Third stage of BESS underwriting differentiates market losses: Bogdan

By Rebecca Delaney

March 13 - (The Insurer) - Risk management continues to be a key prerequisite as the insurance market enters its third phase of underwriting BESS projects, Lockton’s Michael Bogdan told Sustainable Insurer.

Over the past decade, BESS projects have evolved from single-digit megawatt capabilities to a 1,400 megawatt project in 2025.

Alongside this scaling, certifications such as UL 9540A and NFPA 855 have helped to develop industry standardisations.

Last month, Lockton unveiled the BESS Lock facility, a full-follow model offering up to 250 million pounds in capacity. Operating globally, it is focused on the U.S., UK, Australia and Europe as the regions that currently have established BESS markets.

“The product that we’ve created now, the market wasn’t ready for back when we started,” said Michael Bogdan, partner in Lockton’s global energy and power practice

“As clients have evolved, they’ve taken a lot of guidance on board about only buying equipment that has certain technical certifications and putting adequate spacing between battery units.”

“This is not a carte blanche facility. It does have certain parameters that need to be met, but the vast majority of our clients meet those in the way they’re building projects today.”

He continued that BESS infrastructure has always required highly technical underwriting across the phases of the insurance market evolution, of which the market is currently entering its third phase.

“The insurance industry was very circumspect at the beginning, they knew enough about the technology to be wary of it,” Bogdan said. “We’re in our third phase now. The first phase was interest, and the second phase was seeing that this was really taking on momentum and projects were coming more rapidly. In that second phase, the market was careful not to get over our skis on this.”

The evolution of risk management has given underwriters greater confidence to distinguish between ‘good’ and ‘bad’ projects. Combined with the emerging standardisation of insurance products in the space, this enables brokers to offer a more streamlined approach. This is particularly important for BESS as many of the projects are debt-financed and will have stringent, time-sensitive lender requirements.

To this end, BESS Lock is a full-follow facility to avoid some of the repetitious administration identified by Bogdan that can be associated with a syndicated placement.

“We find sometimes in highly technical risk that there can be question fatigue from the owners. We put very robust submissions out into the market, the lead still comes back with many questions, and as you go down a syndication you can get additional questions,” he said.

“With this full-follow facility, we found that once one of our shortlisted panel leads said it ticks the box, it makes the process more straightforward.”

The ability to identify ‘good’ projects is also key to understanding market losses, such as Vistra Corp’s Moss Landing facility which caught fire in January; design and chemistry are significant variables in lithium iron phosphate (LFP) batteries.

“Some chemistries have a lower flashpoint than others, meaning they’re more risky. When you look at losses, the market has evolved to know you can’t just say it’s a ‘BESS loss’ and therefore fits into this bucket. You need to look at the chemistry and the design,” said Bogdan.

“You’ll find if you really differentiate between the projects that have had losses, you can then group it into those that are considered inherently higher-risk, which therefore will have to attract a greater risk premium.”

He added: “We’re not shy from ones that may be higher-risk, we just make sure that the client understands it may be perceived as higher-risk. We have an open discussion with the market on what is being done to manage a higher risk scenario.”

Looking forward, Bogdan believes the BESS insurance market will evolve according to similar trends observed for onshore wind and solar, which began as a niche space dominated by MGAs before creating a commercially standardised product.

“With the technology now becoming more commercially standardised under LFP, I think you’ll see more people wanting to get into the space as it’s better understood,” he said.

“Right now LFP has become the standard, but there are other technologies for long-duration energy storage and other chemistries that are looking to be commercialised. Just like with wind and solar, the insurance market will need to learn how to work with them to give them what they need, but also not take risks that are deemed unnecessary.”