Grid-scale battery insurance continues to be an industry aspiration, but I see little evidence that insurance policy-writers are putting words into action. While almost every major insurance provider features a “renewables insurance” or “battery insurance” section on their website, the details are sorely lacking. The truth is that insurers have moved too slowly and have not stepped up to fill a substantial industry demand for battery insurance.
While insuring something as mercurial as battery chemistry is a non-trivial task, the demand is increasing with more and more large scale grid-storage installations. The “doers” – the folks making, building, integrating, deploying, and operating battery energy storage systems (BESS) — have stepped up and found workable, pragmatic solutions in a world largely devoid of battery insurance.
The solution I’m referring to is Long Term Service Agreements (or “LTSAs”), which have been employed since the mid 1990s in the traditional power generation world. BESS system integrators have adopted LTSA constructs as surrogates for BESS performance insurance. LTSAs provide customers with performance assurances by means of an extended warranty (good), while giving (BESS) integrators an annuity revenue stream over 10-15-20 years (also good). Typically, these agreements include options for both traditional availability guarantees and capacity maintenance, also known as “battery augmentation” or an ”energy guarantee.”
The unwitting losers in the mix here are insurance companies and their traditional customers – the engineering, procurement and construction (EPC) contractors. EPCs used to be a necessary partner for BESS system integrators because they had the balance sheet to guarantee large deployments to end-users. They also had working relationships with large insurers or were self-insured and could wrap or bundle a comprehensive break-fix or make-good regime around a multi-year BESS project (and those regimes were, in-turn, covered by the EPC insurers and, in part, battery OEM warranties).
LTSAs have helped to liberate the battery system integrators from EPCs and, I expect, over time we will see less EPCs involved in large-scale BESS deployments. There are, of course, other forces at play lowering the reliance on EPCs for large-scale BESS deployments. As battery system integrators gain experience and increasingly understand the costs and pitfalls involved, their project risks decrease and their balance sheets increase, thereby again reducing the impetus for involving EPCs.
The performance warranty embedded in LTSAs offers up many advantages to the system integrator, obviating the need for longer-term extended “break fix” guarantees and aggressive liquidated damages in the procurement contract, and shifting the guarantee elements to a separate contract that offers more flexible, performance-based extended warranties tied to the LTSA. By performance-based, I mean LTSAs that are measured against capacity formulas, round trip efficiency (RTE) computations, degradation computations, and system availability, or some combination thereof.
The battery system integrators, however, are not carrying the LTSA-coupled performance warranty risk by themselves. Battery OEMs help offset the integrator’s warranty risks with manufacturer warranties, also known as product warranties. Specifically, OEM battery companies provide a manufacturer’s or product warranty (say 2-3 years) coupled with a performance warranty, again based on capacity, RTE, degradation and availability or some combination thereof. This means that the battery system integrators are exposed to the gap between the OEM manufacturers and product guarantees and their guarantee to the end-customer/operator. Managing this gap is essential for battery system integrators’ profitability. The critical component for managing this “warranty gap” is, of course, battery data.
Typically, the battery lifecycle chain of custody is broken between the battery OEM and the battery system integrator (see diagram below). That is, the battery OEM tracks quality issues and has manufacturing details and formation charge baselines for every battery they ship. This data is not systematically shared with actors downstream of the battery OEM, including the battery system integrators and operators/end users.
The battery system integrator is the other major custodian of the battery lifecycle value chain, in that they collect the BESS configuration data, battery commissioning data, the balance of plant telemetry (inverters, meters, etc.) and, of course, the BMS data. In short, the battery system integrators control the high-resolution BMS telemetry from the day the site is commissioned to the moment it is decommissioned. The battery system integrator also serves as the steward for the PCS, inverter system, and metering data.
From the BESS owner and site operator perspective, this creates an interesting dilemma, particularly in the context of LTSAs, given that any contractual dispute tied to an LTSA will – by necessity – fall into the battery system integrator’s purview. Given that battery system integrators have control of the data value chain, they sit in the catbird seat when it comes to battery performance disputes. From the BESS owner/end-user’s perspective, this has the awkward effect in that LTSA enforcement is wholly up to the fox (the battery system integrator) guarding the “BESS KPI and performance guarantee henhouse.”
But are battery system integrators to blame for this “data transparency imbalance?” I, for one, am not so sure. Per my opening comments, the lack of willingness of insurers to provide BESS specific policies have forced the “doers” to come up with a solution. And right now, the prevailing solution is LTSAs with extended warranties provided by battery system integrators.
We need to assume that battery performance will diverge, given that dispatch regimes, ambient temperatures, and long-term degradation curves for Li-ion battery chemistries are big longitudinal uncertainties (and that’s just to name a few!). What happens when BESS performance begins to diverge from the LTSA KPIs in the out years? Will BESS operators tolerate “the data transparency imbalance” inherent in LTSAs and the fact that the battery system integrators are keepers of the BMS and other raw battery data?
If insurers were active in providing BESS performance insurance, they could help resolve this data transparency imbalance by setting requirements for raw data access, fidelity and transparency in their policies. In this case, the insurer would dictate requirements for ongoing, real-time data access and use the claims process for triggering comprehensive data discovery and data audits. Presumably, this would give BESS operators more choice in selecting monitoring systems (which is a decision today largely controlled by the battery system integrator) that are more standard and not proprietary to just one battery system integrator.
At Peaxy, we’ve helped battery system integrators with this data transparency issue. Battery system integrators use our software to provide their end users/operators instant access to a secure portal with raw and normalized telemetry streams at (in most cases) 1Hz resolution in near real-time. All the graphing functions, computed KPIs, alerts and alarms that our software provides are also available to the BESS customer/operators. As a result, everyone can access the same data set and run their own analysis whenever they choose. Arming all parties involved in managing a BESS with the same data access and feature sets levels the playing field and ensures total transparency in service agreement scenarios.