What developers are still getting wrong about battery risk

As the U.S. battery storage market rapidly expands, insurance underwriters are sounding the alarm on persistent developer missteps when it comes to site selection, space constraints and assumptions about insurability. 

Rosa Van Reyk, a senior underwriter at GCube Insurance Services, told ESS News that while developers generally understand what makes insurance more affordable and accessible, there are still some key blind spots.  

“I think people widely appreciate what will make it easier for them to get insurance coverage and to make sure it is priced affordably,” she said. 

That said, batteries are still being put in tightly confined areas, which can be a difficult pill for insurers to swallow.   

“There’s so much new construction now and we’re seeing people build battery projects where they may not always have the advantage of space,” she explained, noting that projects that add energy storage to industrial sites like steel plants tend to be limited by space constraints. “It’s a sort of bathtub curve of not being very comfortable and then eventually sliding into a more comfortable level.”  

But, she added, some developers feel more like they can push the limits because more insurers are entering the storage ballgame.   

“A lot of insurers are keen to fulfill ESG initiatives, and for many that means underwriting green energy,” Van Reyk pointed out. Still, the storage market can be new territory for many insurers who might not have underwritten and insured losses from battery projects.  

That can cause projects to be improperly priced.  

“The biggest question mark and the biggest concern has to do with the replacement rate of technology,” she said, explaining that insurers indemnify clients for equipment losses at the value the developer told the insurer the equipment is worth.  

“The problem in the current landscape is that it’s impossible to know how the market is going to look in a year’s time; one million dollar replacement costs could become two million dollars,” she added, which would leave clients in a conundrum if the costs are two million dollars and the insurer only provides one.  

“Losing a container isn’t a huge value, but losing a number of them could be the difference between the project being successful or not or financially viable,” Van Reyk said. This is an issue for currently existing projects that may be undervalued, but also for developers who haven’t yet ordered the technology needed to bring their project online.  

The other main issue she sees developers run into? Shortsightedness. Developers under pressure to reduce capital expenditures may opt for less land or fewer safety systems, but these short-term savings can result in long-term penalties.  

“If your project is in a poor risk location like a high flood area, you may save some costs at the outset, but the insurance costs will likely be higher for the lifetime of the project,” Van Reyk said. “It’s worth thinking about how that’s going to impact the viability of the site throughout its life. You’ve got to consider that those higher insurance costs will probably be repeatable every year.”