3 Types of Energy Storage Insurance for Battery Technologies

This article describes energy storage insurance for different types of energy storage chemistries and systems. 

Energy storage insurance can not only protect your business, but also cover battery projects at the utility, microgrid, commercial or industrial levels. Energy storage warranty insurance can backstop manufacturer warranties enhancing the peace of mind of energy storage buyers.

What is Energy Storage?

Battery energy storage systems (BESS), aka energy storage systems (ESS), enable you to store electricity from the grid, or from intermittent renewable sources, such as solar and wind, to be used on demand at any time. 

Deployment of ESS projects is expected to grow significantly in coming years due to the following factors:

  • Financial incentives for energy storage projects
  • Economic shifts away from fossil fuels, such as coal, to renewable energy
  • Demand for greater grid resilience, backup power, and micro-grids in the event of power outages
  • The increased adoption of electric vehicles
  • Environmental, social and governance (ESG) decisions

The above factors are being driven by three macro trends:

  1. Increased demand for action on climate change
  2. Improving economics of renewable energy as an alternative source of power for businesses and consumers and
  3. The real or perceived failure of utilities to innovate and provide good service to their customers

Types Of Energy Storage Systems

Common types of energy storage systems today include:

  • Electro-chemical: Lithium-ion, lead-acid, sodium sulfur, vanadium redox and zinc-bromine are types of electro-chemical energy storage technologies. Lithium-ion batteries are the most widely used and common type of rechargeable battery. They are used in common consumer products such as cell phones, laptops, electric vehicles and are dominating new commercial energy storage deployments.
  • Pumped hydro/hydroelectricity: Energy is stored in the form of the gravitational potential of water. Water is pumped from a lower elevation to a higher elevation when electricity rates are low. When rates are high the water is released to flow through turbines to produce electric power.
  • Mechanical/compressed air: Energy is stored by compressing air into tanks during periods of low energy demand and released to spin turbines or generators to meet demand when energy rates are high.
  • Thermal: Thermal storage technologies include ice and solar radiation. Solar radiation can be concentrated using reflectors to produce steam to spin turbines to produce energy. Heat is stored in molten salt, rocks or fluids for later use. 

The majority of utility scale energy storage systems today are comprised of pumped hydro/hydroelectricity using water stored at hydroelectric plants…

However, other battery energy storage technologies – such as lithium-ion – are expected to grow in popularity as they become more established and as prices fall. 

Indeed, prices of commercial lithium-ion batteries, such as those used by Tesla, are dropping and new technologies are being developed making investments in battery storage a viable opportunity in the U.S.

tesla lithium ion battery for energy storage
Electric vehicle maker Tesla uses lithium-ion battery technology.

Lithium-Ion Battery Energy Storage System (BESS) Applications

Lithium-Ion batteries are the 800 LB gorilla leading the way in commercial and grid-scale energy storage technology with 94.2% of energy storage systems installed in Q2 2017.1 

Lithium-ion technology is versatile and may be used in a variety of applications, from electric vehicles to building energy storage. And ideas to combine EVs with building energy storage are being explored.

Indeed, one exciting concept is to be able to use your EV battery like a generator to charge your home if your power goes out.

The lithium-ion energy storage value chain is comprised of hardware manufacturers, software providers, service providers, warranties and (often) insurance or warranties:

  1. Hardware Manufacturers: Energy storage manufacturers produce the batteries made from lithium-ion or other chemistries. These batteries are installed “behind the meter” in commercial, industrial and residential buildings. Batteries are available in a variety of technologies (as described below).
  2. Software providers: By themselves, batteries are “dumb”… However, when combined with intelligent energy optimization software they become “smart” energy storage systems. Lithium-ion battery systems are managed by software to optimize charging and discharging. Software is designed to optimize battery charging and discharging for the longest number of cycles, longest life, and most efficient use of energy (to save the most money). Some software may be connected to the Internet to charge and discharge at times when utility rates are highest/lowest to maximize cost savings. This helps with peak shaving, as described below. 
  3. Service providers: Energy storage services providers may include general contractors who install ESS systems, systems configurators, value added resellers (VARs), distributors of energy storage systems, and after market services to monitor, operate and maintain your energy storage system.
  4. Warranties and Insurance providers: Warranties and insurance programs are used to guarantee a battery system’s performance and transfer risk of property damage, and business income, from the battery owner to an insurance company, the contractor or manufacturer.

While most people associate BESS systems, with renewable energy, energy storage systems can be powered from the grid or from renewable energy sources, such as solar and wind.

On-site renewable energy may be combined with BESS to create a “behind the meter” system to help reduce costs and achieve energy independence.

This flexibility enables greater return on investment (ROI) optimization for investors and owners of BESS systems.


Renewable Energy Storage Insurance

Peak Demand Charges And Commercial Solar Plus Storage Systems

Commercial utility bills are largely comprised of three types of charges, supply (aka “consumption”) charges, delivery charges and demand charges:

  1. Supply Charges: are calculated by the volume of electricity, measured in kilowatt hours (kWh), consumed during a billing period.
  2. Delivery Charges: Delivery charges are the costs the utility charges you to deliver the electricity to your home or business. This would include the cost of maintaining power lines, repairs, operating power plants, etc. 
  3. Demand Charges: are calculated by the peak level of electricity demand, measured in kilowatts (kW), consumed during a specific interval (eg. every fifteen minutes) within a billing period.

While most of us see the supply and delivery charges on our home electricity bills each month, demand charges are a big deal for commercial electricity users. 

Demand charges represent an increasingly large portion of the cost of commercial and industrial electric utility bills across the U.S. because of “peak usage” billing. 

While we often think of our electric bills in terms of electricity consumption, “peak demand charges” can represent as much as 70% of a commercial property’s electric bill.

Battery energy storage is a way to solve this problem. 

Peak Shaving

Battery energy storage systems are perfect for reducing demand charges because they can provide a leveling effect on demand. 

Batteries discharge their stored energy automatically via software when peak kW demand is high, thereby reducing charges on your utility bill.

Indeed, two customers who have identical consumption charges of 6,000 kWh per month may have very different demand charge rates based on their respective demand for kW during a billing period. 

Reducing demand charges using batteries and commercial solar 1

For example, imagine that Building A above uses 6,000 kWh of electricity each month… 

This is Building A’s “consumption”. 

But Building A also uses some machinery that temporarily causes spikes of up to 27 kW in demand – this is far above its normal range of around 8-10 kW of operational demand.

Because of the temporary spike, Building A’s utility will set their bill at the 27 kW demand rate for the entire year because it expects the building to need that much electricity from time to time.

The utility needs to set aside that much capacity in the event of the spike in demand. 

Reducing demand charges using batteries and commercial solar 2

Building B uses the same 6,000 kWh per month. But Building B only uses a maximum of 13 kW of demand each month.

Building B’s normal operating range is also around 8-10 kW.

Building B’s annual utility bill will be a lot lower than Building A because the utility is setting its peak demand rate at 13 kW – not 27 kW. 

If Building A can reduce its peak demand spikes, it could save a lot of dough. 

To resolve its peak demand charge problem, Building A could install batteries and on-site solar and charge them with the on-site renewable energy or from the grid when utility rates are low. 

This is called “peak shaving“.

Then Building A can discharge the batteries during times of peak demand thereby leveling out its demand charges each month.

Reducing demand charges using batteries and commercial solar 3

Without a BESS system, a single spike in kW demand during a 15 minute interval can cause your demand charges rates to stay high for weeks, months or years…!

A study of high demand charges across the United States by the National Renewable Energy Laboratory (NREL) found that a demand charge rate of $15/kW or higher is the threshold for a positive return on investment (ROI) if you want to invest in energy storage systems.2

Commercial Solar Alone vs. With Energy Storage

Commercial solar systems can provide a nice return on investment and help reduce electricity consumption overall. 

However, by themselves they may not help address demand charges. By combining energy storage and commercial solar, you can charge your batteries with renewable energy during the day and discharge them at night when you would normally rely on the grid, or during times of peak demand.

Commercial solar systems, combined with energy storage, promise to save commercial businesses tens of thousands of dollars per year by reducing spikes in energy usage during times of high demand.

Energy storage plus solar systems can also potentially create new revenue streams with demand response. 

Demand response is a type of program offered by utilities that pays you to reduce your energy usage during times when utilities experience surges in peak demand. 

Energy storage systems are perfect for this.3

Battery Energy Storage Risks

Lithium-ion batteries should be installed with proper ventilation and fire suppression systems.

Lithium-ion batteries can be dangerous due to a hazard known as “thermal runaway“.

Thermal runaway occurs due to mechanical, thermal, physical or electro-chemical abuse that damages a battery cell. 

Damage causes an elevated internal temperature in the battery that gets high enough to induce rapid exothermic decomposition of the cell materials. 

As decomposition occurs, the lithium-ion battery heat builds up more quickly inside the battery than it can be dissipated.

The result is ignition of the battery or even explosion.

Decomposition of one cell in a storage system can propagate the thermal runaway process to other nearby batteries, modules or racks within the ESS.

This creates a domino effect of all the cells catching fire, hence the term “thermal runaway”.

Other risks associated with energy storage include technical, commercial and market related risks.

Technical risks of energy storage include making a bad decision regarding the type of battery technology to use. Some battery chemistries may not gain commercial traction or be relatively more hazardous than others.4

Useful life is also a factor.

According by a report by Lazard, flow batteries and compressed air batteries may last up to 4x as long as a lithium-ion battery. If lithium-ion batteries need to be replaced two to four times as often as competitor technologies, with comparable up front costs, much higher long term capital costs would be associated with choosing lithium-ion.

Flow batteries may have advantages in stationary applications, such as in buildings. Flow batteries work by exchanging negatively and positively charged electrolyte fluids to generate electrical current.

The fluids have an exceptionally long lifetime (>20 years), incur little to no degradation and are scalable, simply by increasing the amount of fluid used in the tanks. Flow battery toxicity varies by fluid chemistry used.

New battery technologies such as zinc-ion, compressed air, and flow battery technology are up and coming competitors in terms of cost and expected useful life. Zinc-air batteries may also offer reduced risk due to through longer life, lower cost and less chance of overheating, when compared to lithium-ion.

Battery technology risks can be further reduced through long term insurance contracts. Indeed, a flow battery sold by VionX may be packaged with a 20 year insurance policy to ensure their flow battery solutions.

If reduced risk of lithium-ion competitors, such as flow batteries, is proven out in actuarial data, it could result in lower insurance premiums for energy storage system owners.

3 Types of Energy Storage Insurance

The type of energy storage insurance you need will depend on whether you’re a battery technology manufacturer, distributor or supplier, or project investor/buyer.

The following types of energy storage insurance and warranties can help you protect your investment, transfer risk and provide coverage against reduced power output and production.

1) Energy Storage Insurance For Business

Work with your insurance broker to evaluate your energy storage business insurance exposures. Business insurance exposures may include, but may not be limited to:

  • BESS manufacturing operations
  • BESS installation and general contracting operations
  • BESS consulting and project development operations

Energy storage insurance and surety solutions for your business may include the following:

  • General liability insurance
  • Umbrella insurance
  • Professional liability insurance (E&O)
  • Property insurance
  • Environmental liability
  • Directors and officers insurance
  • Business auto
  • Inland and ocean marine insurance
  • Offtaker insurance
  • Interconnection, procurement, PPA and other bonds

In addition to the considerations above, if you are considering installing a new battery energy storage system, your insurance broker may be able to help advise you on new technologies that are being developed to prevent thermal runaway from occurring in the first place.

2) Energy Storage Warranty Insurance

If you are an energy storage contractor, manufacturer  or distributor, you may want to offer an extended warranty to your customers that goes beyond a standard warranty.

You may also want to provide your clients with greater comfort that an extended warranty is itself insured by an A Rated insurance carrier, as a backstop against the manufacturer’s warranty. 

Energy storage warranties, sometimes referred to as output performance warranties, provide coverage for reduced power output, lack of production due to errors, improper installations by your contractors or manufacturing defects.

Warranties can be purchased to backstop a manufacturer warranty for up to 10 years, even in the event of insolvency by a manufacturer. 

Extended warranties offer your clients a greater level of comfort and confidence in your capabilities as a service provider. It can also help you – or your dealer network – sell more BESS systems.

3) Cyber Insurance

Energy storage systems connected to the Internet to collect data, such as monitor and respond to utility rates, enable demand response systems and communicate with engineers are open to cyber risk.

Cyber attacks increasingly target energy, financial and transportation industries. 

Attacks are automated by software searching 24/7/365 for network vulnerabilities… As such, it is simply not possible for us to remain vigilant at all times.

Eventually an attacker may find a vulnerability and exploit it.

As such, the right smart building cyber insurance can provide an additional layer of protection in the event of a software flaw, a hack or an exposure to malware that could be used in reconnaissance by malicious software.

What Does Energy Storage Insurance Cost?

Energy storage insurance cost (premium) and warranty costs vary widely because every business is different. There is no standardized insurance form (such as a business owner’s policy “BOP”) for energy storage companies that provides a simple cost calculation.

The cost of energy storage insurance is determined by many factors that may include, but are not limited to the following:

For Businesses:

  • Operations
  • Sales/revenue
  • Business location
  • Employee payroll
  • Coverage type
  • Indemnification
  • Battery chemistry
  • Claims history (losses)
  • Risk management practices
  • Deductible or self insured retention (SIR)
  • Exclusions in the policy
  • Limits of insurance 

For Projects:

  • The size of the project (kWh or kW)
  • The value of energy production (in $$)
  • The battery technology type
  • The historical performance of similar projects your company or team has worked on.
  • Location of the project and type of building 
  • Building exposure and operations
  • Construction, occupancy, protection and exposure (COPE) data
  • Coinsurance

Energy storage insurance and warranty premiums may be financed (paid over time), or structured as one time payments. 


  1. According to the GTM Research Energy Storage Monitor.
  2. The report cites $15/kW as a notable threshold for a positive return on investment (ROI) from either lithium-ion (such as Tesla's Powerwall) or lead acid battery technology driven energy storage.
  3. As a property manager, I enrolled a client of mine in a commercial demand response program for his medical office park. He now receives checks for between $10,000-$20,000 for minor reductions in energy demand only once or twice a year...!
  4. A white paper evaluation of energy storage opportunities and challenges by Renewables Consulting Group and Axis Insurance provides a thorough overview and analysis of the various risks and opportunities of energy storage technologies.

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