Lithium-Ion Battery Energy Storage Systems (BESS) Risks

(DESCRIPTION) Travelers logo appears with webinar title that reads: Prepare to Plug into a High-Powered Opportunity, Understanding Insurance Challenges with Battery Energy Storage Systems that utilize Lithium-Ion Technology

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Opening slide, text is read. At the bottom of the slide, text reads, September 30, 2021, RIMS Webinar. The Travelers logo is in the bottom right corner above the date and time stamp, 2021, 09, 30. 13:00:09

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JUSTIN SMULISON: Hello and welcome to today's RIMS webinar, Prepare to Plug into a High-Powered Opportunity. Understanding Insurance Challenges with Battery Energy Storage Systems that utilize Lithium-Ion Technology. This session will be moderated by Michael DeRosa, the director of professional development at Travelers. My name is Justin Smulison, business content manager here at RIMS, Risk and Insurance Management Society.

A few notes before we begin. If you have a question for the presenters during today's session, please submit them by writing in the question box. Feel free to ask at any point during the presentation. We will reserve time at the end for Q&A. Following this session, The recording will be available on rims.org and Opus. All downloads and contact information will be accessible to the sponsor. And on with today's presentation. This webinar will explore battery energy storage systems, also known as BESS technology, and the increasing demand for these systems as our power grid transforms how we generate and consume electricity.

Our panelist will also address property and casualty underwriting challenges for lithium ion battery energy systems, the role of surety bonds in the lifecycle of a BESS installation project, and more. RIMS is thrilled to welcome a wonderful global audience. Now I will hand it off to our moderator, Michael DeRosa.

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Michael's image appears in picture-in-picture.

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MICHAEL DEROSA: Thank you Justin. Now, we have a lot to cover, so we're going to get us started here. Today, we are discussing, as Justin referenced, battery energy storage systems, or what is called BESS. So during today's session, we're going to focus specifically on lithium ion technology. Now we do have a disclaimer we'd like you to take a look at before we begin. So I will give you a moment to read this over.

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Text, Disclaimer, The content of this presentation is intended for informational use and is not intended as, nor does it constitute, legal or professional advice. Travelers does not warrant that adherence to, or compliance with, any recommendations, best practices, information conveyed in this presentation will result in a particular outcome. In no event will Travelers or any of its subsidiaries or affiliates be liable in tort or in contract to anyone who has access to or uses this information. Travelers does not warrant that the information in this presentation constitutes a complete and finite list of each and every item or procedure related to the topics or issues referenced herein. Furthermore, federal, state or local laws, regulations, standards or codes may apply and the reader should always refer to the most current requirements. This material does not amend, or otherwise affect, the provisions or coverages of any insurance policy or bond issued by Travelers, nor is it a representation that coverage does or does not exist for any particular claim or loss under any such policy or bond. Coverage depends on the facts and circumstances involved in the claim or loss, all applicable policy or bond provisions, and any applicable law.

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All right. Let's get started.

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Battery Energy Storage Systems. Speakers

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So we're joined today by three outstanding experts on the subject we're covering today. First, we have Scott Foyer from Enterprise Underwriting. Scott, would you please tell us a little bit about your background?

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Headshot of Scott Foyer with text, Enterprise Underwriting A.V.P., Property & Renewable Energy, s foyer @ travelers dot com

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SCOTT FOYER: I have been working in Underwriting for my entire insurance career. I have had multiple field positions as well as home office positions. I've been working with the renewable energy business for the last 10 years. And in my current role, I work in Enterprise Underwriting as the property and renewable energy enterprise lead.

MICHAEL DEROSA: Thank you, Scott. And now, we have Luci Pai from Traverlers Surety. Would you tell us about yourself please.

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Headshot of Luci Pai with text, Account Executive Officer, l pai @ travelers dot com

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LUCI PAI: Thank you, Michael. I'm an account executive officer in commercial surety. I underwrite both domestic and international bonding needs for our clients. And in my role, I'm also a Travelers enterprise renewable advocate. And I support a specialized team of surety underwriters in renewable energy, power, and utilities.

MICHAEL DEROSA: Great. Thank you, Luci. And last but not least, Rick Thonnings, who is our risk control partner. Rick, would you please tell us about your background?

RICK THONNINGS:

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Headshot of Rick Thonnings with text, Risk Control, Sr. Property Specialist

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Thanks, Michael. I'm a senior property specialist for Travelers Risk Control. I have over 30 years experience in property risk control, underwriting, and fire protection consulting. Among my activities, I represent travelers on the Property Insurance Research Group, which works with the Fire Protection Research Foundation of the National Fire Protection Association, to support and recommend research on emerging issues. I'm a member of NFPA and a professional member of the Society of Fire Protection Engineers.

MICHAEL DEROSA: Great. Thank you, Rick. And I'm going to be serving as your moderator today as Justin referenced. I am Michael DeRosa. I'm the director of professional development at Travelers' business insurance, talent development, and learning department. Now let's review today's agenda.

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Headshot of Michael DeRosa with text, Business Insurance HR, Director, Professional Development, m derosa @ travelers dot com

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Today's session, our panel of esteemed presenters are going to be speaking to the following topics. What is battery energy storage system? Why is this emerging technology growing so rapidly? Where might you find a battery energy storage system? What are some of the key underwriting challenges? So during this session, if you have any questions, we'd ask you to please place them in the Q&A box. And at the end, we'll have our presenters try to answer as many questions as time permits.

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Text, Types of Battery Energy Storage

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So I'm now going to turn the program over to Scott, who's going to discuss types of battery energy storage. Scott.

SCOTT FOYER: Thank you, Michael. Let's start off by getting acquainted with the types of batteries that exist in energy storage.

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Lead (P.b.) Acid. Sealed vs. "Flooded," Starter (S.L.I), Deep -cycle, Absorbent Glass Mat (A.G.M.), Valve-regulated (V.R.L.A.)

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Lead acid batteries were among the first to be used in battery energy storage. However, they're not often used today for grid storage due to their low energy density, short cycle, and calendar life. They're commonly used with uninterruptible power supply systems, but are beginning to be replaced with longer lasting lithium ion batteries.

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Nickel (N.I.), Cadmium (N.i.C.d.), Iron (N.i.F.e.), Hydrogen (N.i.H.O.), Metal Hydride (N.i.M.H.), Nickel Zinc (N.i.Z.n.)

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Nickel cadmium is an older type battery that we've seen many advances over time in order to remain viable in the market. The drawbacks to nickel cadmium batteries are high cost, lower energy density, their impact on the environment, and the memory effect, which causes a loss of capacity if the battery is not fully discharged. Today, nickel metal hydride batteries have become more popular than nickel cadmium because they have higher capacity, and they are less prone to the memory effect. So they consistently perform overcharging and discharging cycles.

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Flow. Vanadium Redox (V.R.B.), Zinc-Bromine (Z.B.B.)

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Flow batteries make up less than 5% of the battery market. Flow batteries have relatively low energy densities and have a long life cycle, which is why they have been used in multiple energy storage projects requiring a continuous supply of power.

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Lithium (L.i.) Ion. L.C.O., Cobalt Oxide (L i C o O 2), L F P, Iron Phosphate (L i F e P O 4), L.T.O., Lithium Titanate (L i 2 T i O 3), L.M.O., Manganese Oxide (L i M n 2 O 4), N C A., Nickel Cobalt Aluminum Oxide (L i N i C o A I O 2), N M C, Nickel Manganese Cobalt Oxide (L i N i M n C o O 2)

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Lithium ion batteries control more than 90% of the global grid battery energy storage market. Lithium ion batteries have many advantages, including higher energy densities, lighter weight, less maintenance, and better charging characteristics, all of which make lithium ion batteries one of the fastest growing battery types used in BESS.

Let's focus on lithium ion batteries.

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Lithium-Ion Battery Energy Storage Systems 1 O 1

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Lithium ion batteries can be as small as one cell or contain multiple cells, and can be used in a complete battery energy storage system.

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A box with the text, Cell, Single cell battery. Uses -- Cell phones, e-cigarettes

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A cell comes in two different types, of prismatic cell or a cylindrical cell. Examples of applications of a single cell include a cell phone that uses a prismatic cell or an e-cigarette that uses a cylindrical cell.

Prismatic cells are often used in BESS. Prismatic cells are made up of multiple positive and negative electrodes layered together, increasing the possibility for contact to be made between the layers, resulting in a short circuit. In a prismatic cell, the higher capacity can make it difficult for the battery management system to protect each cell from overcharging, causing the internal electrodes to expand and contract, leading to deformation and the possibility of an internal short circuit.

With prismatic cells, if one cell goes bad, it can affect adjacent cells and end up jeopardizing the whole module.

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Another box with the text, Module, Multiple cells. Uses -- Hoverboard, Laptops

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The module is made up of multiple cells and contains a connection to the battery management system, which monitors voltage and temperature.

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A third box with the text, Rack System. Thousands of Cells, Many Modules, Uses -- Electric vehicles, UPS

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A rack system contains the following items. A battery management system, a circuit breaker, a power supply, and a communication interface.

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A fourth box with the text, Container, Many modules, Many racks, Uses -- Commercial or Industrial BESS

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A container will have all the equipment designed to protect its contents, such as the HVAC system to control the interior temperature and humidity, a fire suppression system, and smoke detection to trigger exhaust ventilation in the event of a fire.

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A fifth box with the text, Systems, Many racks, Many containers, Uses -- BESS, Utility Scale

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A complete system will contain an inverter, which transforms DC to AC voltage, a transformer, and a switchgear, along with a container full of batteries. Why should we pay attention to lithium ion BESS? Lithium ion has a distinct advantage over other battery options as we have already discussed. And that's why it makes up over 90% of the new grid BESS installations in the United States.

Because lithium ion BESS can come in ranges of sizes simply by adding more cells, it is well suited for residential applications, all the way up to utility scale applications. One of the concerns with lithium ion is they can overheat during charging and catch fire. Recently, codes and standards have been emerging, such as NFPA 855, to provide important guidance on how to reduce the likelihood and severity of a fire.

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N F P A 8 55 released September 2019

What are Battery Energy Storage Systems? A photo of a large white container on concrete stands. Two large gray boxes are in front of the container. There are vented boxes on top of the white container.

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So what are battery energy storage systems?

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Text, BESS are rechargeable battery systems that store energy from a variety of sources: Solar arrays or wind farms, Electric grid to be used by a utility, business or residential customer.

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The National Renewable Energy Laboratory defines a battery energy storage system as an electrochemical device that charges or collects energy from the grid or a power plant and then discharges that energy at a later time to provide electricity for other grid services when needed.

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Why are BESS Emerging in the Market?

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Why are lithium ion battery energy storage systems emerging and growing a rapidly?

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Graphics with text, Lithion Technology Improvements, Significant improvements and advancements in battery technology.

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Improvement in lithium ion storage technologies has resulted in their substantial cost reduction. Lithium ion batteries costs have fallen 82% between 2012 and 2020 according to an HIS market analysis. Bloomberg New Energy Finance estimates the capital cost of a utility scale lithium ion storage system will fall another 52% by 2030.

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Growth of Renewable Energy, Growth of renewable energy sources (solar, wind) drives need for additional storage.

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Growth of intermittent and/or distributed energy sources, such as renewable energy, has been challenging grid operators because of its inconsistency. Battery energy storage system helps to provide consistent power.

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Off-Peak Cost Savings, Ability for commercial operations to purchase power in off-peak hours at significant discounts.

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Operations that use significant amount of power can reduce their energy costs by storing power in off peak hours, while utilizing stored energy during peak hours.

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Favorable Tax Credits, Use of renewable energy lowers capital costs through favorable tax credits.

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Favorable investment tax credits include BESS. In addition, several states offer incentives and have storage targets. Michael, it's time for our first polling question.

MICHAEL DEROSA: All right. Thank you, Scott. Justin, if you would put our poll question number one up for me. All right. So our question is what are the reasons that BESS is rapidly growing in the United States? A, lithium ion technology improvements. B, growth of renewable energy market. C, off peak cost savings. D, favorable tax credits. E would be A and B. F would be C and D. And G would be all of the above. We're going to give you some time to respond. We still see quite a number of responses coming in. Thank you for that. Give you about 10 seconds more to respond.

All right. Let's end that poll if you would and share those results. Well, I'll tell you. It looks like almost all of you who weighed in, we have quite a smart group here with us today because, of course, the correct answer is G. All of the above. So let me send it back to you, Scott.

SCOTT FOYER: Thanks, Michael. The

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U.S. Large-Scale Battery Storage Cumulative Power Capacity. A bar chart that shows a steep rise in megawatt operating capacity from 2010 to 2023. Source: U.S. Energy Information Administration, Form E I A-86O M, Preliminary Monthly Electric Generator Inventory

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US Energy Information Administration reported that planned additions to large scale battery energy storage will equal 3,616 gigawatts in the US between 2020 and 2023. This number may not capture all the future developments, so it should be looked at as more of a trend. State mandates are driving much of the growth in battery energy storage, including California making up 38% of the planned capacity. Other states with state mandates include New York and Massachusetts, which show future storage projects. Not all states have mandates, but some are still showing growth in future projects, such as Nevada, Florida, and Arizona.

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Text, Where might you find BESS? Commercial operations likely to use BESS

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So where might find BESS? There are a wide range of commercial industries, whereby adding battery energy storage systems into their operations can reduce their energy cost and increase the resiliency. Next, we'll review some of the common applications and benefits of battery energy storage systems.

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Where does BESS fit in the "Grid"? A diagram. A horizontal line from a building goes to a BESS. Labels of Load Leveling and Power Quality point to it. The line continues on and turns down to another BESS. Labels of Postponement of grid upgrade and Voltage Support point to that BESS.

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This can be installed at different locations throughout the electrical distribution system, depending on the benefits it provides. Let's walk through some of the benefits of BESS. Vertically integrated electrical utilities will utilize battery energy storage to improve the reliability of the power they are supplying to the grid.

Battery power sources can be brought on and offline very quickly compared to conventional plants. They can react to changing load demands and almost instantaneously to correct any voltage or frequency deviations caused by the load demands or changes in generation from solar or wind.

Battery energy storage provides frequency regulation by reacting much quicker, taking only milliseconds to respond to frequency deviations, rather than ramping up or down generation assets, which can take minutes. Energy storage can provide voltage support by delivering or absorbing reactive power to maintain a constant voltage level on the grid, which is essential to preventing damage to generation, distribution, and transmission equipment.

Load leveling is achieved by storing energy during low demand periods and delivering it during high demand periods, which results in lower generating costs and increasing system reliability. Load leveling helps to postpone investments in grid upgrades or generating capacity.

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The lines continue down and branch off to three other BESSes. One is labeled Capacity Firming. A label of Integration of Renewable Energy Sources points to a picture of wind turbines and a picture of solar panels, which is connected to a BESS.

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A challenge to the integration of renewable energies, such as wind and solar onto the grid, is the unpredictable nature of the energy that generates their power. Wind and solar power are subject to variations in the amount of wind blowing across the blade of a wind turbine or the lack of sunshine being captured by PV panels on a cloudy day, thus introducing challenges to the integration of renewables with the grid.

A battery energy storage system provides capacity firming for renewable energy installations by delivering their power output at a prescribed level for a specific period.

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Other BESSes, one below a city and one next to a building. These are labeled Peak Shaving Power Reliability & Quality

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At the consumer end of the electric grid, battery energy storage systems can reduce energy costs through peak shaving, which is charging your batteries when the rates are the lowest and discharging the batteries when the rates are at their peak, thus optimizing the power produced by solar power installations. It improves power reliability by serving as a backup power source in the event of a loss of power.

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Text, What are the benefits by Consumer Type?

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Well, let's summarize some of the benefits of battery energy storage systems by consumer type.

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Graphics with text, Utilities, Renewables Integration, Reduce dependence on plants to provide power during peak demand periods, Reduce operating expenses.

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Electric utilities can increase the integration of renewable energy sources. It supports peak energy demands using BESS instead of peaker plants and reduce the utility's operating expenses.

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Grid Operators, Balance supply & demand of electricity, Improved power quality & reliability, Avoid costly systems upgrades.

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For grid operators, battery energy storage systems act as a reservoir of power capable of balancing the variations in electrical demand throughout the day. This also helps with frequency regulation by responding instantaneously to deviations and frequency from 60 Hertz due to differences between demand and supply. Deploying BESS can help defer or eliminate the need to make expensive grid investments by meeting peak demand with energy stored from lower demand periods, thereby reducing transmission congestion.

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Commercial Consumers, Peak Shaving, reduce utility bills and generate revenue, Emergency Backup improve resiliency, Renewables Integration (investment tax credits if paired with solar P.V.)

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Battery storage systems also benefit commercial consumers by reducing their electrical utility bill through peak shaving. BESS can provide emergency backup power when supply is interrupted. It also improves the integration of solar power from on site photovoltaic systems by providing consistent power even when the sun isn't shining.

Michael, what is our next polling question?

MICHAEL DEROSA: Thank you, Scott. Justin, if you could bring a poll question number two for us, we'd appreciate that. Great. In addition to renewable energy sites, what operations might use battery energy storage systems? Now for this one, you can choose as many answers as you think apply. Where might BESS be found? Where might BESS be found? The answers are coming in. Give you about another 15 seconds to reply.

All right. Justin, if you would end that and share the results. See that? Once again, can't trick this smart group. All of these answers actually apply. BESS could be found in all six of these. High rise buildings, data centers, manufacturers and industrial, hospitals, universities and colleges, and municipalities. All of these could have BESS. Back to you, Scott.

SCOTT FOYER: Thanks, Michael. We might find a battery energy storage system being used in a broad range of industries. High energy demands associated with large data centers are susceptible to voltage variations.

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Photos of High Energy Demand places, Data Centers, Renewable Energy Sites -- wind turbines and solar panels.

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Independent power producers focused on renewable energy sources like wind and solar will also have a high energy demand because they need power to operate and monitor their equipment.

The images on the right side of the page reflect some of the many industries you might find battery energy storage systems.

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Buildings with Photovoltaic (Solar) Systems. Images are labeled, High rise, manufacturing, hospitals, education, municipal.

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The common connection is existence and use of solar panels to generate and supplement their electrical consumption. High rise buildings can be occupied by offices, a hotel, or condos with property owners receiving the benefits of reduced energy costs. Other large buildings with flat rooftops are good candidates as well.

We see the use of solar panels by all types of operations, including manufacturing, health care, education, and municipalities. As the use of solar power grows and becomes more widespread, so will the need for BESS. Now, Rick will help us understand some key underwriting exposures associated with lithium ion battery energy storage systems. Rick.

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Text, Key Underwriting Challenges, Battery Energy Storage Systems underwriting Concerns

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RICK THONNINGS: Thank you, Scott. With lithium ion battery energy storage systems emerging all around us in a variety of occupancies, one might wonder if there's anything to be concerned about and what are the primary challenges associated with technology. Let me give you an example.

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Challenges with Lithium-Ion BESS

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In April 2019, a fire and subsequent explosion occurred at a 2-megawatt lithium ion battery energy storage system installation in Surprise, Arizona. The cause of the fire was later reported to be thermal runaway. Since that time, there have been numerous reports, and NFPA recently published a feature article on the incident and the issues in the most recent edition of the NFPA journal.

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Thermal Runaway, Fire/Explosion, Adequate Fire Suppression & prevention of reignition. Photo of large white boxes.

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Reportedly, the fire was initially extinguished by a clean agent gaseous fire suppression system, but this did not adequately control the situation. Unbeknownst to the fire department, the thermal runaway continued, so that when firefighters attempted to enter the structure, an explosion occurred, resulting in serious injuries to nine first responders.

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Text, Exposure to neighboring structures or areas, Public Fire Department Response. Photo of fire station.

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Also, according to reports, one of the complicating aspects of the event was that the primary responding fire company was not aware of this occupancy and did not have a pre-plan, nor the necessary equipment needed to manage the event. They had to improvise their response and did not have the information they needed.

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Text, Post-Fire Response & Cleanup, Down-time (B.I.) as a result of event. Photo of a person who points to their watch.

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After the fire, it took almost four months to secure the site and remove the energy stranded in the remaining modules. The power company had to develop their own procedures for how to accomplish this. In addition, plans for expanding this type of power supply were put on hold. Before the operation could be restored and expansion plans resumed, an investigation was initiated to determine the cause of the event.

Although a report was issued in July 2020, there was disagreement from the battery manufacturer, and their investigation is reportedly ongoing. Imagine the downtime if this had happened inside a manufacturing plant or in a high rise building. s All this was attributed to thermal runaway, but what exactly is thermal runaway?

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Text, Lithium-ion Battery Thermal Runaway

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A fire involving a lithium ion battery energy storage system is not the same as a regular typical fire. Rather, an electrochemical fire in a lithium ion battery energy storage system is often the result of a process called thermal runaway. Thermal runaway can occur in a battery cell due to thermal, electrical, or mechanical conditions, such as external heating, overcharging, overdischarging, or high current charging, and punctures or crushing of the cell.

In addition to poor handling packaging conditions or storage, poor battery design, or poor manufacturing quality can lead to a process called lithium plating, which leads to internal short circuits, when the separator between the anode and the cathode fails, resulting in an electrochemical reaction that generates heat, smoke, and gases.

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Additional text on graphic, Internal Events (causing or energizing exothermic reactions): Electrode-electrolyte reactions, Electrolyte Decompositions, Separator Melts, Electrochemical reaction, Cathode breakdown

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As the battery cell creates heat that it cannot adequately dissipate, a dynamic temperature increase occurs. The result is that a cell ruptures and starts to leak gases and smoke. If there is an ignition sources, the gases could ignite, and a fire could occur. As one cell heats up, adjacent cells are also heated.

And unless there is some intervention, s the adjacent cells will also go into thermal runaway, and the process continues, involving a cascading number of cells spreading through the module and then the rack. As thermal runaway continues, if enough gases accumulate in a confined space, an explosive condition may occur.

So what can be done to mitigate thermal runaway fires associated with lithium ion battery energy storage systems?

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BESS Property Exposures & Controls. Exposures to Loss: Fire (Thermal Runaway), Short circuit, Over/Under Voltage, Ineffective Fire Suppression, Explosion, Post-event Cleanup, Downtime (B.I.)

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Knowing the causes of thermal runaway, such as short circuits, and over or under voltage, and effective battery management system as a control can help prevent these conditions from occurring or to provide sufficient warning, so that appropriate mitigation action can be taken.

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Examples of Controls: Battery Management System (B.M.S.), Detection / Alarms, Fire Protection, Explosion Venting, Spatial Separation, Inspections / Testing, Fire Department Pre-Planning

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Based on actual fire testing and loss experience, it is known that gaseous fire extinguishing systems using clean agents or similar can be largely ineffective fire protection for this type of emerging risk. Testing results have shown that water from wet pipe sprinkler systems is the most effective means of fire protection because of the cooling it provides, as well as wetting adjacent areas, which slows fire spread. The cooling from the sprinkler water is also useful for stopping thermal runaway.

In the Surprise, Arizona fire I just mentioned, it was reported that a clean agent system operated and seemingly extinguished the fire, but it did not provide sufficient cooling to stop the cascading thermal runaway. Consequently, flammable gases continued to be generated to the point where enough had accumulated, and then they exploded when the firefighters opened the door to the space.

The insulation was reportedly not designed for explosion venting and did not have gas detection nor any kind of remote or automatic operating exhaust system to remove the flammable gases. While the doors of the container acted as pseudo-explosion vents, if there had been nearby buildings or structures, they might have also suffered damage. So spatial separation can be an important consideration regarding the arrangement of lithium ion BESS systems.

As with any fire protection systems and equipment, it is important to inspect, test, and maintain these devices. In addition, interlocks and monitoring equipment also benefit from periodic testing. The first responders to a BESS fire can be at a disadvantage if they are not familiar with the facility and the occupancy, as well as the special responses required to manage a fire in this type of occupancy.

One concern with a lithium ion battery energy storage system is that chemicals contained within the batteries can be released during a fire and mix with firefighting water, contaminating soil or groundwater. Planning in advance for this type of event increases the effectiveness of the response during an emergency. In addition to post-event cleanup after a fire, stranded energy may still exist within each battery cell. It must be dissipated prior to removal, or it could result in electric shock to first responders or the crew responsible for the site cleanup.

Now that we have covered thermal runaway and some key exposures and controls associated with lithium ion battery energy storage systems, there are several other factors worth considering regarding the location of a lithium ion battery energy storage system.

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Degree of Risk by Location & Application. A list of five items on a chart of Battery Energy Storage System Usage, with an example of each. An arrow points up from the last item to the first, that is labeled Risk Meter.

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BESS installation can show up in many different locations. A non-dedicated use building with BESS being located in the same building could have the highest loss exposure if the fire spreads beyond the room where the BESS is located and then affects the primary operation of the overall building.

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Example, Hospital, BESS working in conjunction with UPS (Uninterrupted Power Supply) High Rise Mechanical Room

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Rooftop BESS installations are often associated with a solar rooftop installation, where a fire can spread to the building from the roof and cause a large loss event that affects the entire building. Dedicated use buildings are typically built for use by a utility and can also include other electrical equipment with the potential that a fire could be more disruptive than the loss of the BESS system itself.

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Used exclusively for energy storage and/or power generation. Example, Utilities / Municipalities, Renewable Energy

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Outdoor walk-in containers are one of the most common installations. In the event of a multiple container installation, a fire can be limited to one container and its associated equipment, such as inverters and HVAC, but this depends on the separation distance between the containers.

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Detached from building; storage container. Example, BESS most common installation, industrial, commercial and utility applications.

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Parking garages are typically fire resistant structures. And the BESS may be relatively small if it's only supporting electrical vehicle charging stations. So most likely, the fire damage would be smaller than the previously described locations.

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Fire Protection Evaluation based on N.F.P.A. 8 55

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The current state of the art fire protection for lithium ion battery energy storage systems is based on National Fire Protection Association, NFPA 855. Standard for the installation of stationary energy storage systems. This was first issued in August, 2019. Much of the sprinkler guidance in NFPA 55 is based on a Fire Protection Research Foundation project for sprinkler protection guidance for lithium ion based energy storage systems. This was published in June, 2019.

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Two columns, the first, Indoor Systems, the second, Outdoor Systems.

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This slide shows a summary of key aspects for evaluating protection of lithium ion battery energy storage systems. Battery energy storage systems located inside a building should ideally be located in a fire rated enclosure dedicated solely to the BESS. The room should be accessible to firefighting and not be below grade or on a middle floor in a multiple story building, where the smoke could damage the occupancies on the floors above, as well as water damage to the floors below.

Wet pipe automatic fire sprinkler protection is preferred. Testing has shown that sprinklers designed for an extra hazard group one occupancy helps to control fire spread and provide cooling to reduce the potential for reignition. However, it should be noted that the effectiveness of the sprinkler system may depend on the characteristics of the particular equipment, including battery chemistry and the construction and the configuration of the battery cabinets.

Smoke detection is valuable for early warning, and gas detection is increasingly being promoted in order to provide early detection of thermal runaway that is outside the ability of smoke detectors and the battery management system.

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Additional items on list: Emergency ventilation to exterior, and procedures for inspection and testing of associated alarms, interlocks, and controls.

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If the battery energy storage system is located outside, it is important to evaluate if it presents a potential fire exposure to nearby buildings and structures.

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Detached Building or Structure: On grade is most desirable, Clear space greater than or equal to 10 feet from other buildings & 50 feet from air inlets, Fenced, locked & controlled access, Protective bollards.

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Watch out also for the location of air intakes for nearby buildings that might pull in smoke from a nearby BESS fire.

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Roof Mounted System, Evaluated for structural load, Roof deck Class A. noncombustible, Meets A.S.T.M. E 1 0 8 or U.L. 7 90

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If a best unit is located on a roof, it is important to confirm that the building structure is capable of supporting the extra load. Also, the construction and roof covering should be non-combustible where the BESS is located. Of course, as always, periodic inspection, testing, and maintenance is essential for ensuring that protection performs as intended.

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High Level Risk Assessment

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So for a basic high level risk assessment for a BESS installation, one of the key aspects is whether the installation is located outside, inside, or on top of the building.

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Outside of a building.

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When the BESS is located outside, key questions could include how is access control to the BESS installation? How close is the BESS installation to any buildings? And what is the construction and occupancy of those buildings? A fire or explosion in the BESS container could damage nearby buildings or structures.

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Inside or On Top of Building

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With the BESS located inside or on top of a building, considerations involve how the BESS installation might expose other operations in the building. Also accessed by the responding fire service and what impact on life safety might result from a fire in the BESS installation. Some local jurisdictions may require a BESS to be located on a roof because this can simplify access by the fire service.

A BESS installation located inside a building may provide access challenges to the fire service during a fire event. A major concern is whether a lithium ion battery energy storage system located inside a key building. Since a fire involving a lithium ion battery energy storage system can generate a large amount of smoke and heat, it's important to identify how the BESS exposes building management systems or other occupancies.

If the BESS is located in an electrical room or a computer room, that equipment is exposed to being damaged during a fire. If the BESS is located in a mechanical room, it may be possible for smoke to spread throughout the entire building. Ideally, if a lithium ion battery energy storage system is located inside a building, it should be located in a fire rated enclosure dedicated solely to the battery energy storage system and easily accessible by the responding fire service.

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Maintenance of Systems, Is a maintenance schedule developed and apparent? Who is responsible for maintenance?

(SPEECH)
Inspection, testing, and maintenance as usual is also important. With BESS installations, several parties are typically involved. It may not be apparent or clear who is providing maintenance and inspection. There may be several parties handling various aspects of the inspection, testing, and maintenance of a battery energy storage system. And these parties may be different from those responsible for the rest of the facility.

Because of the number of parties involved with the battery energy storage system, it might be a challenge to determine who is handling what. But when these responsibilities are clearly defined, it can minimize confusion if a fire occurs.

(DESCRIPTION)
Casualty Key Exposures / Controls. General Liability, with lists of Exposures and Controls. Workers Compensation, with lists of Exposures and Controls. Exposures under General Liability: Fire / Explosion / Electric Shock Hazard, Pollution / Hostile Fire, Rooftop Installations / Falls from Heights, Premises Bodily Injury / Inexperienced Contractor Activities. Controls: Supervisory Control and Data Acquisition monitoring with Battery Management System, Diking to capture firefighting water, Contractual Risk Transfer / Subs Oversight, Warnings Signs and Placards. Exposures under Workers Compensation: Improper Ventilation / Asphyxiation, Electric Shock Hazard / Burns, Rooftop Installations / Falls from Heights. Controls: Proper exhaust, Gas detection, Lock out tag out procedures, Personal Protective Equipment, Training/certifications by 3rd Party or O.E.M.

(SPEECH)
A thermal runaway event will impact more than just the property line of business. Visitors, independent contractors, and employees can be injured during a fire or explosion involving a BESS.

Electric shock is a primary concern for first responders in the event of an incident and for maintenance personnel during normal operations. Signs and placards that provide warnings and the location of system disconnects can help to reduce the exposure of electric shock.

The electrolyte chemistry within the battery cells may result in a release of hazardous gases and could result in a pollution event. Firefighters or maintenance personnel responding to a system failure will potentially be exposed to hazardous gases. Gas detection that controls exhaust ventilation can help to reduce the quantity of hazardous gases.

A BESS installation associated with solar panels may be located on the top of a roof, guarding access via physical means and warning of exposures such as fall from heights and electric shock will be expected controls. Ensuring that properly trained and qualified employees or contractors are involved in the operations and maintenance activity will be key to long term, loss free, and reliable operations.

Now, let's send it over to Luci to hear about surety bonds and best projects. Luci.

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Surety Bonds -- BESS Projects

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LUCI PAI: Thank you, Rick. So I'm happy to share with you all the underwriting side of surety. So in parallel with the risk assessments just discuss, underwriting may also include obtaining performance and payment bonds.

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Performance and Payment Bonds, Contract Requirements. Performance Bond, Provides protection to the obligee if the principle defaults on its obligations under the bonded contract. Payment Bond, Guarantees that that principle will pay their subcontractors, labor and material costs associated with a bonded contract.

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In recent years, with the growth in renewable energy, especially in wind and solar, we've seen a rise to various surety requirements. And given the emergence and battery energy storage systems, more contracts may begin to require bonds to guarantee the supply of a BESS.

So in obtaining a bond, there are several key items and somewhat unique underwriting challenges that a surety will assess in supporting a bond. One of those challenges is the element of time. I start off with time because if an owner requires a seller to provide a bond, I would like to emphasize the importance of working on the obligation early on in the process as many times, the bond gets overlooked too close to the required date.

(DESCRIPTION)
Surety Bond. A diagram in a triangle shape with a box at each point and bidirectional arrows along the edges. On top, Principle Indemnitor, on the right corner, Surety Company. on the left corner, Owner Obligee

(SPEECH)
Bringing your agent or broker early on in the process. Your broker will be your advocate. And if they have surety experience, they will have relationships with various sureties and well aware of what is needed and the ample lead time needed to be in a better position to underwrite and help with the solution. Again, this is important because a client's credit profile or perhaps the terms of the contract may not meet the criteria needed for approval of a bond. And in a time crunch, there may not be enough time to seek alternatives.

As for key underwriting items, one of those being experience. For instance, the surety will want to know if the supplier has successfully provided a BESS on other jobs of similar size and scope. Another fundamental underwriting item is financial performance. A surety needs to know the principal's financial size and strength can support the bonded obligation.

In addition to experiencing credit profile, the contract is reviewed. What is outlined in the contract will be specific to each BESS requirement, defining the principal's and the obligee's respective responsibilities. As for challenges, some of those may be contract terms such as duration guarantee. It can be problematic if the duration is too long. In addition, there is other challenges, such as warranty. If a BESS has a long term warranty, this is something that really should be excluded from the performance bond or contemplated through a separate bond.

The contract will also be evaluated for owner's terms that may be found in liquidated or consequential damages. As for more unique underwriting challenges on a BESS, a surety may need to assess the challenges associated with proprietary technology, perhaps battery capacity, and other such thresholds.

It's also worth mentioning if a best supplier is going to be involved in drafting the contract, they may want to involve their broker and surety early on, so that contract terms may be more palatable in support of a bond. So in addition to these underwriting items, it may be beneficial to understand the lifecycle of a bond in this next slide.

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Text, Life Cycle of a BESS Performance Bond. Three lists: Bond Submission, Underwriting Considerations, and Bond Management

(SPEECH)
So outlined here is characteristic of a performance bonds life cycle. While obtaining a bond may vary from one surety to another, there is a typical process in procuring and managing a bond. There's the initial phase, which will consist of a bond submission. Again, because there is a time element involved in getting a bond, it's key to address the surety requirement as soon as possible.

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Items on list: Contract which specifies the bond requirement, Audited Financial Statements, Business Background

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A submission should at the very least include a copy of the contract and financial statements. This allows the surety to review the terms and determine the credit profile of the principal in support of the bond. In addition to a principle scale, underwriter will take into consideration the principal's background, such as their longevity and experience operating in the renewable energy industry, especially when it comes to leading edge technology.

As a side note, while poor credit profiles or onerous contract terms may result in a declination from some sureties, there may be other sureties that will support a bond with collateral typically in the form of a bank letter of credit.

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Items under Underwriting Considerations: Approval and Pricing are determined by Credit Profile, Experience and Risk. Financials, Contract Conditions, Scope of Work, and Project Funding. Indemnity Agreement

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In this next phase, underwriting considerations for approval and pricing will be determined by credit profile, experience, and risk of the obligation.

As for financial disclosure, most sureties will want CPA audited statements of the last three years and a year to date interim for a financial trend analysis. And a company that has a proven solid financial performance track record and has a financial scale relative to contract size and backlog will have an easier time getting support from the surety.

The best contract should at least stipulate the product, the scope of work, duration, liquidated damages, warranty, and method of performance security. And because a BESS contract may be sizable, underwriting consideration may include insight into the principal's ability to access capital and external financing arrangements.

Upon underwriting and all this favorable in support of a bond program, a surety will require a general contract of indemnity. An indemnity agreement is essential to surety as it's the primary contract relied upon to enforce a surety's rights in the event of a loss. It basically states that a principal agrees to reimburse the full amount of any bond claim filed with the surety company. Also best practices will require receipt of an executed indemnity agreement before a bond is issued.

The procedures I just mentioned, in particular obtaining financials and an indemnity agreement, will also help establish a surety relationship for the best supplier if they did not have one before. Additionally, at this point, the surety would have most likely met with the client, even if virtually, and have an understanding of the client's business plan. Having a surety relationship allows for an even smoother process in getting future bonds.

And lastly, bond management.

(DESCRIPTION)
Items on list: Upon approval, the bond is filed with the obligee/authority. Once the obligation has been completed, obtain a written release.

(SPEECH)
Once a bond is approved, the executed bunt is submitted to the obligee. Although at this phase, it may appear the bond process is complete, it is just as important to confirm with the obligee what the strategy will be in getting the bond closed, so both the principal and surety are exonerated of their completed obligation. And by taking this step, the principal can properly manage their bond risk.

(DESCRIPTION)
A pie chart graphic with one-third each of Bond Submission, Underwriting Considerations, and Bond Management. Three arrows go around the circumference to create a continuous loop.

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I hope you have found this information helpful in obtaining your next BESS project. I turn this over to you, Scott. Thank you.

(DESCRIPTION)
Text, Wrap-up

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SCOTT FOYER: Thank you, Luci. During this webinar, we answered the following questions outlined in our agenda and addressed multiple underwriting challenges. What is a battery energy storage system? Why is this emerging technology growing so rapidly? Where would you find BESS? And what are some of the key underwriting challenges?

To address these challenges, work with an insurance carrier that has the experience and technical expertise to assess BESS and offer recommendations to mitigate its associated risks. Travelers selectively insures operations with BESS across the United States. We encourage our risk control team that includes specialists in both fire protection and battery risks during the underwriting process, so that we both learn about your specific BESS installation. Thank you for your attention during this webinar. Michael, what questions do we have?

(DESCRIPTION)
What questions do you have?

(SPEECH)
MICHAEL DEROSA: I'm sorry. Thank you very much. All right. So first question that we have is for you, Rick. And that's is this true that lithium ion batteries can reignite hours or even several days after a fire has seemingly been extinguished?

RICK THONNINGS: That's a good question, Michael. That's a good question. It's one that a lot of people are debating. And we've heard a lot of news stories about these kinds of situations. According to the National Fire Protection Association, lithium ion batteries have shown that they can ignite or reignite long after they've been damaged or involved in a fire. It could be hours, days, or even weeks later.

MICHAEL DEROSA: OK. All right. Thank you for that, Rick. Next question. Can BESS help the grid? If so, how? Scott, that sounds like a question for you.

SCOTT FOYER: Thanks, Michael. Battery energy storage systems act as a reservoir of power capable of balancing the variations in electrical demand throughout the day. This also helps with frequency regulation by responding instantaneously to deviations and frequency from 60 Hertz due to differences between demand and supply. Deploying BESS can help defer or eliminate the need to make expensive grid investments by meeting peak demand with energy stored from lower demand periods, thereby reducing transmission congestion.

MICHAEL DEROSA: OK. Rick, looks like we have another one for you. Does NFPA 855 allow other types of fire suppression besides water?

RICK THONNINGS: This is another good question because many of the early BESS installations have used gaseous fire suppression or similar because it's much more portable than water. However, as we saw in the surprise Arizona fire, the gaseous fire extinguishing agent didn't prove to be effective. An NFPA reports that testing has shown that the water is the most effective agent for cooling a lithium ion battery energy storage system fire. Now NFPA 855 does permit other types of automatic fire control and suppression. But in order to use that, it requires large scale fire testing based on UL 9540A.

MICHAEL DEROSA: OK. Thank you, Rick. Next question. Oh, we've got one for you, Luci. How does the surety view long term warranties?

LUCI PAI: So sureties, they look to manage duration risk. So often, because there's an extended warranty period in a BESS contract, rather than extend their duration of a performance bond, the bonded principal can post a separate warranty bond in a reduced amount. And so in doing so, the surety will want to confirm like what are the items warranted, when will the warranty terminate, and then request the standard of warranty satisfaction to close it out.

And it's also worth noting, depending on the bond principal's financial strength and contract terms and conditions, sureties will typically consider contracts with up to five years in duration, plus a 12-month warranty period.

JUSTIN SMULISON: OK. Thank you, Luci. How does BESS benefit commercial customers with solar panels? Scott, I think that's one for you.

SCOTT FOYER: Well, thanks, Michael. Battery energy storage systems benefit commercial consumers by reducing their electrical utility bill through peak shaving. BESS can provide emergency backup power when supplies is interrupted. It also improves the integration of solar from on site photovoltaic systems by providing consistent power, even when the sun isn't shining.

MICHAEL DEROSA: OK. I think we have time for one more. Rick, this has come back to you. What should be in a pre-fire plan for a lithium ion BESS?

RICK THONNINGS: Another good question. There's no one size, fits all pre-fire plans for lithium ion BESS installation. As I mentioned during the presentation, of the fire suppression can depend on the rack configuration, the battery chemistry, the locations of where the containers or the room is. So all these things have to be taken into consideration.

There is a good resource in NFPA 855. Annex C is firefighting considerations for operations. And this provides information that the firefighters and emergency responders should know in order to allow them to effectively respond to events involving energy storage systems.

MICHAEL DEROSA: OK. Thank you, Rick. So I think we are at the end of our time. And we want to send it back to Justin for some additional comments. But before we do that, we do want to make sure any questions you had that we didn't get to get answered. So we would encourage you to contact Eileen Kauffman, who is our global renewable energy practice leader. Eileen's email is right here on the screen. So feel free to send any questions we didn't get to touch to her.

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If you have additional questions after the webinar please contact Eileen Kauffman, Global Renewable Energy Practice Leader: e r k a u f f m @ travelers dot com

(SPEECH)
And then of course, thank you for attending today. We hope you found this session both useful and informative. And I'm going to send it back to Justin for some closing remarks. Justin.

JUSTIN SMULISON: Thank you so much, Michael. I would like to thank Luci Pai, Rick Thonnings, Scott Foyer, and our wonderful moderator Michael DeRosa for their time and expertise. A copy of this webinar will be archived on rims.org within a few business days. I am so excited to collaborate on another webinar with Travelers next week, October 7th. It's called Surety Bonds: Understanding the Benefits. It will be at 1:00 PM Eastern. It's going to be great. Visit rims.org/webinars to register for that session and for others.

Also, you can register now for the RIMS Canada Conference 2021, which will be held virtually October 5th and 6th. You're going to see a lot of me on that one. Go to rimscanadaconference.ca and register. Also be sure to check out RIMS Cast. That is the society's official free and weekly podcast. It is hosted by yours truly. Travelers has an episode coming up in October, I believe October 18th. You can check them out then.

And RIMS is global. We'd love for you to join us. 10,000 of your peers in more than 60 countries are part of the RIMS community. This is a great time to build your network with us. Visit rims.org/membership and apply for a membership. This was a wonderful session. I learned a lot. Thank you all, and stay safe.

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