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Battery energy storage systems (BESS): Insights for developers and asset owners

The safety of UK battery energy storage systems (BESS) were among the subjects discussed at the Energy Storage Summit 2024 held in London recently.

The size, situation, and safety of UK battery energy storage systems (BESS) were among the subjects discussed at the Energy Storage Summit 2024 held in London recently.

Key trends identified at the conference included the following:

The evolution of UK BESS from the sub-50-megawatt (MW) template of a few years ago into some of the world’s most ambitious projects.
Challenges of co-locating systems alongside renewable power generation assets.
How new BESS planning guidance in the UK is prompting the re-evaluation of project risk and design.

Here is a summary of some of the themes examined at the summit and the measures developers and asset owners can take to mitigate risk associated with BESS projects.

UK BESS “sweet spot” is 200-500 MW

UK battery energy storage systems are becoming larger — growing from the sub-50-MW size of several years ago into the substantial projects we see today. For example, planning permission was granted recently for a 1,040 MW project — described as the world’s largest battery energy storage project — to be located at Manchester’s Trafford Low Carbon Energy Park.

Economies of scale, improved supply chains, and the UK Government’s removal of the cap on nationally significant infrastructure projects (NSIP) have contributed to the increase in size of BESS projects being proposed.

The “sweet spot” for a UK BESS project — the point at which the return on investment and project size cross over — probably now sits between 200-500 MW.

Co-locating assets can be challenging

BESS assets can be located next to various forms of power generation, such as solar, wind, and forms of thermal generation. The advantages of co-locating projects are many. For example, infrastructure and ancillary service costs can be shared. Energy generated in periods of high production can be stored and then released during times of high demand or low generation, which alleviates intermittency risk. Storage assets can generate revenue through arbitrage during periods of lower natural generation.

However, there are challenges associated with co-locating assets. There is interface risk — the potential for problems when different systems, processes, and entities interact with each other. There is also more opportunity for issues or delay during construction of the project. More complex contractual structures are generally required if separate contracts are awarded for different technology types.

While from a solar developer’s perspective, exploring the addition of battery storage usually makes sense, some battery developers may be more focused on grid capacity than incorporating solar or other renewable energy into the project. These developers may decide not to locate their project next to a renewable energy asset.

Developers face drops in revenues

BESS developers currently face lower revenues compared to the highs of 2021 and 2022. Several factors have been cited as causing this downswing, including:

Increased competition
Falling wholesale energy prices
Falling energy trading values

The full impact on the sector of the decrease in BESS revenue remains to be seen. Some market participants expect consolidation of projects under the ownership of larger players, if the sector’s profitability fails to improve.

Supply chain and climate risk is ever present

The supply chain for BESS involves various components, including lithium-ion batteries, inverters, control systems, and other hardware. The use of lithium-ion batteries subjects developers to fluctuations in the lithium market. This exposure is particularly significant given the long timeframes required to develop BESS projects — obtaining planning permission and a grid connection is a lengthy process. As such, developers need to consider and manage the potential impact of surges in lithium prices on the overall cost and viability of their projects.

Additionally, batteries and transformers have long lead times — if these items need replacing, the wait can be lengthy. Political instability, trade disputes, and changes in regulations can impact the sourcing of these components and others, as well as materials.

Climate change risk

Extreme seasonal weather patterns can introduce considerable challenges for BESS developers, necessitating extensive planning and risk mitigation measures. While longer and brighter days in the summer months are advantageous for renewable power generation, they can make energy storage more difficult. The heightened temperatures have the potential to strain the cooling systems within batteries, potentially causing them to enter a state of thermal runaway. In the worst-case scenario, this could result in fires and explosions, causing physical harm and financial liabilities.

Changes to guidance on BESS fire safety

The UK Government updated its Planning Policy Guidance on renewables in 2023 to include a section on the development of BESS on fire safety. This follows the publication in 2022 of guidance by the National Fire Chiefs Council (NFCC) on the safety features and considerations they expect to see on BESS developments in open air environments.

The guidance advises:

Developers to engage with the local fire service at the pre-application stage.
The local planning authority (LPA) to formally consult with the local fire service as part of the planning process and consider NFCC guidance when determining applications.
Two points of access to a BESS compound, adequate hard standing space to accommodate fire service vehicles, and sufficient water sources available to tackle a fire that may require onsite water storage.

Up until these updates, fire safety was largely dealt with outside of the planning process. The feasibility of aspects of the guidance has been questioned — such as the suggested standard minimum spacing between units of 6 metres, unless suitable design features can be introduced to reduce that spacing. Some developers who have not followed this guidance are struggling to obtain planning permission for projects.

Risk mitigation strategies

BESS developers operate in an environment where risks are changing, but they can deploy strategies to manage that risk, including the following:

A robust plan to source spare parts and a buffer in a construction roadmap to absorb delays to help mitigate supply chain risk.
Use of insights into the insured loss experience of other BESS projects to help inform decisions on a project’s layout, including the spacing of the batteries.
Revenue and business interruption insurance programmes with suitable indemnity periods to protect revenue risk.

How Marsh can help

As your BESS risk adviser, Marsh can advise you on pre-construction design and procurement considerations. These small considerations may have a material impact on the cost of construction and operational insurance for the lifetime of the project.

To find out more about mitigating the risks associated with a BESS project, please contact your Marsh adviser.

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