When the battery becomes a balance sheet question

Bankability is a key issue in the delivery of BESS projects. The technology works. The economics can be modelled. What is slowing the rollout is the question of whether a project remains financeable and insurable once contract structures, revenue paths, operational risk and the regulatory environment are stress-tested under realistic assumptions. That is where the deci-sion is made today which BESS projects connect to the grid, and which stall at the investment committee.

A market in sprint mode, with complexity growing under the radar

The market dynamic is striking. Across Europe, around 70 GW of battery storage capacity have been awarded in auctions over the past six years, with a marked jump in 2025. The pipeline of utility-scale assets is approaching a level that surpasses the cumulative capacity of the entire previous decade. Projects are getting larger, durations longer, and co-location with PV or wind more frequent. In Germany alone, a pipeline of several tens of gigawatts of consented projects sits in the starting blocks.

This speed has a downside that often arrives late in conversations with banks and equity in-vestors. A BESS is an electrochemical asset with high energy density, a non-linear lifetime deg-radation profile, a complex market risk built from multiple revenue paths, and a loss potential that, in a worst-case scenario, can destroy the entire facility within hours. Anyone planning, financing or operating a project must structure these risks cleanly.

Insurance is not an add-on. It is part of the financing architecture.

In our practice, we repeatedly see the question of insurability addressed too late. A well-de-signed insurance strategy is today an integral part of the investment case. It does not just pro-tect deployed capital, but also actively strengthens the negotiating position with banks, equity sponsors and offtakers.

This is now visible in the financing terms themselves. Banks differentiate clearly between rev-enue structures. At one end of the spectrum sits the heavily contracted project with a long-term tolling agreement that locks in the bulk of revenues. Here, high gearing levels, loan tenors that stretch close to the warranty period and comparatively lean margins are achievable.

At the other end sits the fully merchant project, with significantly lower gearing, a noticeably shorter tenor and visibly higher margins, because the bank is co-bearing the market risk. Between these two poles lies a whole world of structuring options drawn from floor contracts, hybrid revenue models, capacity-market components and combined optimizer arrangements. Which of them is reachable in a given project depends, not least, on whether the insurance structure and warranty tenors actually support the financing.

The building blocks across the project lifecycle

A robust risk-transfer program for a BESS project is built from several interconnected modules. In practice, every project moves through a number of phases in which the risks shift substan-tially and with them the demands placed on the insurance design.

In the planning phase, regulatory uncertainty, permitting risks and fire-protection requirements dominate, alongside the underlying question of bankability. Insurance may seem of secondary relevance at this stage. Yet it is already in this phase that it can be decided whether the future insurance concept will convince banks, investors and authorities. An early outline of the cover structure is a precondition for financial close and provides security for the contractual commitments entered into during this phase.

In the construction phase, concrete operational risks come into play: supply-chain disruptions, construction delays, on-site accidents, installation errors, environmental and site risks, as well as inflation and cost-overrun risks. This is where the classical modules belong: construction all risks (CAR) cover, erection all risks insurance and a delay-in-start-up (DSU) com-ponent for business interruption. Their function during this phase is existential protection by shielding the project from total loss in the high-risk window in which the largest values are at stake without any revenue yet flowing.

The commissioning phase is frequently underestimated in practice. It is a transitionary phase with its own risk profile, where start-up risks, EMS and SCADA failures, grid-protection faults, and installation and connection errors can lead to delays. From an insurance perspective a seamless handover between construction and operational cover is needed as a risk buffer for typical start-up issues as well as contract wordings that meet the strict requirements of capital providers. This is precisely the phase in which coverage gaps tend to emerge.

In the operational phase, the risks that are most strongly associated with BESS in the eye of the public come to the forefront. This includes failures of PCS and inverters, thermal runaway, business interruption, operational errors, cyberattacks, vandalism and theft, as well as finan-cial risks from market volatility and performance deviation. Insurance plays a dual role here: classical cash flow and asset protection through operational all risks (OAR) and business in-terruption cover, alongside debt-service protection that carries the bank financing through loss events.

Finally, in the decommissioning phase, increasingly enshrined as a binding condition in Ger-man permitting decisions, dismantling obligations and liability risks arise. Authorities and landowners require contractual assurances that decommissioning can be financed and that any environmental damages will be cushioned. Insurance becomes an instrument of regula-tory protection here, safeguarding the collateral value across the entire asset lifetime.

A relatively new and still evolving layer is performance and warranty insurance. It picks up where traditional property cover stops. At performance loss and capacity degradation in the absence of physical damage. For projects with long-term tolling or capacity contracts, such cover is particularly attractive because it addresses one of the central residual risks in those business models and gives banks a more reliable cash-flow horizon when structuring the fi-nancing.

Where it most often goes wrong: typical coverage gaps

In our advisory practice, four areas of weakness stand out and left unchecked in a surprisingly high number of projects.

• The interface between the construction and operational phases. If the CAR policy ends with provisional acceptance but the OAR policy only triggers at commercial operation, a window of days or weeks emerges in which losses can be attributed to neither insurer. Clean handover clauses are non-negotiable.
• The treatment of serial and design defects. Many standard policies exclude losses caused by an identical design or material defect across multiple cells or modules, precisely the kind of risk that, statistically, must be expected from a young and rapidly evolving technology. This requires individually negotiated extensions.
• The structuring of the business interruption cover. Anyone generating revenue across multiple markets simultaneously, frequency regulation, intraday arbitrage, capacity mar-kets, needs to model the sum insured realistically and close to live market dynamics. Standard approaches based on an average spot price fall short, especially in a high-volatility environment.
• Sublimits and deductibles for specific perils such as fire and natural catastrophe are often calibrated for traditional industrial assets in many standard policies, but not for the high value concentration of a battery container. A single container can represent a value of several hundred thousand euros. Sublimits that cover only a fraction of that figure in a loss event can defeat the entire purpose of the policy.

Emerging risks: thermal runaway, cyber, supply chain

As asset sizes grow, the risk landscape evolves. Thermal runaway, the chain reaction in which a damaged or misused cell releases heat energy and drags neighbouring cells with it, is by far the most critical loss path today. Fire incidents in recent years have visibly reduced some insurers’ risk appetite and have produced a heterogeneous premium landscape.

Against this backdrop, risk transparency and loss prevention have gained substantial importance. Operators who use continuous battery monitoring to detect and document anomalies early can present insurers with objective data. The direction of travel is clear. Losses should not just be settled, they should be prevented in the first place and that translates into better terms.

In parallel, cyber risk is moving up the agenda. A modern BESS is permanently connected through its battery management system, its market interface to spot exchanges and the dis-patch logic of its optimizer. A successful attack on the control system can cause not only loss of revenue but physical damage up to a cell-level fire. A standalone property policy is insufficient here. What is required is an integrated cyber-property concept.

Supply-chain risk adds another layer. Geopolitical tensions, lithium and rare earth bottlenecks, and tariff developments that can shift the replacement value of individual components substantially within months. Anyone insured based on outdated acquisition values risks painful underinsurance in a claims scenario.

What we advise developers and operators

Drawing on our experience in securing complex energy risks, five principles have emerged that every BESS project should consider from day one.

• Insurance design belongs in the planning phase, not in the final stretch before financial close. Anyone considering insurance only after the EPC has been awarded is leaving negotiating leverage on the table. Whether a tolling contract can attract the standard banking terms depends, among other things, on whether the underlying insurance structure supports the warranty period.

• Quality of risk information and its preparation are decisive. Insurers respond in a far more differentiated way to risks when objective risk data is available in structured form, including data on cell anomalies, charge-discharge cycles, temperature profiles, rack imbalances. Investments in battery intelligence platforms can pay off here and contribute to better insurability and improving terms over the course of the assets’ lifecycle.

• Contracts with EPC contractors, suppliers and optimizers must be reviewed from an insurance perspective. Warranty promises are only as good as the credit standing behind them. An independent performance guarantee insurance can make the decisive difference here.

• The insurance program should be viewed as a dynamic process. Both BESS technology and the market environment evolve with every new system generation. An insurance design that fitted two years ago can today contain gaps that become expensive in a claim.

• The insurance program should also be designed with the financing partners in mind. Lenders have very clear expectations on loss payee clauses, minimum sums insured, natural-catastrophe sublimits and the design of the waiting period in business interruption cover. Anticipating these requirements early avoids costly renegotiations immediately before financial close.

An industry still learning

The BESS market has reached a phase in which maturity and scale must move together. The pipeline, the capital and the technology are all in place. What is sometimes missing is an insurance and financing discipline that keeps pace with industrial speed. Those who structure cleanly now gain a competitive edge. Insurers, brokers, banks and operators are learning together and the projects set up today with professional risk discipline will be the benchmark for the entire industry tomorrow.

An industry that manages its risks transparently, with data, and with sound insurance structuring signals maturity to the capital markets. It lowers financing costs, accelerates permitting and builds trust with neighbours, regulators and offtakers. That is more than an insurance question. It is a strategic precondition for the next BESS boom not to founder on a single major loss, but to keep growing on solid foundations.

About the author:

Niclas Werthmöller is Managing Partner at Breffka & Hehnke, an insurance intermediary specializing in risk management and insurance solutions for the German Mittelstand, with a particular focus on the energy transition sector. Prior to joining Breffka & Hehnke, Niclas worked in investment banking in Canada, where he advised companies across the energy industry, including independent power producers (IPPs) and utilities, on complex mergers and acquisitions, capital raising, liability management and broader capital markets transactions. Drawing on both his financial and risk management background, Niclas supports clients in identifying, assessing, and mitigating strategic and operational risks associated with growth, infrastructure development, and the ongoing transformation of the energy sector.