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Alternative Energy

Lithium-Ion Batteries Strain Risk Management

The Fire Department of New York is concerned about grid storage safety.
By: | August 1, 2017 • 3 min read

New York City is agressively adding solar capacity. But the risks of energy storage must be addressed.

In September 2016, New York City committed to an ambitious program of solar energy and storage. The plan calls for 100 MWh of energy storage by 2020 and 1 GW of solar capacity by 2030. Photovoltaic technology is well established, but the lithium-ion (Li-ion) battery technology used to store the collected energy is much more fraught. Within weeks, the Fire Department of New York expressed concerns about retrofitting commercial- and industrial-scale batteries, called grid storage, into the density of the city.

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In January 2017, underwriters with FM Global issued an 18-page data sheet with loss-prevention recommendations for Li-ion installations. Some specialty insurers have been willing to underwrite standalone Li-ion grid storage, others so far have only been willing to cover such installations as part of a broader property policy for a renewable-energy generation facility or power plant.

“We think we can come up with schemes that will provide reasonable levels of protection now and in the future.” — Gary Keith, vice president, engineering standards manager, FM Global.

Li-ion batteries power cell phones, tablet computers, and some electric cars. They are compact, dense, and represent the leading edge of storage efficiency. Those same characteristics make them prone to runaway overheating if there is a short or damage to a cell. There have been notorious examples of burning devices and even vehicles in recent years.

There have also been fires at grid storage installations. The most notable was a 2012 incident in Hawaii. A 15 MW grid storage array with 12,000 cells was destroyed by fire at the 30 MW Kahuku wind farm on Oahu.

Li-ion grid storage “in conjunction with wind or solar provides stability into the grid as well as peak performance,” said Charles Long, area supervisor for energy at brokerage Arthur J. Gallagher.

Gary Keith, vice president, engineering standards manager, FM Global

“For some underwriters, grid storage is literally too hot to handle. Others are willing to quote but very selectively. For a large utility the insurers will pick it up no worries, but for a phone-battery maker looking to move up to grid storage, they would find a lot of resistance in the market.”

Long emphasized that the big issue for grid storage is not the value of the battery but the potential for business interruption.

“The BI is usually significantly higher than the property. If a 200 to 300 MW wind farm loses its grid-storage, that may be $20 million to replace the battery but a $40 million BI loss if the power-purchase agreement mandates battery backup.”

Gary Keith, vice president engineering standards manager at FM Global, said that with the proliferation of microgrids and grid storage, it was important for his firm to issue the data sheet as soon as it could.

“We are going to see more and more mandates for this type of storage. Power generation is one aspect of the issue, but our motivation for the data sheet was usage expanding to independent power availability in commercial and industrial applications.”

There are two key points, Keith stressed.

“The fire hazard is from a short or damage that causes a runaway chemical reaction, not from the ambient heat of operation. Also, Li-ion is not lithium metal [which reacts violently with water]. We recommend sprinkler protection, and separation, at least 20 feet from any other structure or exposure.”

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While the proliferation of microgrids and grid storage represents a clear emerging risk, “the technology is not outside current fire codes and practices,” said Keith at FM Global.

“We think we can come up with schemes that will provide reasonable levels of protection now and in the future.”

That future looks very big. According to the University of Michigan Center for Sustainable Systems, as of June 2016, the U.S. had more than 21.6 GW of rated power in energy storage compared to 1,068 GW of total in-service installed generation capacity. Globally, installed energy storage totaled 150 GW.

Only 2.5 percent of delivered electric power in the U.S. is cycled through a storage facility. For comparison, that figure is 10 percent in Europe and 15 percent in Japan. U.S. energy storage projects increased by 105 percent from 2013 to 2016. California leads with 149 operational projects (4.03 GW), followed by Virginia with 3.25 GW and Texas with 24 projects.

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]