Simply the BESS? Getting comfortable with battery storage risks

Fraser McLachlan, CEO and Co-Founder.

Our first newsletter for 2024 kicks off what we anticipate being a year of transformation for renewable energy. One of the key drivers of this change is the rising global demand for Battery Energy Storage Systems (BESS), which offer great potential for grid stability and integration of renewables.

However, the recent and rapid growth of the BESS sector also poses significant risks and challenges, which require careful assessment and management.

As many of you will know, GCube has been a pioneer in BESS underwriting, having played a significant role in shaping and advancing BESS insurance from its inception. Our early experiences - notably a major fire loss to a BESS project in Hawaii - have highlighted to us the risks involved in BESS and allow our underwriters to appreciate the ongoing uncertainties that persist when dealing with the emerging technology.

One of the primary challenges in BESS underwriting is the lack of comprehensive data and insights into how these systems operate, perform, and potentially fail. This scarcity of information necessitates caution among underwriters. Nevertheless, BESS remains a crucial component of our clients' renewable energy portfolios.

That is why, as part of this newsletter, I am proud to present GCube's latest market insights report, "Batteries Not Excluded: Getting the insurance market on board with BESS." The report combines publicly available data on BESS failure events with insights from GCube's specialist underwriting teams and third-party contributors. In addressing the current state and future direction of BESS underwriting, our aim is to provide asset owners and developers with a clear understanding, along with recommendations for increasing underwriters' confidence in this emerging field.

In my market update at the end of 2023, “Let’s not let history repeat itself”, I warned that the renewables insurance sector is suffering from recurring losses due to geopolitical events, supply chain issues, and natural disasters. I urged the insurance market to mature and learn from past mistakes to help governments achieve their renewable energy goals.

However, in 2024, while we continue to face challenges outlined in the 2023 piece, including those in the BESS sector, it's crucial to acknowledge the evolving landscape. There are ongoing risks such as those in the floating wind sector and extreme weather events outside the US, alongside emerging issues. This necessitates insurers' adaptation to continue playing a key role in the global energy transition.

Hail risk to new solar installations is emerging as a major challenge for the sector, for example, as outlined in our recent “Hail No!” report. The lack of standardised practices in the rapidly expanding floating wind sector is also a worrying concern that we should keep our eye on across 2024.

Similarly, although floating wind projects have great potential, developers must prioritise standardisation. This means finding reliable cable solutions, adapting turbine designs for the floating environment, and making industry-wide decisions on manageable and maintainable size as installation capacity grows.

More broadly, we are seeing the emergence of natural catastrophe vulnerabilities from a lack of weather data in remote regions across the US, Australia, and the Middle East and North Africa (MENA). This is becoming particularly prevalent as renewables projects are increasingly built in far-flung regions of the world and is something we will be keeping a close eye in the short- to near-term.

While GCube’s commitment to monitoring and analysing these trends and their ramifications remains ongoing, we urge our clients and brokers to take a proactive approach to ensure they well-prepared to navigate the evolving landscape with clarity across the year ahead.

As part of our ongoing support for our community, I'm also excited to briefly mention our line-up of GCube events for 2024. This includes our annual European Risk Seminar taking place this June and our US-based Advisory Council meeting scheduled for October. More on this to come as we get closer to the dates.

Lastly, I also want to take this opportunity to say that GCube is delighted to celebrate its ongoing success since being acquired by TMHCC, as we now enter our fourth year under their ownership. This acquisition has not only increased our capacity and resources but has also reinforced our dedication to providing outstanding service and value to our clients and brokers. We are now better positioned to leverage TMHCC's broader strengths, including the expertise of its new power generation team – launched last week – which will complement GCube's specialist offering in renewable energy.

As we look to the new year ahead, I want to extend my thanks to our clients, brokers, and stakeholders for their unwavering trust and collaboration. Together, we will continue to drive innovation, sustainability, and excellence in the renewable energy sector.