How insurers are assessing battery storage with Michael Bogdan (Partner @ Lockton)

Hello. It's Ed and welcome to another episode of Transmission.

Today, we're joined by Michael Bogdan who is a partner at Locton.

And this conversation is going to be all about batteries and insurance.

We're gonna start off the conversation looking at Moss Landing, a recent fire at a US battery site. We're gonna move on to how insurance works alongside battery projects as they go through development, construction and operation. And then finally, we're gonna look at how insurance thinks about new products as they come to market. Let's jump in.

Hello and welcome to Transmission. Today, we are joined by Michael. Michael, welcome.

Thank you. Nice to be here today.

And we're gonna go to the world of insurance. But before we get started on that, I wanted to start off with you, your experience, the company you work for, and kind of why you have or your history within the space.

Sure. Well, my name is Michael Bogdan. I work with Lockton, which is a a global insurance advisory firm and brokerage.

We work with clients across the economy. I've been working with Lockton for the last ten years and, been in the space for seventeen doing insurance for renewable energy and conventional power stations.

Okay. Superb. And and maybe just on the battery side of that. So when was when was kind of the first time a battery project came across your desk?

Well, batteries started for me in twenty fourteen. We saw our first project. It was just a a four megawatt, two point six megawatt hour battery in Ohio, and it was built by one of our established wind and solar developer clients. And and so we moved into that space, and I really became fascinated with the technology and saw its potential and and looked to be involved in it ever since.

It's it's actually quite funny. You that some of those earlier projects that were sort of four megs back in twenty fourteen, twenty four fifteen, the naming of those was occasionally like the big battery. And then kind of as time has gone on, those names haven't kind of, like, withstood the test of time. Yeah. Those things have got enormous.

No. It's true. And and the duration as well. I think the duration on that was a lot shorter than what we're seeing today. And it's, but, you know, it was the test case, but, you gotta start somewhere.

Absolutely. Okay. So I I really wanna just dive into, one of the most topical parts of batteries at the moment, and I actually wanna go to Moss Landing. So what is Moss Landing and what happened there recently?

Sure. My understanding of Moss Landing is that, you know, it's a it is a large battery. I'm not sure the exact date, but it was built prior to twenty twenty. It was built in a in an indoor specification, which is not something we see as often today. It, it's reported that there was a fire at the site, and and that fire had pretty substantial damage. The insurance press is reporting around four hundred million is what the the loss could be to the insurance market for those who insure it. So it's, it's it's gotten everyone's attention, and it's something that, the insurance industry is looking carefully at as it evaluates everything related to renewable energy and conventional energy as well.

Okay. And so the impact of something like that is that people all of a sudden see the kind of the size of loss that's that that's possible.

How did the industry react to that kind of event? How how how has it changed or or has it changed how people think about insuring batteries today?

Sure. Well, it's still a relatively recent event. So I think, you know, the jury is still out. But a lot of the trends I see as an insurance advisor from talking to the market on a regular basis is is they note while this was a a major event, and all major events that are insured will their claims will be paid, and that claim needs to be recouped by the insurers.

It's kind of the the law of large numbers where a lot of people pay pay premium in, and occasionally, a claim does occur and everyone has to contribute to that. That is the as the risk sharing aspect, that is insurance. Now but specifically about Moss Landing and what it means for other battery storage owners is I think that the the news is not dire because the project, as is reported, is quite different from the projects I see on my desk on a daily basis. We are mostly seeing LFP chemistries in the batteries that are coming out, and we are seeing outdoor installations.

And those are inherently going to help avoid fire spread from one container to the other. Moss Landing was an indoor specification, and that's that's probably the key difference. So when you look at if you're building a project today and you're we wanna make sure you're managing risk and you'll be insurable, I think, you know, just following the specifications and the standards we're seeing in the industry today should make people feel comfortable that the insurance market will support projects.

Okay. And and just to kind of put one clarification on that Moss Landing point, I think Moss Landing is kind of is a phased it was a phased build out, and the kind of the earlier phase was indoor, and some of the later phases have been outdoor.

That's a good point.

The fire was on the indoor portion, which is why you're talking about the the in the indoor part of it. But really kind of what you're driving at is the the change from the NMC chemistry that was originally used to the LFP chemistry that's used today in addition to the specifications and kind of spacing that's thought about for battery projects. Is that in your mind? Is is that almost treated as kind of the almost like two different stages of technology?

Yeah. It's the evolution of the technology. I think when some of the earlier projects were built, there just wasn't a knowledge and an experience that came from time. Time really provides that experience for all industries.

And I think, you know, we see some cases where there were indoor battery installations that were built because the the the local council didn't want to have a bunch of containers on visible from the road. And they said, why don't you build something over it that makes it look more like a a a rustic barn? You know, that might be good for aesthetics, but when you're thinking about risk management, that may not be the choice you make. And I think that's now taken by the industry and understood.

We have to push back when asked to cover them unnecessarily and because I think ventilation is is a key aspect of managing risk on batteries, and so you see primarily outdoor installations.

And another area was, you know, we spend a lot of time educating the owners of assets on what adequate spacing means because the OEMs will tell you that, you know, this battery will work if you space it somewhat closer together than we would recommend or the insurance industry would recommend. So we said, yes. Just because it will work at a closer spacing doesn't mean you should necessarily build it that way. And I spend a lot of time talking with OEMs and the owners who are gonna buy from them about why you might wanna give a little more space and, you know, and if and in some geographies like the US where space is less at a premium, that's easier to do.

In in the UK and other, geographies where space is tighter, you have to work a little harder to make sure you have that space. But we found for our clients that if you show adequate spacing, you show chemistry that's gone through certifications and standards, the UL testing is becoming the way now, and there are others. But going hitting those milestones and hitting those standards and certifications, gives a project that is bankable for insurers.

Okay. And then we just mentioned the UL testing very briefly there. Mhmm. Just to give a high level, what is what is UL testing?

Sure. I mean, United Laboratories is a a testing body, and they come up with a series of standards for various all forms of technology. You'll see the little UL symbol on a lot of your electronic goods around your house. It's a I believe it's a US certification, so it may be more US centric.

But it's a standard that's adopted, and and anytime a battery cell is coming to market, it's recommended that they get a UL ninety five thousand four hundred and eight test. And so and that test measures all sorts of readings about off gassing and other elements. And so and it's just the the testing and passing the testing and how you pass the testing. It's not just passing a test.

It's it's the results showing your work on how it responds to temperature and heat and and various variables. That read by insurance engineers who will then sign it off and say, yes. This works for us. That's a key milestone in showing that your project is insurable.

Okay. And so if I've been in the the best space over the last five or ten years, like, how has that how has it changed from an insurance perspective over those years? I think we've kinda talked a little bit about spacing, chemistry, and a little bit on kind of testing.

More broadly than that, how how has the space changed for, battery owners?

Yeah. I mean well, I think insurance in general, in my experience, is is is very optimistic. They wanna support economic activity. They wanna support innovation in industry to make things work more efficiently.

So I think when batteries came to market, as I mentioned with my earlier case about a four megawatt project, it was a well established wind and solar owner who was building and owning assets in multiple countries. And they came to us and the insurer with the proposal, and we came at it from a positive affirmation. We want to support this. We just need to understand it.

And so what we do as as insurers and it's important to understand that locked in and myself, we are insurance advisers. We represent the owners of the assets, and then we bring the technology that they want insured to the insurance market, which is the risk capital. Lockton and the insurers would work together and say, this is the technology, and this is how it works. And the insurers would say, okay.

And they they would learn as they were as it was evolving. And that was in twenty fourteen. There were very few projects. So if you think about risk, you know, it was a mod it was a modest risk, and they had a whole lot of wind and solar, so they could manage it and balance it through a portfolio approach.

And then in twenty nineteen, twenty twenty, we started seeing a lot of our clients who were wind and solar developers saying, we're going big into batteries. And a lot of those were in the California market in Caiso. And we were working with a very large solar developer there who said, we need to be putting batteries in our area because, you know, we're the duck curve is getting worse every year, and we're gonna not be able to build more solar, which is what we wanna we've been doing, and we wanna continue.

So they said, we're going with batteries. And we had some UK clients who just were seeing opportunities to build standalone batteries to manage the onshore or the offshore wind that was coming into the market and helping with ancillary services and various elements like that. And that's when we really saw the big jump. That's when locked in started getting its moving into the gigawatts of projects that we've done.

We're we're now up to five gigawatts plus that we've been supporting owners with. But it was right at that time when the insurance terms and conditions got a bit more restrictive because I think there was enough of it coming on that the insurance market wanted to pump the brakes a little bit and say, okay. Are are we sure we're taking a lot of this on. Is this gonna work the way we think it's going to?

And so there was definitely an element of concern, and that's where the standardization came from. It was the insurers who were pushing to see UL certifications, and if not, other forms of certification, other forms of risk mitigation. And they they really put the industry through its paces, and and that's how it evolved. And and the pricing, you know, pricing is always relative, but pricing was considered higher at that point.

And then and now I think we're getting to we're entering a place where we're in that third phase, where we're we're seeing the standardization take place, and the insurance is getting more comfortable with the technology because the the technology is maturing. The people who are deploying it have experience, and that just means they should be fewer issues, that will hit insurance policies. And therefore, the industry wants to support it.

It. Okay. So so near term, we've seen sort of insurance premiums get more confidence and therefore perhaps be lower cost over the last few years. I'm really interested in in that kind of in those first projects.

So were they kind of particularly restrictive in terms of insurance premiums, or were they kind of thought to be, look. This is just a four megawatt unit. So, like, the total loss on this is not huge. So we're happy just to kind of just to just to kind of get the ball rolling on this one, not put on a huge premium.

And then as you say, like, it kind of was twenty nineteen, twenty twenty when all of a sudden this was big enough that you thought, okay. Actually, we need to we need to really think about what these premiums look like and and not say they weren't thought about before, but is is is that really between the lines correctly?

Yeah. I think there's an element to that, especially when you when you're if you're a a large developer who puts a lot of insurance premium into the market in more established technologies. When you bring a newer technology, you'll probably get a little better reception than if you were just a single entity who's never had a relationship with some insurers and says, I wanna try something that no one's ever done before. So there is that element to it. And the and the small size initially made it a little easier to just I think the way the insurance industry described it is to take a portfolio approach and say, okay. We can manage this within a portfolio.

But as as you say, as it got bigger, you know, I think they said, you know what? Let's just before the this this is now becoming its own portfolio. Let's make sure we're we're putting the rigors in place, and and and underwriting standards became more strict and and more severe. And I I don't think it necessarily impacted the pricing as much as it just impacted the demand for information that owners and developers would have to put forward to show that this project was fit for purpose.

Okay. Okay. So we spent a a good chunk of time just on the how the premiums have changed. I'm really interested to go to the sort of insurance for dummies because this is very much your world, and I think some groups listening will understand it well and will have developed their own projects and know exactly what a sort of a good insurance product looks like. But others will also be listening and thinking, oh, I don't know too much about insurance. And so I've just had the idea. I want to go live with a fifty megawatt, one hundred megawatt hour battery.

When do I go and get insurance? Like, what what when is the right time to go and buy that? Yeah. No. And and and what do I need to buy?

Yeah. No. I mean, there's a lot of different insurances out there, and I'm gonna I'll try to keep it on a on a high level for you because, you know, this is an area that we love to talk about, so we can do it all day. But I think if you look at it as from a developer aspect, you know, you're putting aside there's commercial insurances that every business needs to have.

You need those too, but anyone can speak to you about that. But really for project insurances, we we approach it in three different stages. We approach it with development, you know, prior to construction, all the things you're doing, the actual construction, which is really the meat of it. That's probably the most risky time, And then the onward operations.

And during development, we recommend that we, you know, you take out a a basic liability policy that just protects your interest related to anything going on to the site you just leased. I'm assuming you you you signed a lease agreement. Your lease will require you to have some insurance. And, also, you're gonna have engineers and other surveyors on-site.

You wanna make sure that if something happens to them on-site that you're you're adequately protected. There's also if it's your vision and you're you're putting everything together, you're a director or an officer of the company for the SPV that's gonna build this project, you are you know, you're gonna want some personal protections called directors and officers liability insurance to make sure that if trying your best, something doesn't work out, that it doesn't impact you personally. So that's that's an important insurance at the early stages. And, also, if you're taking on any design exposure, design risk in writing, you know, how the project's gonna work, there's something called the professional indemnity insurance, which all engineers would have standard.

But, you know, you may want it for yourself if you're taking on the risk of designing and other elements early stage.

Okay. So that was development stage. Yep. So it's kind of three buckets of insurance at that stage. But when we move into construction, as you say, they're kind of almost the most risky element. How do those three change, and do we need to add any more to this to this picture?

Yeah. Those continue, the ones that you've done. But then you switch the development liability to a construction liability, which will be a more robust insurance because there's a lot more activity going on on the site. You again went from having a couple of surveyors on-site to having a whole EPC and their crew, general contractors.

And then you have the batteries arriving on-site, and they're coming from all over China or other territories. So you need marine cargo insurance and also for the the step up transformer is is a key piece of equipment if you have that on on a project size. On utility scale, we're seeing them be part of the projects. And those are the long lead items.

So you really need robust insurance to you know, in case something happens during transit of the of the transformer or the containers.

I think that's quite interesting.

So so when do you when when do you take ownership of that? If that is a transformer and it is going on to a ship, let's say, coming out of China, do you would when when does your insurance need to cover that?

That will depend on the contract you sign with the battery supplier and also the EPC or the the BOP contractor for the various parts. So it's it's contract by contract. And it's very important that your insurance adviser kinda dovetails your contracts with the insurance they provide for you. And that's the role of locked in is to kinda make sure that dovetails just right.

And we've got EPC and BOP. Yep. What do they mean?

Oh, so there's an engineering procurement and construction contractor. That is really that's kind of a a soup to nuts kind of contracting mechanism. And then there's also the and that would be for, you know, doing the whole project. But sometimes you just have, you know, you'll you'll have a battery supply contract, and then you'll have a separate BOP or BOP, which is a balance of plant, which is all the parts that are not the batteries.

It's a contracting regime. That's really what developing renewable energy projects are. It's contractual management is the biggest part of it. That and logistics with procurement and things like that.

And so they might hold the insurance or the the liability for some of those assets before they come onto your site. And at some point, they get handed over and and Yeah. They then sit within your your book and you have to hold insurance for them.

Yeah. And the and the and the the wild card on on the insurances and probably the reason why advisers such as locked in are so important for this process is the the the dynamic of lenders being on the projects is almost all the projects we do are nonrecourse financed, meaning that the bank, frankly, owns more of the project than the equity holder does at the start of the project. And they will have their own requirements that they want met. So they may look at the contracts and say, actually, I want this change because I wanna make sure that it's as derisked as possible. And a lot of that has to do with future revenues of the project. So all that insurance needs to often have at least twelve months of loss of revenue cover. If something went wrong, the transformer went in the ocean, the the cells did not work when they arrived, that there'd be some form of of of loss of revenue protection, and insurance provides that coupled with property insurance.

So let's let's get on to the last phase. So we come out of construction, we go into operations. How does that change the insurance picture again?

It it becomes the O and M's, the operations and maintenance contractors domain at that point. And that's really the life of the operational life of the project. So there's not as many people on-site. It's not as much of a of a of a risk, I'd say, for that element, and it just needs to be managed.

The insurance at that point is really operational. All risk is what we call it, and that comes with that revenue protection. If something goes wrong, you can get a year's worth of revenue if if the whole site went down for an insured event that was a property event. And so but you'll also need similar as development and construction, you need a liability because, you know, you've got a lot of electricity running through this site and people do enter the site.

You need to make sure that if, you know, you can they're you're protected if something unforeseen happens to them. And and then there's also the element of of cyber insurance. You know, there can there's always a concern with, is there a possibility that there could be malware that impacts the operations of the site and there are, you know, there are cyber insurances for operational assets that can, you know, help mitigate some of the risk that comes with that.

Okay. So huge number of options of insurance you could hold. Is is there is this standardized? So is that does every site in GB kind of hold or this could also be globally? Does every site hold the same set of insurances, or is that is it kinda different from site to site?

I'd say the core insurance is a property insurance and liability insurance are standard, and I'd say often and then marine cargo insurance during the transits. It really depends on what the lender's requirements are. So a lot of the the insurance that's bought is guided by lenders' due diligence. So lenders work closely within the insurance adviser to make sure that they feel adequately covered there.

But yeah. So that's those are the those are the key insurances. And, really, I'd say it's the property insurance that is the most complex as far as getting it completed. Going back to those standardization specifications of the project, layouts of projects, The property insurers, that is probably the the largest premium spend of the all the different classes of insurance, and it's the one that requires the most onerous due diligence as far as providing information.

And that's that's an area that I think some developers do struggle with is is the amount of information required to get insurers comfortable with the property risk associated with a battery storage project.

And and what are the kind of risks that you're looking at within, say, property insurance that cause it to be so expensive?

I think it's it's really the risk of thermal runaway. That is the that is the the biggest fear. I don't think if you look at loss statistics, thermal runaway won't be the most common loss that insurers fear when it comes to battery storage, but it will be the fear that keeps them up at night because, you know, Moss Landing is an example of that. You know?

The the fear of one thermal runaway event in one container that was put too close to another container, and somehow, despite best efforts, the fire was spread because of heat. Then all of a sudden, there was off gassing in the adjacent container, and something went wrong, and then it caught fire. And if there's a, you know, a chain event of each, you know, that is the the worst case. That is the the black swan event for insurers, which is why they they feel they need to put in an adequate risk premium, you know, that clients pay to make sure that if it does happen, just like we saw in California and that site, you know, there is premiums that can cover the losses, and so that's what draws the the pricing.

Okay. Super super interesting. And I I suppose just to kind of maybe to do a more full picture around that. So it's not just the fire portion that feeds into that calculation. Right? There are other types of events that could happen that would fall under under that insurance?

Yeah. Absolutely. And so, I mean, while the fire risk is the is what we talk about a lot, it's there's just standard risk that happens at any natural site, what we call natural catastrophe risk, which is and we see that a lot in solar and in wind as well. If you put things outside, you know, they are exposed to the elements.

You will have I'd say flooding is a big concern. You know, water and batteries aren't natural friends, and so we have, so that's any kind of flooding issues, or something that insurers would be concerned with. Anything to do with windstorms and and things that knock out equipment, those are those are all things that are priced in. So it covers all of those things.

It's technical risk and also natural risk. And, also, contractor workmanship issues. You know, that's probably where we've seen the most losses is is, you know, just contractor error. You know, pouring concrete, connecting things in a in a way that may not have been right.

You know, those are covered under the property insurance. So there's a it covers a variety of of things in order to keep the project on track and it can get back online.

Okay. Superb. And then just to understand what kind of sizes we're talking about here. So I think that that was a whistle stop tour through the types of property insurance when you might have them. But just to just to get a kind of concept of how important these insurance costs are for projects, is this kind of is this kind of a a top cost you will see from an O and M perspective, or is it a sort of a significant significantly smaller one?

Yeah. No. I think that's the question that we get asked most often. How much is it gonna cost me?

The answer is it depends. The the factors that go into it is how big your project are. It's it's immediately there's a there's a ratio that you can use against CapEx. So whatever your CapEx is, you multiply it by x number of basis points, and that will be your insurance premium.

And that's often down to how much risk you're gonna retain. Do you wanna give the first loss to the insurers, or are you willing to retain, you know, the complete loss of a of several containers without it hitting your insurance, or do you need it lower down than that? You know? And it also has to do with your experience.

Experienced developers will get better treatment, I'd say, because they're known entities. They put premium into the market. They've delivered successful projects. They have a track record.

So that's really what locked in does as an advisor is we work really hard to help our clients differentiate themselves to to say, you know, what's high versus what's low, what's in the middle premium wise. It's how you present your risk to the market and show your expertise. And a lot of our clients really have this expertise in house. It's just our job as the advisor for insurance to kinda channel it and share it with the insurance market.

But the reason why this matters is because at at the end of the day, it's gonna be your second highest OpEx cost, maybe your third highest. The O and M will be the highest cost. But after that, it's it's one of the top cost. And, you know, there are ways to manage it.

And if you can get that cost down, you can, you know, have a better return on your project.

But it's really interesting that there's there's more it's much more of a two way conversation than I would than I would have imagined. Right? That I kind of would have imagined that you would represent the the client and bring that through to the insurers and the underwriters, and they would kinda say this is your number. There's kind of no wiggle room here. But it sounds like there is very much a conversation of, actually, we can kind of tweak this parameter here in terms of the loss we're willing to take. We could bring forward this expertise about what we've done in the past. And then there are well, the yeah.

There there there sort of sounds like there is some flexibility within that process.

Yeah. It it's really it's it's it's an art, not a science in a lot of ways. At least I feel the role of the adviser is to really just, you know, take the take the science and make it present it in a way that shows that that gives confidence. Insurance is a is a is a trust business.

It's like, do I have faith in the person doing this economic activity that they're taking all the right steps to manage it appropriately and that it's a safe place to put my company's capital? Because at the end of the day, these insurance companies do need to turn a profit. They wanna do it sustainably and in a way that allows their clients to progress with their business as well. But it is a it's it is a it is a business.

Okay. And and perhaps moving on from the sort of very specific storage projects, maybe going to the market more globally, How has how is storage evolving? Are you seeing new geographies coming in that are looking for insurance products?

Yeah. When it comes to insurance, geography is really not a barrier, particularly in the London insurance market. So I think, you know, we currently are seeing the big areas being the US, the UK, and Australia. We Alokton currently has a lot of business there, but we're also seeing our clients and, again, a similar story just a couple years later.

We're seeing our clients in South Africa that have long been doing wind and solar, our clients in Chile who've been doing wind and solar. They're starting to come to us with battery projects now. And we're also seeing continental Europe come up in a big way. Germany and Italy, I was just at the Energy Storage Summit in London couple weeks ago, and, you know, Germany came up and Italy came up in a lot of conversations as well as other territories within Europe.

So I think those but if, you know, far or near, the insurance market, so long as it's not a sanctioned territory, the insurance market will work in in a fully global business wherever the battery industry wants to go.

And that can be that's kind of really interesting because it's it's like the the US market, the UK market, the Australian market has done a lot of work to get insurers and underwriters comfortable with how this looks, how this works, data around it.

It it kind of feels to me like it will then be easier for new markets to come through because insurance products that are available are more developed. There is more data. It is easier to know what you need.

Yeah. I mean, the first mover always does the heavy lifting. And so I think that's true in in all industries. And so I think, you know but the US is I think there are elements pretty tried and tested path that other renewable energy technologies have taken.

So I think it will work out, and lessons will be learned. And I think, the insurance market won't dive in completely saying, oh, it worked in the UK. It's gonna work in another territory. They're gonna say, okay.

This is the contractor's first time putting in a battery project. Are they following the QCQA protocols, the quality assurance, quality control protocols that are standard in the UK but might be new to them? Those are the kind of questions insurers are gonna ask as we move into new territories, but it's not insurmountable.

Okay. That makes sense to me. And and in terms of we talked about new geographies, but these types of insurances that you can have, are they changing? Are they, like, can someone come forward and buy, like, a, like, a bundled product for all of these together? Or or are these kind of are these very much sort of set in stone and they're the same insurance products and they will be in ten years' time?

Yeah. Well, it's there are attempts to bundle. I've seen attempts to bundle marine and construction insurance together. That's a common bundling way of doing things. But it's it's somewhat of an artificial bundle in some ways because at the end of the day, the different insurers have different appetites. And the insurance market, well, to the from an outsider, it may appear to be a monolithic beast.

It's really made up of tens, if not hundreds, of individual insurers who have different risk appetite for different areas. And and the role of the adviser like Lofton is to be the matchmaker, find the right capacity of the insurance market for the right part of the risk. And I'm you if you're getting someone who can say they can do everything in one, you know, there's gonna be some inefficiencies in there somewhere, perhaps. So Okay.

To date, I've seen it. It's still a specialized market in the different classes of business. But within the classes, there are ways to streamline it and simplify it. And I think that we're finding that at locked in, there's a lot of opportunity now because of these, you know, the way the business is run.

The successes of the battery industry is now insurers are having more levels of acceptance for established technologies. And I think within that property insurance, which is the main spend, you're seeing a you know, there are opportunities to simplify and speed up the process, and that's what Lockton's working towards.

Okay. And then just to talk about so of that set of insurances that you can get, it feels like actually there might be six or seven different underwriters who might be behind each element of it. Is that is that kind of fair to say, or is it often one firm will pick up the whole piece?

No. It's it's it's different, six or seven. And I would say that's that's for each class. We're talking about liability, talking about marine, talking about property.

Those are the kind of talking about cyber. Those will be different insurance companies, in those areas. Some of them might do both, but it'll be different teams with different methodologies for the insurance. So it's it's quite a varied mix, of players.

And it's also important to understand that on your property insurance for your hypothetical fifty megawatt, hundred megawatt hour project, it some it may not be one insurer that's insuring it. It will be one insurer who, what we say, take the lead. They will write the first thirty percent of it. And then they will say, I don't wanna take the whole risk, and so therefore, it's what we call syndicated down to get to one hundred percent.

There may well be five or six insurers just on a fifty megawatt project.

Okay. It's pretty interesting that it kinda kicks in at fifty megawatts. I kind of maybe in in kind of a few years ago, you think about fifty megawatts as being the biggest projects that are built today. Biggest battery that I think is live currently that's a best battery is, like, one gig, three gigawatt hours in in the US. Mhmm. And so that will definitely be the kind of the syndicate approach where many insurers will sit behind each of those each of those products.

Yeah. And that and that statement may have been a bit out of date. I think maybe a couple years ago as batteries were, you know, you would see that syndication. But now a fifty megawatt project probably could be done by one or two. And then it's just a question of whether that is the right choice to go with one insurer for everything or if you want to have some diversification.

Yeah. Really, really interesting. And throughout this conversation, you've kind of hinted that kind of London leads on a lot of the insurance world, and it is not something I spend a lot of my time talking about batteries and very little time talking about, the insurance world. So so why is like, just as a little lesson on insurance for everyone listening, why is London important in the insurance world?

Yeah. No. Happy to discuss. You know, as you can tell from my accent, I'm I'm based in the London market.

I've been a London insurance broker for fifteen years. But, I started my career in New York, and I really wanted to do renewable energy. And I found at that time, you know, if you wanted to write the big renewable energy projects, you had to come to London. I was doing smaller projects in New York, but then to write a global book of renewable energy business, London was the place to do it.

I followed that and and found it to be a a really innovative insurance market. I think everyone who works within it is really keen to support the industry that they're working in. They're they're very optimistic. Sometimes insurers may have a reputation of being a bit pessimistic when it comes to risk, but they're actually quite optimistic.

They want to take it on. And London is the place where they do it first. So I talked about the first mover. The first movers in any new technology more often than not for insurance tend to be in London.

And then once London shows the way, the the regional markets, which there's a US regional market, a Middle East regional market, an Asian regional market, they will start to pick up on it. And they and they all will write the technology out of their own markets now. But, you know, the first tends more often than not to be in London, which makes this the right place to come with new technologies. So I think when the next chemistries come out that are not quite proven yet, you know, that is where the insurance will start.

It will be in London.

And why why does London hold that position of being kind of at the forefront of looking at new products?

Yeah. I mean, that's that's a good question. And the way I would answer it is just the the history. I mean, London's been doing organized insurance, since the seventeen hundreds.

It started in Lloyd's of London, and it's really kinda it has a history. And that history continues today. And I think the the the London insurance market's quite proud of what it has. And they're they're keen to keep their position as that innovator, so they're willing to put the work in, frankly.

And and there's a good infrastructure in the in London built around it.

It's kind of like kind of, this multi like a a multiplying effect of having business going through, having people who are minded to look at the new business gets get gets the area working well. Okay. Really interesting. Okay. So so I want to ask one more question before we go on to the final two questions, which is that we've talked a lot about BESS here, but, actually, we can kinda go beyond BESS and say, well, when a new technology comes onto your desk and it is something that's not battery related, so let's say, it's a synchronous compensator, how do you ensure that?

Yeah. You know, ensuring new technology is is not easy. It requires a lot of work to understand it. And absent kinda certifications, it can be there's an element of trust that comes in in believing that the technology will deliver as it says.

So oftentimes in those early stages, there will be insurance for that technology. But if the technology is deemed prototypical, there will be restrictions that are put on it. And that is you know, it's it's not so much the pricing that moves as much. It is the the the breadth of coverage that you get.

You know? If you have an established proven technology, you can get insurance if it you suffer a breakdown event. But if you have a project that a product that no one's really seen before and you're kind of providing proof of concept, you're going to be limited in the type of insurance you can get. And so while it's still insured, it won't be as robust as a as a proven technology.

Okay.

And and again, we can provide that insurance solution, but it's very important that you work with the manufacturer to give you additional contractual remedies. You can't just say, oh, it's all gonna be picked up by insurance. It'll be fine. It's really no say.

No. Your technology is new. You're bringing it to market. I'm helping you bring it to market.

So you need to have a much more robust discussion with the OEMs on newer technology to see how they can help share the risk with you and with the insurer.

And and on that new technology, there's a there's an element of there's a type of insurance I haven't mentioned yet that's called product warranty insurance, and that's really outside the scope of project insurance. But what that can do, and that's usually OEMs will have those negotiations, and they'll if they are a smaller balance sheet company with the technology that they want to bring to market, an insurance company can evaluate their technology at the manufacturing level. And then if if they're comfortable with this, they can then provide their seal of approval, which effectively backstops the warranty provided by the OEM.

So you have a a double a rated paper insurer saying this warranty will get paid as opposed to a balance sheet not quite known from a smaller manufacturer. And that is a way to help get new prototypical technology to the market. But absent that, it's just time. We do synchronous condenser insurance for some projects, and we've seen the evolution of it.

It starts with a bit of unknown and and and now it's priced in a way that says I'm not quite sure about this. But if you run successfully for one or two years and you show that it works, then all of a sudden the insurers get comfort based on the operating performance of your technology. And and a big part of that has to do with, you know, insurance advisors like Lockton. We also have risk engineers in house who will go visit the sites of our clients.

They'll walk around, interview this plant management, and really get under the under the bonnet of the activity that's going on and then report back to insurers. And that having that, that that takes time, though. You only get there after the op asset's been operating for a couple years. Once you have that, you all of a sudden get to a much more stable place where insurance isn't such a front burner issue for a project.

Yeah. No. It's it's a fascinating topic. And maybe just to kind of play back a little bit of how I would think about a new product, I might say something like, I've talked to the OEM, and the OEM says within this ten year lifespan, this part is gonna wear out five times.

And the insurer says, okay. Interesting. I will insure it up to sort of ten ten breaks within a ten year period, and anything kind of within that period is covered. But if we get into the kind of real life running of this and this thing breaks a thousand times, then that's that doesn't fit within the insurance because it's kind of way outside of what we originally considered with the scope.

Is that a little bit of how the prototypical insurance works?

Well, actually, not it it works in in inverse, actually. Okay. It will be the way that that type of scenario would would be played out would be that the if the if you have a generator I'll use a wind turbine example. You have a generator in the wind turbine.

The wind turbine's supposed to last twenty years. The generator is going to last, you know, maybe seven. And it's like and so if that if it if it's understood that it's at its failure time, the insurers may say, okay. It's about time for it to be replaced.

This is more of a wear and tear type issue. So wear and tear is different from accidental sudden event. So it's really that early if it if it if it breaks down more frequently than it's expected to, that's where the insurance would actually kick in.

Okay. Interesting. I think there will be outside of the battery heads who will be listening to this, I think there are also other other texts that people are actively working on and will find it interesting to kind of just have an understanding of how it is possible to get those assets insured and then ultimately taken forward for financing, in the longer term. Okay. So I have two final questions to go through. The first one is, is there anything you'd like to plug?

Yeah. I mean, I think at locked in, we are you know, we we've really been committed to this battery storage space, and we're we're really happy to see the evolution both in geography and in the growth in the existing geographies. And so and what we're finding is that we're we think we're really at a point where we can start to speed up and simplify the insurance process. So so we're developing some products.

You talked about, is there a way to bundle this? We are coming up with some ways on the property side to really speed up and simplify the process through a facility mechanism. And that's one thing that we would you know, we're just encouraged to speak with as many developers as we can to try to understand how it might work for them. So happy to take conversations on that later on.

Yeah. Superb. And then do you hold a contrarian view? Is it something that you believe that the majority of the market doesn't?

Yeah. So, I mean, I think my relationship with the market is because I I am as an adviser, I'm somewhat outside the battery storage market. So I I like the question, but I'd say it's it's a it's a belief that I hold that maybe others in the insurance industry also hold, but not, I'd say, would be contrarian to some developers and owners. And and that is really don't let insurance be the last thing you think about when you're working through the development of your project.

We've I spent a lot of time in my career being approached by, developers who are saying, I've finally got my loan ready to go. I've got my land. I've got my contracts all signed. I just need insurance.

And then we said, oh, you it would have been nice to have this conversation quite a bit earlier in the process. And we can work with that. Insurance advisors in the insurance industry wants to be amenable. But if the the earlier engagement an insurance adviser has with a developer, that that way we can flag some of the issues we discussed on this podcast today.

You know, is your spacing adequate? Is do you have the appropriate cell test, before you sign the contract to buy x million dollars worth of batteries? And do you have and and if we can hit those early before contracts are signed, we can help influence the project because you're you're signing a one off contract to buy technology. But you're gonna be trying to run this asset for for ten years, fifteen years, depending on the degradation curve of your batteries.

You're gonna be buying insurance every year. So, you know, the little pound of ounce of prevention you can put in on managing that side of things will give you a lot of results as you move down. Because if you don't, it can lead to delays and increased cost, that nobody looks good when that happens. So you know?

And and there's enough to worry about in at financial close of a project. So if you engage us early, we can kinda help keep it smooth for you.

And if that is a contrary view for you, then, I think you know what to do. Have that have that conversation on insurance ASAP. Okay. Michael, well, you've been a fantastic guest. I think this has given people a huge range of knowledge about the insurance space and how it's working with battery storage. So thank you very much for your time. We'd love to have you on again soon.

Oh, Ed, I really appreciate it. Thank you very much.