© Lloyd’s 2021

Batteries and gridOpportunity assessment
MatureThe relative positioning of opportunities forthe insurance industry have been weighted
by:Mature, sizeable existing markets

1. Attractiveness, which considers both
the growth and size of the market,
andCriteria

WeightingGrowth50%

50%

Maturity ofindustry25%

Maturity of tech25%

‒ Number of existing products andcarriers
Geothermal‒ More innovative products required
to meet emerging risks

Low carbon buildings

Grid

Nascent, emerging opportunities

Batteries‒ Risks currently less known‒ Significant opportunity expected tomaterialise in the longer term
‒ Limited insurance capacity
currently

Nature based solutions
and carbon credits

Insurance
capacity25%

Insurance
product
maturity

25%

ImmatureSize‒ Established insurance products inmarketMarket maturity(industry, technology and insurance)

Marketattractiveness

2. Maturity, which takes into accountboth the wider industry and insurance
marketMarket maturity

Executive summary

Building a larger presence in emerging ‘transition’ technologies could help the insurance industry tolead innovation and grow sustainably

CCUS

Nascent, emerging opportunities‒ Early action could support earlymover advantage and capture
significant future growthHigh growth and market size

Market attractiveness(size and growth)

Classification: Unclassified

2

Overview

Battery energy storage systems (BESS) are expected to play a pivotal role in reducing dependency on highcarbon energy generation, accelerating the growth of renewables
Industry and insurance market dynamics

Insurance COB

Value chain

Investment‒ Battery pack prices have declined by 89% since 2010, driving growth in the sector which
will play a crucial role in the energy transition
Grid efficiency‒ Demand for batteries is expected to grow more than 8x by 2030 and insurers will playa key role in helping clients manage the associated risks‒ Energy storage is one of the emerging techs in which both insurers and distribution
partners have developed the most dedicated capabilities

60%

Increase in installed capacity of grid-scale batteries in
2021 vs 2020

Key growth drivers

Government regulation

Stationary
energy storage

Industrial
uses

Commercial andresidential

Different applications of BESS require different characteristics, broadly summarised ashigh power (ancillary) or high energy (bulk energy). This is due to variables indesign such as:‒ Power rating (MW); storage duration (h); cycling or lifetime; self-discharge (%);
energy density; efficiency (%); response time

Headwinds

High cost of production

Geopolitical uncertainty
National renewable energy
policyInsurance offerings

Infrastructure costs

Technology advances

Supply chain dependencies

3
Classification: Unclassified

OverviewTo achieve net zero ambitions, global electricity grids require a significant upgrade to shift to flexible ‘distributed’generation models
Example electricity grid evolution

Insurance COB

Value chain

Investment

Historical

As-is

Local generation

Large-scale transmission and distribution‒ In developing economies such as the‒ Today, power generators are connected toDistributed generation‒ Large investments and significant re-engineering is

UK, Europe and the US, local power“synchronous grids” with centralised control of

required to counteract regional bottlenecks andfacilities initially generated electricity fortransmission and distribution

develop “distributed” generation on an interconnectedindustry, gradually broadening their‒ Renewable generators range from “large-scale”

reach to supply to local communities

generation such as offshore wind, to small,‒ Historically, coal was the main source ofenergyand flexible grid
‒ Excess supply of renewable electricity is either stored“distributed” schemes such as household or small-

locally or transmitted towards high-demand centersscale solar with volatile outputs at varying voltage

through distribution system operators, allowing for‒ Designed specifically for large-scale energy
generation, with unidirectional flow, global power grids

Insurance offerings

To-be

are not suited to the volatile and often “embedded”
nature of expanding renewables

almost unlimited addition of renewable electricity
generation to the grid

‒ Expected decrease in future generation costs are
expected to outweigh construction costs

4
Classification: Unclassified

Overview

Moving to a ‘distributed’ electricity transmission model will enable the grid to support all renewables solutions,but solutions such as BESS are needed for surety of supply

Investment

Transformation to distributed generation ​Wide-scale transformation of electricity systems to a distributed generation
model, has several advantages:‒ Enables climate adapted technology to remain effective under the fluctuating
weather circumstances, facilitating evolution away from fossil fuels in thetransportation, industry and building sectors‒ Improves resilience and efficiency of the electricity grid

Value chain‒ Facilitates connection of low-carbon industrial buildings providing embedded,
local, renewable generation‒ Supports transition towards electrified alternatives in transport and heating,empowering end-customers to be part of the journey through “green-homes”
and other energy efficiency initiatives

Additional opportunities presented by distributed and renewable generation
Interconnectors – Global electricity networks are increasingly interconnected, enabling
more flexible supply and demand management, access to additional supply and offshore
connection
Energy storage – Storage in the form of BESS and mechanical systems, such as pumped
hydro are in demand for system balancing and frequency control
Hydrogen – Oversupply of renewables can be directly used to produce green hydrogen
Smart grids – Enables advanced metering, demand and supply management along withaccess to small-scale generation that might otherwise be lost

‒ Supports reduction in emissions aligned with reduction in back-up capacity

Insurance COB

Headwinds and key challenges posed to delivery

Success relies on management of fluctuating generation and demand
profiles and the associated engineering challenges

Insurance offerings

IMAGE HERE?

Grid instability – Moving to a decentralised system, with additional low-voltage andintermittent/fluctuating sources increases the risk of wider system instability. This in turndrives a need for reactive compensation equipment increasing the cost of systemmanagement

Aging infrastructure - A 50-year lifespan is common for transmission lines and associatedequipment. Globally, most power grids are aged and already require significant investment.
In the US, for example, power transformers with an average age of more >40 years, currently
manage 90% of all electricity flow
Political pressure - Local government policies may overrule interconnector demands
creating engineering challenge and construction imperative

5
Classification: Unclassified

Overview

Supply chain challenges and natural resource concerns have limited BESS to date, but policy changes, recycling
solutions and advances in technology are unlocking future growth
Global investment breakdown

Investment

Growth drivers
Battery investment,
2025-2030 ($bn)1

Government regulation - Governments, such as the US, are incentivising investment in batteryenergy storage projects. In the US, the Inflation Reduction Act provides Investment Tax Credits
for energy storage systems+401%$419bnValue chain$84bn

National renewable energy policy – In the UK, Ofgem has funded several projects to support
energy storage and China’s “National Demonstration Power Project Management Measures”,
included support for Energy Storage in demonstration projects
Technology advances - Improvements to battery technology are seeing cheaper, more
durable and lightweight solutions enter the market, including NIB and Redox batteries,
alongside Graphene in Li-ion batteries
Headwinds

Insurance COB

Current market trends‒ US: Inflation reduction act allows battery developer easier claim ofinvestment tax credits; plan to install 22GW more capacity by 2026
‒ UK: Has more than 16GW of battery storage currently operating, underconstruction or in the pipeline across 496 projects‒ Australia: Constructing 8 large batteries and 58 community batteries across 4
states to increase capacity and provide grid stability

Insurance offerings‒ India: Developing 7 key grid scale battery projects to help store power during
low demand periods‒ South Africa: Developing 5 new storage batteries in the Northern Cape;building battery storage to improve grid reliability

High cost of production - Prices have been declining, primarily due to technologicaladvancements, but the cost remains high relative to traditional energy storage options. The
upfront investment required can often act as a deterrent to investment and adoption
Geopolitical uncertainty – The conflict in Ukraine has pushed up the price of rare Earthmaterials. Continued or new conflicts may pose further challenges to the industry

Infrastructure costs - Integrating battery storage into existing energy systems andinfrastructure is costly and requires significant investment to ensure safety and compatibility
Supply chain dependencies - Existing supply chains are highly vulnerable. Countries including
the US are seeking to establish more resilient supply chains and reduce its reliance on China,
which currently provides the majority of mineral required

6
Classification: Unclassified

Overview
Investment

Globally $1.7bn is expected to be invested in grid infrastructure between 2021-2025, with most investment
focused on new lines in Europe and APAC
Global investment 2021-2025

Regional investment breakdown 2021-2025

Total grid infrastructure investment(Capex on new lines and replacement),
2021-2025 ($bn)1

Regional breakdown of total grid infrastructure (Capex on new lines and replacement), $m 2021-2025

40%

Value chain

39%

Europe$512m

N. America
$282m

35%
Global$1.7bn

26%

60%

61%

APAC
(excl. China)
$585m

65%

Insurance COB

19%
19%
Lat. Am$81m

Key:

New lines

74%

Africa &Middle
East
$197m

81%

Replacement

Insurance offerings

75%

7
Classification: Unclassified

Overview

Planned electrochemical BESS plants will more than double those currently active across all geographies
Regional electrochemical BESS plant size and status

Global electrochemical BESS
operational capacity

Investment

Global electrochemical battery storage power
output (GW), operational 2023

Europe

3.64

APAC

3.22

China

Value chain

6.91

North America

0.92

LATAM

0.26

Africa and Middle East

0.21

Global power
outputInsurance COB

North America# active plants:
Avg. plant power:1
Avg. plant energy:2922
7.5 mw
29.6 mw/h# planned plants:
Avg. plant power:1
Avg. plant energy:2854
66.6 mw
187.3 mw/hPart operational
12%

Dormant2%

15GW(electrochemical)

Announced
24%

Planned62%

Regional considerations‒ US: The Inflation reduction act has allowed for battery
developer to claim investment tax credits easier as they plan toinstall 22GW more capacity by 2026

Insurance offerings

Regional breakdown of current and planned electrochemical battery storage plants and current status of known plants‒ UK: Has more than 16GW of battery storage (all types)
currently operating, under construction or in the pipeline across496 projects‒ Australia: Are constructing 8 large batteries and 58 community
batteries across four states to increase capacity and provide
grid stability

Europe# active plants:
Avg. plant power:1
Avg. plant energy:2482
7.6 mw
7.3 mw/h# planned plants:
Avg. plant power:1
Avg. plant energy:2585
60.9 mw
131.9 mw/hPart operational
12%

Announced
32%

Dormant
4%

Planned52%

58
4.4 mw
3.3 mw/h# planned plants:
Avg. plant power:1
Avg. plant energy:2

60
78.9 mw
213.4 mw/h

‒ India: Developing 7 key grid scale battery projects to help store
power during low demand periods. India aims to have 140200GW storage capacity by 2040

Part operational
8%‒ South Africa: Are developing 5 new storage batteries in the
Northern Cape, they are not able to build new generation
capacity so are building battery storage to improve gridreliability

Announced
41%

Africa and Middle East
# active plants:
Avg. plant power:1
Avg. plant energy:297
2.1 mw
5.1 mw/h# planned plants:
Avg. plant power:1
Avg. plant energy:2

112
46.5 mw
131.1 mw/h

Partoperational
2%
Planned51%# active plants:
Avg. plant power:1
Avg. plant energy:2362
8.9 mw
12.5 mw# planned plants:
Avg. plant power:1
Avg. plant energy:2

398
197.9 mw
524.7 mw/h

Partoperational
7%

LATAM and Caribbean# active plants:
Avg. plant power:1
Avg. plant energy:2

APAC (exc. China)

Announced
55%

Dormant2%

Planned36%

Planned19%

Announced
79%

8Classification: Unclassified

Overview

There is a mature global value chain for BESS for end-user self-generation and self-storage, while large-scaleinstallations are dependent on upgrade and evolution of power grids

Insurance offerings

Material mining &processing

Battery cellmanufacturing

Battery cell
assembly

73% of global storage
power output

Electrochemical

1.
2.
3.
4.

Lead acidLi-ionNaS
Flow

9% of global storage
power output

Mechanical

1. Flywheel
2. Compressed Air
Storage
3. Hydro – pumped
storage ​Generation

Electricity transmission, distribution & storage

Grid side applications
End-to-end solution providers for
deployment and operations of BESS’s could
potentially disrupt the market and areaccelerating future opportunities

Applications
Utilities use electric
storage technologies (forpower generated fromfossil fuels andrenewables) in a range ofapplications such as timeshifts and supply capacity
to meet the demandsupply gap efficiently

HardwareFossil fuelSoftwareRenewable energy

Uses/markets

Second life/recycling

Applications
End-users benefit from theefficiencies energy storage
systems offer in time-ofuse energy tariff costmanagement, demandcharge management, anduninterruptible power
supplies

Applications
Batteries used in storage
systems have moresecondary life
applications than in EVs,
as overall performance ismore variable, resulting in
longer lifetimes

Transportation

Selfgeneration

Services
Grid end
users

Distributed
generation

Self-storage

Insurance COB

Value chain

Investment

Energy storage system manufacture

18% of global storage
power output

Thermal

1. Molten salt
2. Ice thermal storage
3. Chilled water
storage

Industrial
uses

Classification: Unclassified

Commercial
andresidential

How this could be used isstill unclear, as thetechnology continues todevelop, and most
systems are 10-20 years
away from expecteddegradation – given thenascency of theirapplication
Recycling
The recycling market iscritical to reducing theenvironmental impacts ofproducing battery material,using heavy mining
processes and toxic
chemicals. However,fewer than 5% of lithiumion batteries are currently
recycled

9Overview

Insurers have developed standalone products for energy storage or integrated them into existing power policies,
but BESS operators will seek increased capacity as more projects commence

Investment(Re)insurance class ofbusiness impact
Accident andhealth‒Cyber

Financial lines

Gaps in coverage currently offered

Property/casualty (operational): operational all risks (OAR), public liability,
employers liability with biggest increased risk from fire including from:‒

Casualty

Value chain

Key coverage sought for projects‒

Thermal runaway – the result of a chain reaction where misused ordamaged battery being to release heat energy, leading to further damage
in a negative feedback loop which can cause build-up of explosive
atmosphere and fire
Failure of BESS control systems - If one or more control component
fails, for instance a battery management system, it can lead to overheating
and fire
BESS and hydrogen evolution - In lead-acid batteries, excess hydrogencan create a risk of explosion unless proper ventilation methods are in
place

‒

Coverage is mostly provided under pre-existing power policies as a property andliability component, if the plant building an energy storage is already in operation
however high-profile fire incidents in the BESS sector, have impacted insurer’s
appetite to provide energy storage cover‒

The current construction market has been hesitant in establishing risk profiles
given the diversity of technologies employed within the battery storage space.
Minimum global standards on construction and increased loss data is needed toassist the industry in pricing‒

For standalone energy storage industrial scale developments, standalone warranty
and liability products have been developed however the market is currently
immature‒

Reasons for this include potential insurability challenges, losses associated with theunproven nature of the technology and the limited availability of battery
performance data from original equipment manufacturer (OEMs)

Insurance COB

Marine, aviation,transport (MAT)
Other (construction): construction all risks (CAR), delay in start up (DSU), supply
chain insurance, terrorism, public liability, political and regulatory risks

Motor

Property
Other (extended warranties): Warranty offered in addition to a standard warranty
typically offered by the manufacturer, providing protection in case of battery failure

Insurance offerings

Other

Other (performance guarantee cover): Cover purchased in conjunction with anextended warranty product that guarantees at least 70% retention of battery capacity
for a given period

Impact
High

Med

Low

-

10
Classification: Unclassified

Overview

The insurance industry is adapting existing warranty and business interruption offerings to BESS solutions
Example market offerings

Insurance offerings

Insurance COB

Value chain

Investment

ProviderProduct description‒

AIG offers coverage for “traditional renewable energy” which includes coverage for onshore wind, solar, hydro, battery
storage‒

These coverages span property, casualty, D&O, and other lines of business‒

BESS CAR and OAR solutions provide specialised P&C coverage for every stage of a battery energy storage project fromdevelopment through operation‒

Axis work with independent power producers, project developers, operators EPCs and utility companies‒

E-mobility insurance means manufacturers and fleet owners are shielded from excessive costs resulting from warranty
claims for their long-term battery warranties by Munich Rr's coverage for e-mobility applications‒

Stationary energy storage solution provides strong protection against excessive repair and replacement expenses
brought on by component failure or unanticipated capacity deterioration‒

Directed at participants along the entire value chain‒ Munich Re uses monitoring by TWAICE software to offer performance warranty insurance for Li-ion batteries‒ Munich Re’s performance warranty insurance policy covers repair and maintenance of battery storage systems and can beextended to cover lost revenue from downtime. The customer is also protected against insolvency and non-payment on thebattery supplier’s side
‒ AXA XL support Paragon Insurance Holdings, a specialist MGA, in offering technology performance and battery revenue
insurance‒

Initially launched in 2022, MS Amlin partnered with Altelium to offer a BESS construction all risk and operational all risk
solution, which has subsequently closed

11
Classification: Unclassified

Notes & Sources (1)Page number

Source

Notes

3

IEA; International Council on Clean Transportation; IEA; UN PRI; GlobalData

1. Batteries includes grid, EV charging and EV battery manufacturing; 2. Grid includes replacement
only and excludes new lines

4

IEA

5

IEA; Energypost; S&P Global; Financial Times; U.S Department of Energy; Reuters

6

IEA; International Council on Clean Transportation; GlobalData

1. According to the Base Case – Forecast Policy Scenario (UN PRI) with battery here including
grid, EV charging and EV battery manufacturing

7

IEA; GlobalData

1. Expected Capex investment is based on the Net Zero Scenario (IEA). Excludes China.

8

GlobalData

1. Power rating (measured in megawatts) indicates how much power can flow into or out of thebattery in any given instant; 2. The energy rating (measured in kilowatt-hours) is the amount ofenergy that can be delivered or absorbed over the course of an hour

9

IEA; International Council on Clean Transportation; S&P Global; EVGO; Manufacturer websites

1. The Group Rating Panel, administered by Thatcham Research, assigns new car models to an
insurance group from 1 (cheapest to insure) to 50 (the most expensive).

10

Aon analysis

11

SMI ITF 2022 products and services showcase; Carrier websites

1. Percentage split according to the Base Case – Forecast Policy Scenario (UN PRI)

12Classification: Unclassified

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13
Classification: Unclassified