The uptake of battery energy storage systems (BESS) in Australia has progressed rapidly since its introduction in 2017 and is expected to continue as technologies advance and costs decline, with support from a number of government schemes empowering the path forward.
Since mid‑2024, Australia has connected and rapidly expanded the use of large‑scale batteries on the electricity grid1, mirroring a global acceleration in deployment, and they have rapidly become essential infrastructure that supports peak demand, stabilises power supply and enables greater use of renewable energy2.
What stands out is the pace of this expansion — assets of significant scale and value are being deployed much faster than traditional risk and insurance frameworks were designed for, creating new challenges for owners, operators and insurers.
Understanding thermal runaway — real vs perceived risk
The BESS technology has been evolving but the risk of battery fires remains under scrutiny from the insurance market. While BESS technology, design and risk engineering are becoming more advanced, fire-related concerns, particularly around thermal runaway, continue to influence insurers' appetite.
Perception of BESS fire safety has been driven by a few isolated incidents, notably a series of fires in South Korea from 2017 to 20193. The indoor Moss Landing BESS facility in California also sustained repeated overheating problems, with one incident resulting in a US$900 million insurance claim4.
These losses have driven enhancement in battery performance and safety, with the use of lithium iron phosphate (LFP) cells, which are more stable than previously used components such as nickel-manganese-cobalt, provide greater stability and are less prone to thermal runaway.
BESS facility layout design has also been improved by the shift to outdoor facilities and better spacing of battery containers to limit the spread of fire and enable easier access for fire crews.
Underwriters are re-evaluating BESS risks
With developers and operators taking a more proactive risk-engineering approach and original equipment manufacturers improving the technology, BESS now presents a less volatile risk profile, with US industry sources suggesting the incidence rate of battery fires has been decreasing as a percentage of deployments2.
Insurers now recognise the role of facility location and design and are factoring in the differences between types of lithium battery cells and their associated risks into their underwriting decisions to determine insurance pricing, scope of coverage and the capacity available.
They remain cautious about indoor installations, but there is an overall increased willingness to insure well-engineered BESS projects.
The choice of contractors and other key project participants also influence the insurer's assessment, as their expertise and track record contribute to the overall risk profile.
This understanding has enabled more effective coverage and support for clients in the battery sector as well as the development of more tailored and informed insurance policies that emphasise comprehensive risk management strategies.
Key practical BESS risk considerations that influence insurance
- Thermal runaway risk and spacing
Scrutiny of the management of thermal runaway risk, including battery chemistry, design and operational conditions. Potential insurers also consider the expected battery lifetime, warranty, and the effectiveness of monitoring and maintenance systems as well as spacing and density optimisation.
- Augmentation and compatibility issues
Another consideration is the need to increase the capacity or extend the lifespan of a BESS project, which may potentially introduce compatibility issues. Plans should be disclosed in advance and insurance coverage updated accordingly if batteries are added or replaced.
- Technological evolution and diversity
The technological evolution of BESS is occurring rapidly and differently across differently regulated markets. China is reported to be producing batteries with new chemistries or solid-state batteries. Policies may need adapting to technological changes.
- Transit and cargo
Marine transport of batteries requires variations in shipping and packaging methods to comply with the regulations and standards of different countries and regions. Road haulage contractors need to be able to accommodate their density and weight management demands.
- Public liability
Inadequate safety measures during production, deployment or maintenance of battery systems can lead to hazards to public safety and health, raising liability considerations. Project managers need to ensure robust safety protocols are in place to protect public wellbeing.
- Fire systems, controls and risk management
Insurers are likely to require details of heating, ventilation and air conditioning systems, including dehumidification and fire rating of housing/enclosure and containers. This may also include fire suppression systems. The logistics of fire response (distance) and emergency plans also contribute to premium rating. Electrical protection against ground faults, over- or under-voltage, over-temperature and lightning protection are other factors.
Decommissioning battery energy storage systems
A typical full BESS decommissioning program includes the following activities:
- Developing the decommissioning plan, including a risk assessment
- De-energising the BESS
- Removing power conversion systems (inverter/transformer stations)
- Removing integrated battery storage units (site dismantling and packaging)
- Shipping the packed battery storage units to recycling facilities
- Removing electrical cables and conduits
- Removing substation equipment
- Shipping power conversion systems and cables to recyclers of electronic waste5
Suppression strategies can mitigate the destructiveness of BESS fires
Differing approaches to fire risk management are also key. The 'let it burn' suppression strategy has gained attention because it minimises risk to human life by reducing the danger of explosions when opening containers. This, coupled with large-scale burn tests6, allows insurers to quantify the loss of a single unit or grouping of units.
Another factor in BESS facilities' fire risk is the use of battery cells. Battery management software can monitor cell temperatures continuously to ensure they stay within manufacturers' warranty limits, shutting them off when limits are exceeded to prevent overheating and potential thermal runaway.
Operators are also advised to improve their risk profile by locating BESS facilities away from residential, commercial and industrial sites. We advise sharing proposed site layouts as early as possible for insurability guidance.
Typically, the probable maximum loss for a fire would be assessed for grouped units. Underwriters are likely to be cautious if the spacing between containers or grouped units is less than the typical 2-3 metres.
Improvements in BESS risk assessment and predictive analytics using AI
AI-based monitoring and predictive analytics are significantly reshaping insurance underwriting for BESS facilities.
AI-powered monitoring systems collect real-time data on temperature, voltage, current, humidity, state of charge (SoC) and state of health (SoH) of battery cells. This data enables insurers to model risks more accurately, particularly around thermal runaway, future degradation, fire or explosion risk and predicting failure patterns.
AI monitoring also enables early warning systems which can trigger pre-emptive maintenance, automated system shutdown and fire suppression activation, potentially reducing the frequency and severity of claims and influencing loss ratios, making the BESS sector more insurable.
This information enables insurers to design more accurate and tailored insurance products that meet the specific needs of renewable energy companies as they innovate and grow.
With improved battery technology and the careful siting and layout of facilities, the BESS industry will continue to steadily reduce its exposure to fire risk, making it increasingly attractive to investors and insurers alike. Effective monitoring and control of battery performance and safety will continue to play an important role, with AI and IoT sensors among the technologies proving transformative in this area7.
Access Gallagher risk expertise
Gallagher has supported a wide range of battery energy storage projects globally, across both utility‑scale and commercial applications. This experience positions us to help project owners, developers and operators navigate evolving risk profiles, coverage requirements and insurer expectations. By engaging with our renewable energy experts early, clients can address key underwriting concerns, strengthen risk management frameworks and improve the likelihood of securing appropriate and sustainable insurance solutions in a rapidly changing market.