3 Types of Energy Storage Insurance for Battery Technologies

This article describes energy storage and how you can protect your investment with the right energy storage insurance.

What is Energy Storage?

Energy storage enables you to store electricity from the grid, or from intermittent renewable sources (such as solar and wind), to power your buildings. Energy storage systems today are primarily comprised of “pumped storage” using water stored at hydroelectric plants…

However, big batteries in buildings are the future.

Commercial battery prices are falling sharply and new technologies are being developed making investments in battery storage a viable opportunity in the U.S.

Battery energy storage offers you more control over the grid as well as greater resilience and the freedom to use renewable energy whenever you want, not just when the wind blows or when the sun shines.

Energy storage systems are comprised of hardware, software, services, warranties and (often) insurance:

  1. Hardware: Energy storage hardware is comprised of large scale batteries. 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: By themselves, batteries are “dumb”… However, when combined with energy optimization software they become “smart” energy storage systems. Software is designed to optimize battery charging and discharging for the most efficient use of energy (to save the most money).
  3. Services: Energy storage services are provided by people who monitor, operate and maintain your energy storage system.
  4. Warranties and Insurance: Warranties and insurance programs are used to guarantee a battery system’s performance and reduce or transfer risk from the battery owner to the contractor or manufacturer.

Renewable Energy Storage Insurance

Energy Storage and Commercial Solar

Energy storage plus solar systems can save you even more money on your utility bills by reducing or eliminating certain types of charges. Utility bills are largely comprised of two types of charges, consumption and demand.

  1. Consumption Charges: are calculated by the volume of electricity, measured in kilowatt hours (kWh), consumed during a billing period.
  2. 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 we often think of utility bills in terms of consumption, peak demand charges can represent as much as 70% of a property’s electric bill. Demand charges represent an increasingly large portion of the cost of commercial and industrial electric utility bills across the U.S.

But batteries are perfect for reducing demand charges because they 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.

Reducing demand charges using batteries and commercial solar 1

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. For example, Building A above uses 6,000 kWh of electricity each month… But Building A also uses some machinery that temporarily causes spikes of up to 27 kW in demand. The spike results in the utility charging Building A at the 27 kW demand rate for the foreseeable future because it expects the building to need that much electricity from time to time.

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.

To resolve its peak demand charge problem, Building A could install batteries and charge them with renewable energy or when utility rates are low. 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

If not managed, 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.1

Commercial solar systems can increase ROI and help reduce electricity consumption overall, but they do not directly impact demand charges…

However, 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 your local utility that will pay you to reduce your energy usage during times when utilities experience surges in peak demand. Energy storage systems are perfect for this.2

What Are The Best Battery Energy Storage Technologies?

Lithium-Ion batteries are the 800 LB gorilla in battery energy storage. Lithium-ion batteries lead the way in commercial and grid-scale energy storage technology with 94.2% of energy storage systems installed in Q2 2017.3 Lithium-ion batteries may be used in a variety of applications, from electric vehicles to building energy storage.

However, new battery technologies such as zinc-ion, compressed air, and flow battery technology are up and coming competitors to lithium ion technology in terms of cost and expected useful life. These battery technologies not only promise longer life and lower costs. Also, because lithium-ion batteries have an explosion risk, alternative battery technologies potentially reduce the risk of energy storage projects in commercial buildings.

The cost of energy storage is measured in kilowatt hours (kWhs). Lithium-ion battery costs have fallen to around $200/kWh (from over $1,000/kWh) and in recent years zinc-ion and flow batteries are approaching $160-200kWh.4 Prices of all battery technologies are expected to continue to fall for the foreseeable future.

However, 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 also 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.

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 Insurance for Energy Storage

As mentioned above, the risk associated with energy storage projects varies by technology. But business risks also vary based on your position in the energy storage value chain. Are you a contractor who provides a performance guaranty? Are you a manufacturer of a battery technology? Are you a project owner investing in an energy storage system?

The answer to the above questions will determine the type of insurance, or warranty, you should consider for your energy storage system.

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 Project Owners

Shared savings agreements are common financing methods for energy efficiency projects. But what happens if pro-forma savings fall short of projections?

Or what if you have identified the right technology, but the battery manufacturer warranty is not broad enough?

If you wish to insure the operation and maintenance of your battery energy storage/backup system, you can buy energy storage insurance.

Energy storage insurance is first party coverage designed to mitigate your exposure to project performance risk. Energy performance risk may be measured by energy generated by your system or in terms of dollar value of energy saved. Coverage is typically written for terms of up to 10 years.

2) Energy Storage Warranty for Contractors

If you are an energy storage contractor or storage manufacturer you can warrant your work for your customers with an energy storage warranty. Energy storage warranties, also referred to as output performance warranties, provide coverage for reduced power output and lack of production due to errors, improper installations by your contractors or due to manufacturer product defects.

Warranties can be purchased that last from 10-20 years, depending on the technology. Warranties typically cover battery system components and workmanship and can also include lost revenue if systems fail to produce. Energy storage warranties can also act  as extensions of manufacturers product warranties, in the event the manufacturer goes bankrupt.

By providing a stronger guaranty, your clients will have a greater level of comprfort and confidence in your capabilities as a service provider. Energy storage warranties can also help sell more projects more quickly.

3) Cyber Insurance

Smart buildings use Internet connected software to run devices such as thermostats, LED lighting, ventilation and life safety systems to help buildings run more efficiently. But the “Internet of Things” or IoT, can lead to cyber exposures. Energy storage systems are connected to the Internet in order to monitor utility rates, communicate with utility demand response systems and allow remote access for building engineers.

Increasingly, cyber attacks are targeting energy, financial and transportation industries. These attacks are being conducted not by humans but by software searching 24/7/365 for network vulnerabilities. It is simply not possible for humans to remain vigilant at all times.

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 is the Cost of Energy Storage Insurance?

Energy storage warranty and insurance costs are determined by factors that may include, but not be limited to:

  • The size of the project.
  • The value of energy production.
  • The battery technology type.
  • The historical performance of similar projects your company or team has worked on.

Energy storage warranty premiums may be financed (paid over time), or structured as one time payments. Premium economics are comprised of minimum earned premiums, self-insured retentions and one time payments. Coverage limits may be up to $50,000,000.


  1. 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.
  2. 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.
  3. According to the GTM Research Energy Storage Monitor.
  4. Risks associated with energy storage include technical, commercial and market related risks. Technical risks of energy storage include the types of battery technology, the use of hazardous materials and the associated safety issues that may arise from physical damage. 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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