Rethinking battery risks in the energy transition: lessons from the failure of recent large-scale projects

As the Pacific region accelerates its transition to renewable energy, large-scale battery energy storage systems (BESS) are becoming critical infrastructure. These projects stabilise grids, enable higher penetration of renewables, and support the retirement of fossil fuel plants. However, the scale and complexity of BESS projects introduce significant risks. Catastrophic failures can have far-reaching operational, financial, and strategic consequences.

Failures of high-voltage transformers, inverters, or battery management systems can halt operations for months or years. For example, the Waratah Super Battery in New South Wales, Australia, suffered a catastrophic transformer failure just before commissioning, resulting in a projected six-month delay and insurance exposure estimated between AUD $10–50 million. 

The risk landscape for battery energy storage: what you need to know

TWAICE , a company specialising in battery analytics, together with EPRI (Electric Power Research Institute) and PNNL (Pacific Northwest National Laboratory), have published a new report providing the most extensive open-source review of why BESS projects fail¹.  The findings from the report show that BESS failures can result from any stage of the project lifecycle – design, manufacturing, integration and operation. However, it was in the integration and operation phases of the project that findings appeared particularly insightful. 

Whilst there are integral mitigation strategies during design and manufacturing, such as stringent standards and codes, there remains a large gap in safety practices in the integration and operation phases. The engineers found that compared to widespread belief, only three failures could be traced back to faults of the cell or module². 

Developers and investors should therefore consider the following risks and adopt appropriate risk management strategies to mitigate them:

Technical risks: transformer and inverter failures, thermal runaway and corrosion

Fire damage is a key risk for these projects. Several fires have been recorded at Li-Ion BESS facilities. The Tesla battery fire in Victoria in 2021 that was caused by thermal runaway³ led to a ‘large blaze’ that burned for more than three days before being contained by firefighters⁴.  Thermal runaway occurs when a cell's temperature increases uncontrollably due to internal short circuits, overcharging, or mechanical damage. This leads to the release of flammable gases which can ignite neighbouring cells, causing a chain reaction. Developers must focus on engineering design, tightening quality controls, and implementing robust fire safety and operational practices for Li-ion installations.

The Pacific’s humid and coastal climates increase the risk of corrosion in battery management systems and inverters. Corrosion-related failures have been observed in projects across Australia and the Pacific Islands, where salt-laden air and high humidity accelerate equipment degradation. If corrosion occurs in battery management system components or the inverters, it can have severe operational impacts ⁵.      

Continuous monitoring systems play a critical role in detecting early signs of corrosion, thermal anomalies, and electrical irregularities before they escalate into catastrophic failures. These systems use sensors and advanced analytics to track temperature, humidity, voltage, and current in real time, enabling predictive maintenance and rapid intervention.

Finally, the concentration of technology on a single site creates significant vulnerability. With limited redundancy, the failure of one critical component, such as a transformer, can halt operations entirely. As demonstrated by the Waratah incident, these failures can lead to months of delay and millions in financial exposure. Spare parts for large-scale BESS projects are rarely available on-site meaning downtime is prolonged, increasing contractual, revenue, and reputational risks. This underscores the need for robust contingency planning, predictive maintenance, and insurance programs that reflect real-world lead times and supply chain constraints.

Operational: Delay In Start Up (DSU), supply chain disruption 

DSU limits are often misaligned with actual exposure on these projects. Many projects still purchase DSU coverage based on lender minimum requirements rather than realistic risk scenarios. With transformer lead times stretching up to 24–36 months, a 12-month indemnity period is insufficient and leaves developers exposed to significant uninsured downtime. This gap can result in multi-million-dollar losses during commissioning delays. This risk is further amplified in remote Pacific locations, where logistics add further delays. 

Contingent Business Interruption (BI):
BESS projects are highly interconnected with grid operators, renewable generators, and other infrastructure. A failure in upstream supply (e.g., transmission network) or downstream demand can trigger revenue loss even when the battery itself is operational. Contingent BI coverage is often overlooked, leaving stakeholders vulnerable to external disruptions beyond their control.

Financial: revenue loss and premium volatility

Extended downtime caused by component failure or supply chain delays can result in significant revenue loss for developers and investors. Recent high-profile incidents and prolonged outages have led insurers to reassess pricing models. Combined with global supply chain fragility, this has created sharp fluctuations in premiums and stricter underwriting standards. Developers should anticipate variability and engage brokers early to secure favourable terms.

Emerging: Cyber Operational Technology (OT) vulnerabilities and ESG/reputation risk 

Battery energy storage systems depend on OT for monitoring, control, and grid integration. These systems are increasingly targeted by cyber attacks, which can lead to operational shutdowns, data breaches, and even physical damage. Implementing OT-specific security measures and strong cyber governance frameworks is critical to safeguard system integrity.

Finally, incidents such as fires or prolonged outages can negatively affect ESG scores and investor confidence. Beyond financial loss, reputational damage can hinder future project approvals and financing. Proactive risk management, transparent reporting, and crisis response planning are key to maintaining stakeholder trust and protecting long-term project viability.

Insurance considerations

 BESS projects must have specialised insurance solutions that address the complex set of exposures they involve:

• Site identification - during the initial stages of site acquisition, it may be necessary to purchase long-term financial indemnity to benefit landowners, neighbouring parties, regulators, or local authorities against risks linked to historic covenants, brown land contamination, or evolving contractual and legal obligations. At the same time, special purpose vehicles (SPVs) may be established in the need of specially drafted Director’s Liability (D&O) clauses, tailored to the responsibilities of directors and their connections with affiliated entities.
• Construction into the operational phase- it’s critical to secure coverage for both the construction phase and the initial year of operation right from the start, ensuring investors remain confident that the facility will be insurable long term. To achieve optimal protection, insurers should be involved early in planning. Key fire engineering considerations, such as spacing, racking, suppression, and signalling, can then be agreed upfront, preventing expensive retrofits later on.
• Batteries and other key plant in transit- a typical Construction Insurance policy excludes components shipped from outside the construction country. To address this, dedicated Marine Insurance is needed to cover transit risks and any revenue loss stemming from delay in start-up (DSU) due to damage or insurable delays during shipment. Typically, batteries move from manufacturing hubs in Asia to Australia, New Zealand and Pacific Islands, during which they face significant geopolitical risks (e.g., trade tensions, port congestion) and weather-related challenges (e.g., cyclones, typhoons). These factors represent a substantial exposure that must be insured to protect project timelines and financial outcomes.
• Delay in income arriving- fire and storm damage at construction sites are frequent and can postpone revenue generation, undermining the investment proposition. Even after commissioning, the risk of income interruption remains significant given the prevalence of BESS fires and the increasing frequency of extreme weather events, such as bushfires, earthquakes, flooding, and extreme heatwaves across the Pacific. Ongoing Income Protection coverage is essential and must account for growing supply chain complexities and extended recovery timelines following an incident.
• Lender requirements - financing for BESS projects generally follows established legal and insurance practices used in large-scale energy and infrastructure developments. Lenders typically require their interest to be noted on policies, along with non-recourse and non-vitiation clauses. They also insist on having an independent expert review the insurance program. Negotiating these terms with insurers involves highly specialised legal expertise.
• Cyber risks- malicious actors often look to target the control systems, communication networks, or physical infrastructure of BESS sites, leading to operational disruptions, safety hazards, and financial losses. Access to grid infrastructure or other critical systems represents an elevated risk. Inadequate security measures by developers or operators could result in liability, significant equipment damage, and prolonged downtime. Additionally, battery management and optimisation functions introduce potential professional negligence exposure, with claims for lost revenue or property damage a real possibility.  Property damage resulting from cyber incidents is typically excluded under standard Property insurance; a dedicated Cyber policy is essential to address these exposures.

Overall, it’s vital to maintain robust safeguarding to mitigate cyber threats such as data breaches, ransomware, and disruptions to digital control systems integral to BESS functionality .

Lessons learned and recommendations  

• Plan for redundancy - single-point failures such as transformer or inverter outages can result in significant project delays and financial losses. To mitigate this implement N+1 redundancy for critical components, design failover protocols, and ensure contingency strategies are documented and regularly tested. System-level simulations should be used to identify and address potential single points of failure.
• Strengthen supply chain resilience - with transformer lead times often reaching 24–36 months, downtime can have severe financial impacts. It’s important to develop proactive procurement strategies, including early ordering of long-lead items and maintaining a buffer stock of critical spares. Collaborating with suppliers is essential to map supply chain risks and extend DSU (Delay in Start-Up) indemnity periods in insurance policies to match realistic recovery timelines.
• Prioritise integration and operational risk management - industry studies (e.g., TWAICE/EPRI/PNNL) confirm that most failures occur during integration and operation, not at the cell level. Risk management efforts must therefore focus on robust commissioning protocols, operational resilience, and continuous monitoring. Automated diagnostics, real-time performance analytics, and regular system audits should be implemented to detect and address issues early.
• Enhance insurance solutions - work with your insurance broker to design an insurance program that addresses the unique risks of BESS projects, including Property Damage, Business interruption, Cyber Liability, and Environmental Liability. Coverage terms should reflect the actual risk profile and operational realities of your project, with policies reviewed regularly as technology and risk landscapes evolve.
• Invest in cyber security - in today’s threat landscape, effective cyber governance begins with identifying and analysing risks, then building resilience to withstand and recover from potential disruptions. Establishing robust controls is essential, but preparedness and planning are critical to long-term security. This means implementing comprehensive security policies, conducting regular vulnerability assessments, and applying network segmentation across operational technology (OT) environments to reduce exposure. Beyond prevention, its essential firms develop and routinely test crisis response protocols; covering detection, containment, and recovery to ensure rapid mitigation of cyber incidents. This proactive approach safeguards system integrity, minimises operational impact, and protects organisational reputation. 
• Integrate climate scenario modelling - given the long-term payoff profile of these projects, climate-related exposures can materially impact returns. Extreme weather events (such as tropical cyclones, severe storms, floods and bushfires) may damage infrastructure and disrupt operations, leading to downtime and additional costs. Chronic climate changes (e.g., hotter days and cooler nights) accelerate battery degradation and reduce performance or efficiency. These risks should be factored into cashflow projections to reflect their impact on return distribution and volatility. Insurance solutions can then be structured to transfer these exposures, providing greater certainty for investors and supporting Final Investment Decision (FID). While insurance involves a cost, shifting these risks to the insurance market enhances security and confidence.
• Social risks - many BESS projects are developed on land owned by Traditional Owners, creating heightened expectations around community benefits and cultural respect. Failure by developers to deliver on contractual commitments (i.e. employment opportunities, infrastructure investment or cultural engagement) can lead to reputational damage, strained relationships and potential project delays. To safeguard investors, specialised insurance products exist that provide a warranty. If a developer, despite altruistic claims, does not fulfil agreed obligations to the local community, the policy responds to cover any financial shortfall. This mechanism transfers social performance risk to the insurance market, offering greater certainty and supporting investor confidence in project viability. 

Conclusion 

Catastrophic failures in large-scale battery projects can have profound impacts on the Pacific region’s energy transition. By learning from recent incidents and proactively addressing technical, operational, financial, and emerging risks, developers and investors can build more resilient, reliable, and sustainable energy storage infrastructure.  

Success will depend on integrating advanced monitoring systems, strengthening supply chain strategies, and aligning insurance programs to cover the complex risk landscape of these projects. These steps won’t just prevent potentially unrecoverable losses, but safeguard the credibility of the broader energy transition and ensure that renewable energy goals remain achievable, despite growing complexity and uncertainty. 

Equally important is partnering with a specialist broker who understands the nuances of BESS risk and can work with clients pre-transaction to identify vulnerabilities, structure tailored coverage, and implement risk mitigation strategies early. This proactive approach ensures projects are bankable, insurable, and resilient from day one.

¹TWAICE, ‘Study on BESS Failures: Analysis of Failure Root Cause’, TWAICE Newsroom, https://www.twaice.com/newsroom/study-on-bess-failures-analysis-of-failure-root-cause (accessed 8 December 2025).
²TWAICE, ‘Study on BESS Failures: Analysis of Failure Root Cause’, TWAICE Newsroom, https://www.twaice.com/newsroom/study-on-bess-failures-analysis-of-failure-root-cause (accessed 8 December 2025).
³Energy Safe Victoria, Victorian Big Battery – Statement of Findings, Energy Safe Victoria, https://www.energysafe.vic.gov.au/sites/default/files/2022-12/VBB_StatementOfFindings_FINAL_28Sep2021.pdf (accessed 8 December 2025).
⁴The Guardian, ‘Tesla Big Battery Fire in Victoria Burns into Day Three’, The Guardian, https://www.theguardian.com/australia-news/2021/aug/02/tesla-big-battery-fire-in-victoria-burns-into-day-three (accessed 8 December 2025).
⁵AXIS Capital, ‘AXIS Explores Failures, Defects and Damage in Battery Energy Storage Systems’, AXIS Capital, https://axiscapital.foleon.com/renewables/axis-explores-failures-defects-and-damage-battery-energy-storage-systems/ (accessed 8 December 2025).