In light of today’s climate emergency and sustainability goals, there is growing investment in and adoption of renewable and environmental technologies.
We sat down with Ellie Fyfe and Kelly Stevens from Miller’s Renewable Energy and Environmental Technology (REET) team to discuss the market’s current focus: battery energy storage systems (BESS). Proving to be one of the most popular types of renewable energy projects to date, we discuss the potential risks associated with these projects, condensing into four top tips for your clients and prospects.
TIP 1:
Early engagement
Ellie: My first piece of advice for project developers would be to give ample time for insurers and their engineers to review and get comfortable with the project. This is crucial as it allows insurers to provide comments on the initial design. As a result of this feedback, adjustments can be made. Making changes at this stage can mean that future insurance placements are more straightforward, and coverage is wider. In addition, an early review by the insurer allows anomalies to be declared in sufficient time - for example flood risks, coal mines, or other unusual aspects, as these will likely take longer for insurers to get comfortable with.
TIP 2:
Spacings are key
Kelly: When it comes to storage spacings, different insurers have different thresholds for minimum spacings. It’s really important to make sure you engage your insurer for their preferred requirement on this as it can affect your coverage. Spacings between units, or between units and critical equipment, may mean that insurers view the risk of propagation in the event of a fire to be significant. This can result in sublimits or increased deductibles being applied.
TIP 2:
Spacings are key
Kelly: When it comes to storage spacings, different insurers have different thresholds for minimum spacings. It’s really important to make sure you engage your insurer for their preferred requirement on this as it can affect your coverage. Spacings between units, or between units and critical equipment, may mean that insurers view the risk of propagation in the event of a fire to be significant. This can result in sublimits or increased deductibles being applied.
TIP 3:
Certification is crucial
Ellie: When considering the use of new technology, especially storage projects, please bear in mind that insurers will require confirmation that the equipment has passed UL9540, UL1973 and UL9450a certification at cell, unit, and module level; and is compliant with NFPA855. If this is not the case, restrictive terms are expected to be imposed. Always engage your insurer nice and early if you are unsure about any of these certifications and how they can relate to or affect your project insurance.
TIP 3:
Certification is crucial
Ellie: When considering the use of new technology, especially storage projects, please bear in mind that insurers will require confirmation that the equipment has passed UL9540, UL1973 and UL9450a certification at cell, unit, and module level; and is compliant with NFPA855. If this is not the case, restrictive terms are expected to be imposed. Always engage your insurer nice and early if you are unsure about any of these certifications and how they can relate to or affect your project insurance.
TIP 4:
Revenue projections need to be accurate due to volatility clause
Kelly: While not directly related to the project construction or operation itself, something to definitely bear in mind when thinking about BESS are the current market clause developments. A relatively recent development in the market is the application of the volatility clause. This means that in the event of a loss, unless a monthly breakdown is provided, each month’s revenue is essentially capped at the average of 1/12 of the declared annual revenue. Therefore, an accurate estimation and breakdown for your insurer is key, especially if there are likely to be seasonal fluctuations.
TIP 4:
Revenue projections need to be accurate due to volatility clause
Kelly: While not directly related to the project construction or operation itself, something to definitely bear in mind when thinking about BESS are the current market clause developments. A relatively recent development in the market is the application of the volatility clause. This means that in the event of a loss, unless a monthly breakdown is provided, each month’s revenue is essentially capped at the average of 1/12 of the declared annual revenue. Therefore, an accurate estimation and breakdown for your insurer is key, especially if there are likely to be seasonal fluctuations.
Here to help
Miller’s REET team are well placed to provide assistance for clients operating across the renewable energy sector, as well as traditional energy and power companies transitioning to a low carbon world.
As your specialist insurance advisor, we are here to support you at every stage of your clients’ project lifecycles. The key is to engage us early for maximum output and risk mitigation for your BESS project.
At the design stage, we can assist with reviewing any preliminary reports and engage with insurers and their engineers in these early stages to help identify any areas of the design that might need improving. We have bespoke questionnaires we can share which will help us gather all the relevant information together, as required by insurers, as well as setting up sites for large file transfers to assist you in providing supporting documentation on a safe and secure platform.
In addition to the actual placement of insurances, we are here to assist with reviewing contractual obligations against the proposed insurance terms to ensure that the policies meet the requirements of key stakeholders. For example, ensuring the inclusion of lender’s insurance requirements if the project is debt financed, or that the structure is consistent with the contractual requirements of an EPC contract. We can also draw upon our experience in the industry to review proposed insurance schedules when engaged at an early stage.
