The commercial opportunities of battery storage

03 October 2017

Battery storage has reinvented itself as a hot new prospect for investors. The manufacturing quality is higher, the technology is better, and insurance premiums are dropping. It’s time to take a new look at clean energy. 

Thursday 3 March 2016: The day clean energy battery storage came in from the cold.

On a chilly day in Washington DC, the “holy grail” of energy was announced by Dr Ellen D Williams, the director of US government energy agency, Arpa-E.

The agency had developed a next-generation system of battery storage, said Dr Williams, one that will “revolutionise the industry within a decade.”

“We have reached some holy grails in batteries,” she told journalists. “We can create a totally new approach to battery technology, make it work, make it commercially viable, and get it out there.”

“If that’s the case,” commented The Guardian, at the time of the announcement, “Arpa-E has come out ahead of Gates and Musk in the multi-billion-dollar race to build the next-generation battery for power companies and home storage.”

It’s news that has got investors’ antennae twitching, along with those of the banks and lenders putting up the capital. After a near half decade in the doldrums – following a devastating wind farm fire in Hawaii – battery storage is once again becoming a hot prospect for investors and lenders.

What is battery storage, and why is it such an enticing investment?

For renewable energy suppliers (and consumers) storage is the missing piece of the energy puzzle. 

Solar and wind energy isn’t always generated during the times it’s most needed. Battery storage enables it to be saved for times of peak demand. It helps to balance dips and surges that can hinder supply consistency. 

In the global drive to replace fossil fuels, battery storage is benefiting from R&D investment from public and private bodies. Technology advances have improved efficiency, capacity and – crucially – safety. 

And government power purchase agreements (PPAs) are guaranteeing income to suppliers in four-year blocks, making renewable energy – and its storage - a juicy prospect for investors.

How battery storage reinvented itself

Anyone who knows anything about renewables will have been spooked by the events of 2012.

In the August of that year, a ferocious blaze ripped through the Kahaku Wind Farm in Oahu, Hawaii, causing $30 million of damage. 

The battery fire at the farm’s storage facility raged so intensely that emergency service staff had to wait seven hours to enter the building. 

It was the third such fire at the 30MW wind farm since its opening in March 2011, and it marked the end of battery storage as we knew it.

Developers and suppliers turned away, the insurance market hardened, and investment dwindled.

However, in the background, Arpa-E, were working on advanced battery storage technology. Arpa-E stands for Advanced Research Projects Agency - Energy; the body was funded by the Obama government to help boost the US economy following the credit crunch.

Safer new technology, coupled with manufacturing advances, has created a storage solution unrecognisable from the units that went up in flames back in 2012.

Business-wise,wrinklesneed ironing out. PPAs typically range from 10 – 25 years, while a plant investor might not see a return on investment until six to 10 years in. Adding battery storage can increase a project’s levelised cost of electricity per MWh by an estimated 25% or more.  However, with improvements in safety and technological prowess, the future is brighter than it’s ever been.  Robust insurance policies can only help propel investment. 

How can a renewable energy insurance broker help?

Insurance affects everyone’s bottom line, whether they’re a developer, supplier, lender or investor.

Developers and suppliers need to prioritise risk mitigation in order to gain the most effective insurance rates, therefore lowering their costs and encouraging investment.

Investors and lenders will want to be reassured that risk has been effectively minimised, increasing their likelihood of a faster return on investment. 

Luckily for all parties, the rates for battery storage units and facilities are falling. 

For the most effective cover, consult a specialist renewable energy broker at the outset of the project. They consider each battery storage system on its own merits, provide guidance on risk mitigation and will structure and negotiate the best terms for each client. 

Risk:

Energy generation, whether renewable or fossil fuel, always has and always will carry an element of risk. No energy technology has ever been 100% safe.
The sound of exploding steam engines would have sound tracked the industrial revolution, from the 1760s onwards. 

Some 250 years later, a 2016 report from NYC Fire Department expressed safety concerns about the density of solar energy storage cells being installed all over the city. 

Developers and plant owners need to look at all the traditional plant safety concerns, such as separation and isolation, monitoring systems, and international compliance standards.

Each set-up carries its own set of hazards, and insurers’ considerations will vary. A renewable energy broker can advise on risk mitigation. 

Cost:

Brokers keep a constant watch on the market, enabling them to negotiate the most extensive coverage at the best rates. Insurance rates will drop the more you mitigate your risk.

When your safety strategy is in place, talk to your broker about purchasing appropriate insurance. 

For further information, please contact Vanessa Anniss, Renewable Energy Partner on +44 (0)20 7558 3927, or email vanessa_anniss@jltgroup.com

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