Editor's note: This article originally referenced "Clean Energy Associates," which is now Intertek CEA.
Battery Energy Storage Systems (BESS) are rapidly becoming a cornerstone of the modern energy landscape, with demand expanding at a remarkable pace. Global BESS installations surpassed 315 GWh in 2025 and are forecast to exceed 450 GWh in 2026. In the U.S. alone, a record 18.9 GW was installed in 2025, with projections reaching 500 GWh over the next five years. As the scale and frequency of BESS deployments accelerate, so does the exposure.
This article breaks down the key risks associated with BESS and outlines practical measures to reduce both the likelihood and severity of losses.
Thermal Runaway
Thermal runaway represents the most significant risk in battery energy storage systems. It occurs when a chemical reaction within a battery cell generates more heat than the cooling system can dissipate. As temperatures rise, the electrolyte begins to degrade. If not interrupted, the cell fails, and this failure can rapidly propagate to adjacent cells, potentially engulfing an entire module or container.
Thermal runaway generally arises from three causes: electrical abuse, thermal abuse, and physical damage. Electrical abuse—one of the most common failure modes—occurs when a cell is overcharged or over-discharged beyond its design limits. Thermal abuse results from exposure to extreme temperatures, as battery cells require operation within a narrow, controlled range. Once triggered, thermal events can affect multiple cells simultaneously, making escalation difficult to contain. Physical damage may result from manufacturing defects or mishandling during transport and installation.
A well-designed Battery Management System (BMS) plays a critical role in mitigation by continuously monitoring cell performance and intervening when early indicators of failure are detected. Complementing this, off-gas detection systems monitor changes in gas concentrations around battery modules. When abnormal conditions are identified, these systems can trigger alerts or initiate protective actions, such as isolating a single module, helping to prevent a localized failure from escalating into a large-scale loss.
Fire and Explosion
BESS installations carry an inherent risk of fire and explosion, particularly when thermal runaway is not contained. These fires are notoriously difficult to suppress, often burning for days, and can reignite even after appearing extinguished. The Moss Landing (California’s lithium-ion battery storage facility) fire in January 2025 forced the evacuation of approximately 1,200 residents and required a multi-agency response, while the Carnegie Road BESS fire in Liverpool, UK (2020) took 59 hours to extinguish. According to EPRI's BESS Failure Incident Database, there have been over 60 utility-scale and commercial BESS fire and explosion incidents documented globally. Such events can cause extensive property damage, environmental contamination, and risk to life, and they generate some of the most complex and costly claims in the energy sector.
To reduce this exposure, maintaining safe physical distances between battery units and surrounding structures is essential to limit fire spread and protect adjacent property. Installing thermal barriers and fire suppression systems adds an essential layer of protection. Redundant safety systems such as relays, fuses, and automatic shutdown mechanisms provide multiple layers of protection, ensuring that if one safeguard fails, others are in place to respond. Given the difficulty of suppressing lithium-ion battery fires through conventional means, these preventive measures are far more effective than relying solely on post-incident response.
Battery Degradation and Failure
All batteries degrade over time. However, repeated charge-discharge cycles, extreme temperatures, and improper use accelerate this process, leading to reduced capacity and eventual failure. From a claims perspective, degradation-related losses raise important questions around maintenance obligations, warranty coverage, and potential subrogation against manufacturers.
From a loss prevention standpoint, effective cycle management by avoiding deep discharges and overcharging extends battery life and maintains performance. Data-driven predictive maintenance tools can identify early signs of degradation, allowing operators to act before a loss occurs. Additionally, strong warranties from original equipment manufacturers (OEMs) transfer a portion of the financial risk back to the manufacturer, which is an important factor in both underwriting and claims recovery.
Lack of Standardization
The BESS industry is still maturing, and uniform standards across manufacturers and regions remain limited. This inconsistency creates gaps in safety, quality, and performance expectations, and can complicate the process of determining whether an installation met applicable standards at the time of loss.
The scale of this challenge is significant. According to an Intertek CEA report, 72% of all manufacturing defects occurred at the system-integration level. Of the systems that were inspected, 28% had defects in fire detection and suppression systems, 15% had thermal management issues, and 19% had faulty auxiliary circuit panels.
To address this gap, independent testing and third-party certification provide an objective measure of system quality and safety. Key standards such as UL 9540 (equipment certification), UL 9540A (thermal runaway fire propagation testing), and NFPA 855 (installation fire code) now offer a more robust framework. Factory acceptance testing and in-field inspections further help verify systems before and after deployment, reducing the risk of failure once operational.
Environmental Risks
BESS installations are frequently located outdoors, exposing them to flooding, hurricanes, extreme heat, and other environmental hazards. These exposures can damage equipment and compromise system integrity, leading to significant property and time-element claims.
To reduce this exposure, several practical steps should be considered. Site selection is fundamental, and installations should be elevated above the 500-year flood level, with proper drainage infrastructure and water barriers to prevent water intrusion. In flood-prone areas, building BESS on raised platforms is an effective design measure.
Weather-resistant enclosures rated to IP66/IP67 standards (defined by the International Electrotechnical Commission) protect battery systems from harsh conditions, while a non-combustible buffer of at least 10 feet around the installation reduces wildfire risk. Metal mesh on ventilation openings can prevent ember ingress.
Control System Failures
BESS operations depend heavily on software and automated control systems. A malfunction or a cyberattack could lead to incorrect charging, overheating, or complete system shutdown. As BESS installations become more digitally connected, cyber exposure grows.
To manage this risk, regular software updates are essential. Keeping systems current ensures known vulnerabilities are patched and performance is optimized. Additionally, implementing firewalls, encryption, and strict access controls helps protect systems from unauthorized access and emerging cyber threats.
Battery Energy Storage Systems are a vital and growing part of the global energy infrastructure. But with rapid growth comes evolving risk. Staying ahead of these is critical. By understanding both the technical risks and the mitigation strategies available, we are better positioned to evaluate claims, manage exposures, and support the energy transition. The BESS landscape will continue to evolve. So must our expertise.
About the Author
Sunny Verma is vice president, operations claims manager at FM. sunny.verma@fm.com