What happens if a battery energy storage asset owner voids their warranty, opting to go up to three cycles a day or more in the pursuit of higher revenues?
“So, we’re getting asked that question,” said James Totton, underwriter at Tokio Marine GX. How batteries are traded changes as markets evolve and mature, with revenue cannibalization forcing some asset owners to rethink their strategies. This could even mean giving serious thought to deliberately voiding warranties, according to Totton, as BESS owners weigh up whether the risk is worth the reward.
“We’re seeing different markets and different developers and operators choose to cycle their batteries differently,” Totton. told ESS News “We’ve got some who have built it purely as a merchant play. That’s getting less and less, as we’re seeing the market cannibalize itself with a lot more players. The opportunities to make huge merchant revenues has now decreased somewhat.”
Totton said the OEM might be insisting on two cycles per day, for example, as a means of ensuring quality and reduced degradation for a long time. However, maximizing lifespan might not be the most efficient approach in revenue terms.
“There is a trade off there, they might increase their revenue substantially enough to think ‘okay, it’s worth doing that’ – or at least exploring that option,” said Totton. “Now obviously, for us as insurers, our approach has been that the warranty is in place – our terms and conditions and the policy you get from insurers is reliant on that warranty. If you’re going to deliberately void your warranty and potentially run the battery more than what the OEM recommends, well that’s a tricky question. We don’t fully know how the battery is going to perform at that point.”
Totton said this could lead insurers to restrict coverage or change terms and conditions in response to the way some battery owners change how they operate their assets.
When failures occur
Those changes might already be having an effect on how and when failures happen at battery storage projects. A recent Tokio Marine GX report found that 49% of BESS failures occurred within the first two years of operation, but this was down from 58% in the insurer’s 2024 report. Over the same period, the number of failures occurring between two and four years of operation increased to 35%, from only 5% in 2024.
Totton suggested people pushing batteries further “to try and get more out of them” could be one reason that more failures are occurring later in an asset’s lifecycle, however the main failure mode for a project is still likely to be an error at the commissioning stage.
“I think a lot of the losses we’ve seen from the battery side when it comes to those first two years are due to installation issues, contractor error, issues related to other electrical infrastructure on the site, not necessarily down to the battery cells or battery technology themselves,” Totton said. “It’s how they’re interacting with the electrical infrastructure in the grid around them.”
The losses seen by Tokio Marine GX are frequently contractor driven, with Totton highlighting issues such as failure to install equipment correctly, or accidental engagement of fire suppression systems as the kind of common issues the insurer encounters.
“A lot of that can come down to the fact that battery storage, particularly in certain markets, is still a relatively new emerging technology, unlike solar PV or wind. As a result, finding contractors with experience in utility-scale battery storage development was quite challenging.”
Impact of experience
Things are improving, however, and the number of experienced contractors has grown as more battery projects have been deployed globally.
“We’re seeing more and more contractors get that experience, and we’re seeing the OEMs support contractors and provide better support guidance. The OEMs install the kit themselves a lot of the time,” Totton said, adding that these trends could all be contributing to a reduction in the number of failures seen in a BESS asset’s first and second year.
Market evolution isn’t just influencing when BESS faults occur, but also the types of issues affecting projects. Increased demand for battery storage co-located with solar or wind appears to be influencing the types of faults that are being reported.
“I think we are seeing an interesting trend that comes from co-location,” Totton said. “We are seeing an increased failure when it comes to things like CBI – contingent business interruption at the grid. A lot of these [co-located] assets are feeding into a single substation connection point. We all appreciate there is limited access to the grid. We’ve seen the UK curtail zombie projects and the like, so anyone who can leverage a grid connection point and build out a BESS or additional renewables is doing so.”
Shared risk
The result of increased co-location is that when there are failures at the grid, the potential exposure and downtime has increased.
“Rather than having the revenue of a single project potentially be jeopardized by a grid failure, we’re now seeing a PV project and a BESS project, and potentially a wind project, or multiple PV projects and BESS projects, all with differing revenue streams, different opportunities to earn revenue, all be unfortunately knocked out of action by grid failure,” Totton said. “We’re very conscious now of that aggregation risk around those single points of failure at the grid. Whereas before we were insuring one or two projects attaching to that grid substation point. We’re now dealing with two or three projects and their associated BESS and any other renewables they might be planning around as well.”
Tokio Marine GX has already seen an increased rate of business interruptions due to grid failure, both in frequency and severity terms. That will likely continue to be the case, according to Totton, as the pace of deployment of multiple renewables and energy storage projects around single substations shows no sign of slowing.
In this environment, industry discussion is key according to the insurer. “The only way we’re all going to move forward, get comfortable with the risk and be able to underwrite it properly, insure it properly, and provide suitable risk transfer is open dialogue,” Totton said. “We publish reports like our co-location report to share our data and experience, in the hope that we will have clients, OEMs, EPCs and other developers come in and be willing to have that open conversation with us.
“If everyone is in their silos, it’s going to become very tricky, it becomes a bit of a blame game and then nothing is going to get resolved for anyone, the clients or insurers.”
Lessons from wind
What’s happening with BESS is nothing new. The rate of technology development and deployment has increased dramatically in a short space of time, but Totton argued there are lessons from other clean energy market segments that can inform how insurers and the wider industry approach energy storage.
“We’ve got to be mindful that the same lessons we’ve learned off onshore wind, for example, where the rate of turbine sizes continue to increase dramatically. We’ve also seen an increased failure rate with those turbines as they’ve gotten bigger,” Totton said. “It’s the same with batteries, we just need to be mindful as kit gets bigger, more energy dense, more expensive potentially, that the standards are not compromised – they keep it on trend with the size of equipment, spacing, consultation with groups such as the fire brigade.
“All these factors make a good, sustainable, risk averse BESS project. Those measures and those standards keep pace with the scale of the size of these projects,” he said.
What helps insurers?
One change that could make underwriting BESS projects easier for insurers is earlier discussion. Typically, Tokio Marine GX first encounters a project at a very late stage – potentially when it has already been two years in development. That means the site has been selected, suppliers contracts have been signed.
“By the time it gets to us it’s a case of: here’s the risk, underwrite it and give me your terms,” Totton said. “We always try and get ahead of that. We’d love to be in the room with the developers early, when they are picking their site, picking their EPC and their OEM. Those are the stages of a project where you are building in risk and when you have the opportunity to mitigate it, and we don’t often get a view of that.”
There is real value in information sharing, according to Totton, who said hearing how developers and lenders view risk, and what their plans for mitigation, would all be “really interesting” and could have financial benefits in the future.
“At the end of the day, they have the ability to really make that project risk averse, insurable, that will benefit their terms and conditions. An insight into that side of it would be fantastic,” he said.
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