Why energy storage needs insurance

Experts say energy storage could benefit from similar insurance arrangements to those available for renewable energies such as wind. Pic: Senvion.

Experts say energy storage could benefit from similar insurance arrangements to those available for renewable energies such as wind. Pic: Senvion.

By Mike Stone

There is little in the way of adequate insurance for energy storage… and it’s holding the sector back.

That’s the opinion of industry insiders who think that the lack of cover will create barriers to entry for new players in the storage space, and result in sub-par customer service for purchasers of energy storage products.

What’s more, until the situation is rectified, the current slide in energy storage costs might not continue for long, thanks to lack of new competitive pressure and an over-reliance on warranties.

Lack of insurance risks higher costs

In a recent interview with Energy Storage Report, Jan Jacobson of Powin Power went as far as to say that, outside of being blindsided by the current US administration, this lack of adequate cover is probably the greatest danger to continuing price reductions.

“This market has grown on the back of companies with billion-dollar balance sheets which can absorb risk,” explained Jacobson.

“That’s a barrier to entry for smaller companies which might have more aggressive pricing, and confines the market to a handful of more costly suppliers,” he warned. 

Relying on warranties not an option

Lack of access to insurance also means worse customer service, he cautioned.

If there’s a problem with an energy storage product and no suitable insurance product, the customer has to rely on the product warranty to get replacements or their money back.

Current suppliers are not geared towards dealing with warranty claims, and aren’t always the most helpful people to deal with to resolve your issue.

A legitimate insurance claim, in contrast, is much more likely to result in a swift and satisfactory outcome for the equipment owner, according to Jacobson.

As a result, he concluded: “As we move into the future there are only going to be four or five companies out there doing this sort of work if you don’t have the right insurance.” 

The insurer’s insights

Jatin Sharma, head of business development at GCube Insurance Services, admitted that “insurers are grappling with challenging, entrepreneurial risk when it comes to addressing long-term performance and degradation.”

He said: “Larger OEMs may quash concerns by offering parent company guarantees, but most counterparties using the technology on their projects take limited comfort from this.”

It falls to insurers to provide “a trusted, A+ rated mechanism that has a track record of promising to pay,” he said. 

Insurance for high-value customers

Getting to the point where insurers can supply such a service and not lose money isn’t easy, said Sharma.

He cited a rapidly evolving energy storage industry as the reason why mass-market insurance products are not yet a reality.

Explaining his own company’s experience, he said: “We always invest a great deal of time in product development and have delivered solutions on new technology before.

“Unfortunately, this sets a precedent and the intellectual property is lost quickly if we mass-market our offering beyond select, trusted developers and brokers.

“At this stage, we are innovating broad covers that address cost overrun, latent defect and non-damage risks for our high-value wind and solar owner/operator clients only.” 

Insurance costs “only 10% of opex”

However, Sharma was at pains to emphasise that energy storage is not being singled out for special treatment.

“Insurers will, broadly, offer the same kind and scope of insurance as for wind or solar assets, namely marine, property and liability insurance,” he said.

When asked about developer concerns that lack of insurance is keeping project costs high, Sharma underlined that in fact insurance is available at reasonable rates… under the right circumstances.

“Unlike the permanent works and soft costs of the project, insurance is lower than 0.3% of the capex,” he said.

“And, unless the asset is exposed to severe natural perils such as windstorm, flood, earthquake, tornadoes and so on, the annual insurance spend as a proportion of opex might be as low as 10%.” 

Storage developers should shop around

Sharma advised developers to shop around for insurance, and not just look at pre-existing pricing as a benchmark.

“Developers should work with their broker to ensure they understand the factors influencing pricing by insurers,” he said, “and whether they are buying value for money or simply what they think they need, based on precedent.”

Unfortunately, that advice still only seems to apply to the larger developers. For now, at least, the rest of the industry will have to wait.

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