Case Study

Special Risks Insurance

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Additional measures have reduced the risk of business interruption and fire.

The customised insurance policy fits the exact needs of the battery facility’s owners.

Experienced risk engineers have identified the relevant risks of this highly innovative project.

South Australia’s public power grid is significantly more stable than before.

HDI insured an innovative energy initiative developed and owned by Neoen, built by Tesla, and backed by the South Australian government. The project required thorough expertise in the fields of electrical engineering and renewable energy.

POWERING UP THE WORLD’S BIGGEST BATTERY

SummaryClientNeoen Australia Pty. Ltd., Hornsdale Power Reserve (HPR)Neoen generates, produces, and distributes renewable energy. The company offers solar, wind, and biomass energy project development, construction, and maintenance services. Hornsdale Power Reserve (HPR) is a wholly owned subsidiary of Neoen Australia.

ChallengeThe client planned and built the world’s biggest battery facility, which stores power from renewable sources and helps to stabilise the public grid in South Australia. The project involved a variety of risks, which had to be identified, minimised, and covered with a customised insurance policy.

SolutionHDI’s insurance experts and risk engineers utilised their extensive industry backgrounds, including experience in the field of Battery Energy Storage Systems (BESS). They determined the extent of relevant risks in areas such as fire, machinery breakdown and business interruption before working out responses in cooperation with the client. Together with Neoen’s broker, HDI’s insurance experts devised a customised Industrial Special Risks Insurance Policy. It covers material loss or damage, including machinery breakdown and boiler/pressure vessel explosion, as well as business interruption.

Innovative facility planned to stabilise the public grid

In 2016, severe storms caused extensive damage to power-lines and electricity pylons in South Australia. The grid failed, leaving 1.7 million people without power. More storms in December and a heat wave the following February resulted in further blackouts and disruption.

With great urgency, South Australia’s government searched for a solution – and found one that hadn’t been tried on this scale before. Neoen, one of the world’s leading inde-pendent producers of renewable energy, won a contract to build the world’s largest lithium-ion battery. The goal was to store excess power generated during times of high wind or sun intensity. Even more importantly, the battery would sta-bilise the grid due to its ability to switch on and off almost instantaneously, making micro-adjustments to supply and demand when needed.

Neoen, the developer and owner of the facility known as Hornsdale Power Reserve, partnered with Tesla and the South Australian government to deliver the facility – the largest Battery Energy Storage System (BESS) to be built and operated anywhere in the world. The battery banks — comprised of Tesla Powerpacks — occupy one hectare of land, which is a space about the size of a football pitch. The solution features a 100 MW peak output battery with 129 MWh of energy storage.

However, every energy infrastructure project involves signifi-cant risks, especially when implemented on this scale for the first time. It was, therefore, crucial to minimise these risks in advance and find the best insurance to cover the remaining uncertainties.

Neoen builds the world‘s largest Battery Energy Storage System

South Australia‘s government searches for a solution

people without power after severe storms

1.7milion

Industrial Special Risks Insurance Policy covering material loss or damage:

Machinery Breakdown

Boiler/Pressure Vessel Explosion

Business Interruption

Highly qualified risk engineers analyse the innovative project

Via its insurance broker Willis Towers Watson, Neoen selected HDI as its insurance partner and risk mitigation expert for the completed facility. Underwriting experience was a key factor – HDI has a team of underwriters and highly qualified risk engineers who have all worked in the field of engineering prior to joining the insurance industry, both in Australia and internationally. Some of HDI’s risk engineers were already familiar with Battery Energy Storage System technology, meaning they could competently undertake risk engineering surveys of the facility to assist Neoen in identifying, quantifying and mitigating risk exposures.

When HDI first received the opportunity to offer insurance terms, the experts started by considering the potential exposures – e.g. natural perils due to the location of the facility, maturity of the technology to be utilised, and the experience of the designers, managers, supervisors and contractors who would build, operate and maintain the facility. Given its size, HDI’s risk engineers in the international head office were also consulted, particularly regarding the technology. HDI then assessed the proposed cover put forward by the broker and customised it.

Once HDI had bound the policy, the risk engineers surveyed the site. This gave them the opportunity to review the assets first-hand and engage directly with the client. HDI verified its assumptions, filled in some knowledge gaps, and provided advice in the form of risk recommendations on ways in which the client could potentially mitigate some risk exposures that may have been previously overlooked.

Insurance experts propose customised policy

In cooperation with the broker, HDI was able to create a customised insurance solution that perfectly matched Neoen’s requirements. The resulting policy, an Industrial Special Risks Insurance Policy, covers material loss or damage, including machinery breakdown and boiler/pressure vessel explosion, as well as business interruption. The policy is annually renewable, whereby the terms and conditions are reviewed, discussed and agreed every twelve months for the next renewable period. However, HDI always takes a long-term view of client relationships. This is reflected in the considerable time and effort the experts invest in understanding their clients’ business.

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February 2019

Industry experience helps limit risksIn addition to the customised insurance policy, HDI’s key contribution to the project was the risk engineering experience. Areas of particular interest included:

• Business interruption. Although located directly adjacent to the Hornsdale Wind Farm, which is also owned by Neoen, the battery storage facility is not connected directly to it. Therefore, the facility is not contingent upon the successful operation of the wind farm for its own operation. The facility is fed directly from, and exports directly to, the electricity grid.

• Fire risks. These particularly included thermal runaway within the battery packs themselves. Thermal runaway is the process whereby the fire – which starts as a result of internal overheating of elements of the battery packs – propagates and feeds itself via the energy stored within the battery. It generally leads to a total loss of the battery pack and has the potential to lead to a total loss of the facility. However, the Tesla technology was found to be very resilient to the spread of internal fire, as evidenced by a series of fire tests carried out by the National Fire Protection Association (NFPA) in the United States. Therefore, the risk of fire spreading is minimised. Another feature was to provide spatial separation between battery banks to prevent the fire from propagating throughout the facility.

• Ground plan. HDI’s experts worked collaboratively with the client to find a safe, practical, and cost-efficient location for the office facility.

Facility proves to be a successThe key ingredient for HDI‘s involvement in this ground-breaking endeavour has been trust. To alleviate any client concerns, it is crucial that HDI’s experts always try to truly understand the client’s business and potential risks. In return, HPR and Neoen have been open, transparent and responsive to the risk recommendations.

Everyone’s efforts have clearly paid off. For the average Australian who is simply concerned with avoiding blackouts and price spikes, the successful utilisation of lithium-ion batteries to optimise energy storage and grid stability is a blessing. Reducing the impact of pollutants on the environment is also a major benefit.

In fact, the implementation and operation have been so successful that the technology is seen as a missing link between traditional base load power – provided primarily by coal and gas-fired power stations in Australia – and renewable energy sources such as wind and solar. On several occasions the Hornsdale Power Reserve has already responded quicker than other contracted generators to help prevent dips in frequency. Looking to the horizon, this facility is an example of the way grids and power can be managed in the future.

“This is the largest BESS facility to be built anywhere in the world. It is a ‘game changer‘ with respects to the renewable energy market here in Australia. It also allowed HDI an ideal opportunity to showcase our capabilities in writing world-leading assets.”Haris MichaelsEngineering Underwriting Manager, Southern RegionHDI Global SE, Australia