A critical challenge in the energy transition process is modulation. How do we power our homes and businesses when the wind stops blowing and the sun isn’t shining?
Battery energy storage systems (BESS) represent a potential solution. BESS allow renewable energy to be efficiently stored and supplied to the grid when required. This optimization of energy output to the grid means that renewable energy projects can provide power at both peak and non-peak times, stabilizing the distribution network. This also allows investors and stakeholders to generate more revenue and power providers to limit waste and reduce costs for consumers.
This is the first article in a four-part series on battery energy storage systems.
Supply, Demand, and Pricing
Greater storage capacity and the rapidly declining cost of battery units are driving a global rise in demand. Bloomberg predicts that by 2030, demand for lithium-ion (Li-ion) battery capacity will have increased to 9,300 GWh globally — over 10 times the current demand.
Global cumulative storage deployment is expected to increase tenfold over the next decade.
Li-ion batteries have a broad variety of applications and can be used at grid-scale, to power phones and electric cars, or for energy storage at residential and commercial properties. The versatility of these systems has been key to their global uptake.
The two principal metrics driving the adoption of BESS are cost and efficiency. Li-ion batteries are leading the pack as they offer significant capacity, relatively low cost, efficient storage, and lengthy lifespans. In 2020, Li-ion battery pack prices hit an all-time-low of $137/kWh, a fall of 89% since 2010, according to BloombergNEF.
Need For Standards
Despite these developments and the growth in this field, some key insurance issues must still be addressed.
The sharp rise in demand in recent years has brought more attention to potential risks, some of which have led to costly insurance claims. Particularly concerning to underwriters are battery fires and thermal runaway, contractor errors, and machinery breakdown events. There have been an estimated 25 Li-Ion BESS fires across South Korea, as well as a number of major fire events in the US and explosions in certain cell phones.
The rapid development of battery storage technology and the widespread use of these systems will inevitably bring new challenges. Insurers typically use historical loss and performance data to calculate the chance of losses occurring. But the relative lack of standardization and the emergence of prototypical and developing BESS technologies presents many unknowns for insurers, and makes it difficult for them to keep pace. The insurance industry is on a constant learning curve as new products upscale in capacity, technology continues to advance, and global demand surges.
Similarly, regulatory frameworks must also adapt as the industry continues to develop. A growing number of codes have been introduced to ensure safety and a degree of standardization in the installation and operation of BESS, but these must keep pace with the technological advances in the industry to ensure that growth and innovation aren’t hampered by overregulation.
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