy storage systems. As with any new technology,it is critical for the insurance industry to understand the type of system being constructedand develop knowledge of the differences in failure modes associated with different typesof batteries.The Tesla battery is a giant, modularised Li-Ion battery. While Elon Musk, ever theshowman, describes it as something ‘sculptural’ and likely to become ‘a tourist attraction’for Jamestown, there’s no surprise that the installation is in a largely remote part ofAustralia with a low population base. In short, any battery system has a risk of fire, butunderstanding what may trigger a problem and designing to avoid catastrophic situationssuch as in Oahu are paramount.There are many different types of energy storage systems. Electromechanical systemsinclude Li-Ion batteries and the still developing technology of metal-air batteries (anelectrochemical cell using an anode made from pure metal and an external cathode ofambient air). Thermal storage systems include the molten salt system seen in thermalpower plants. A pumped hydro system is an example of mechanical storage.
Thermal runaway reactions and key variables
Without commenting on the design of the Tesla project specifically, Stuckings says thekey difference with Li-Ion batteries from a risk perspective is that they are susceptible to thermal runaway reactions”.thermal runaway reactions”.“These may be caused by mechanical damage of the cells, over voltage, over temperaturebut also under temperature,” Stuckings said. “During a thermal runaway event, the cellproduces gas that builds up within the cell enclosure, and without prompt action, thermalrunaway can cascade from cell to cell, causing much more damage.“That said, regardless of the technology there are a number of key variables to considerwhen evaluating the risk profile of a BESS. Obviously the equipment protection or safetydevices are a key element to ensure a safe shut down in the event of an upset condition,and there should be no single point of failure. For Li-Ion batteries the handling is muchmore critical to avoid any mechanical damage.”
Fire exposure dependent on technology
According to scientific research conducted by FM Global, the fire exposure is dependent on the technology and arrangement of the cells – the cell and case material, the numberin a module or rack, and the proximity of racks to each other. “The heat associated witha battery fire is intense, meaning if a large number of cells are close to each other a firecould destroy a large portion of the BESS,” Stuckings said. “That is why data sheet 5-33‘Electrical Energy Storage Systems’ recommends appropriate segregation between BESSenclosures, or groups of enclosures, and buildings or critical site utilities, provided byeither a minimum space separation of six metres or thermal barriers such as concreteblock walls.“In any event, to assess a site’s risk quality we would have one of our specialist engineersvisit and review factors such as construction, battery management systems and safetydevices, fire protection, asset integrity management programs, contingency planning andnatural hazard exposures.”
Making energy storage happen - and the risks involved
Battery storage systems can be either a standalone installation or a hybrid systemBattery storage systems can be either a standalone installation or a hybrid systemconnected with complementary technologies such as wind turbines or solar installations.Implementing an energy storage system has complex deployment considerationsintertwined with its own unique risk characteristics.
Storing energy is still a missing link for most renewable power installations across theworld, but there are rapid developments in the US and Europe as well as research andstart-up companies who may fill that gap. FM Global’s Andrew Stafford, vice president,client service manager, says it’s important for the industry to understand the strengths andweaknesses of any type of BESS:“An additional factor to be considered is the long-term reliability and availability of thesesystems, which, given the recent rapid developments, has obviously not been proven. I amconfident that the market will adopt the appropriate technology to meet the end-users’needs in Australia.”
Track record issues
The lack of a good track record is also an issue for insurers. While some insurers “got burned” with the Oahu disaster and part of the industry is still second guessing itself on this sector, Li-Ion technology has had sufficient growth over the last five years togive the industry some confidence that it will be able to perform in accordance with its specifications.
It should be remembered that renewable energy technology itself carries a significantIt should be remembered that renewable energy technology itself carries a significantlevel of risk; early underwriters of solar and wind risk would have also been impacted bylosses and there are insurers who have since opted out, only willing to put their capacityto traditional thermal or hydro-electric generation. Hydro may be considered a renewablebut it is a mature technology.
Conclusion: Working Together
FM Global’s Stafford believes it is important for insurers, brokers and clients to work together to understand the risk associated with this developing technology – enabling theend-users to ensure appropriate mitigation strategies are used in their projects:“While we really can’t speak for the insurance sector as a whole, we have a history ofresearch and collaboration with key industrial organisations. When translated into soundloss prevention practices at a client’s facilities, this knowledge should help prevent andmitigate loss and ultimately build a more resilient business - the end result being theability to provide a tailored, cost-effective insurance and risk financing solution.
”Martyn Thompson is Australasia Regional Industry Leader, Natural Resources, Willis Towers Watson
Credits: Power and Renewable Energy Market Review 2018, Willis Towers Watson
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