Lithium batteries – risk and insurance considerations for commercial buildings
Lithium batteries have evolved to become a ubiquitous power source valued for their high energy density and long lifespans. Use of lithium batteries in everyday items such as laptops, phones, e-bikes and lawnmowers has revolutionised portable electronics. But lithium batteries are no longer confined to consumer gadgets. They are now transforming commercial operations, powering everything from forklifts in warehouses to backup systems in high-rise buildings.
With this widespread adoption comes additional risks to commercial enterprises. The potential of lithium batteries to overheat and catch fire, has lead to significant property damage, injury and even loss of life. Multiple lithium battery fires have occurred in recent years, raising safety concerns and prompting investigations into their causes. These fires have impacted the perception of lithium battery safety and raised concerns among consumers and industry groups.
In a recent, high profile incident, a fire broke out at a lithium battery factory in Hwaseong, South Korea, in June 2024. This fire resulted in the deaths of 22 workers. Initial investigations suggest the fire started with battery cell explosions, highlighting the extreme flammability of battery materials.
Incidents involving a series of fires at energy storage systems (ESS) in South Korea between 2017 and 2019 are also being investigated and whilst the exact causes of these fires are still being debated initial findings highlighted the potential risks associated with large-scale battery storage systems.
The commercial boom: Powering progress
In commercial buildings, lithium batteries are becoming more prevalent, particularly where governments are providing subsidies for installation, raising significant concerns about fire safety. While they offer numerous benefits in terms of energy efficiency, cost saving and sustainability, the potential risks cannot be ignored.
Types of systems include the following:
- Energy storage systems (ESS): By storing excess solar energy or off-peak electricity, businesses can significantly reduce electricity costs and improve energy efficiency.
- Backup power systems: Compared to traditional diesel generators, lithium-ion batteries offer a cleaner, quieter, and more environmentally friendly alternative. They can be charged during off-peak hours and deliver power rapidly when needed, ensuring uninterrupted operations in critical sectors like healthcare and data centres.
- Electric vehicle charging stations: The growing number of electric vehicles has led to an increase in charging stations (including superfast charging capabilities) in commercial buildings.
- Beyond buildings, lithium batteries are powering industrial equipment like forklifts and material handling vehicles. Their lighter weight and faster charging times translate to increased efficiency and productivity in warehouses and manufacturing facilities. The list of applications extends to electric vehicles, power tools, and grid-scale energy storage for renewable energy sources like solar and wind.
Hidden risks of lithium-ion batteries
While all batteries pose some safety risk, lithium-ion batteries demand special attention. Unlike the chemical composition found in most batteries, lithium-ion contains a flammable liquid electrolyte which allows them to store significant energy in a compact size. This very feature, however, creates a serious fire hazard, especially in high temperatures.
Extinguishing a lithium fire also poses a challenge for firefighters. Water can intensify a blaze, so dry sand must be used to extinguish the flames, a process that can take several hours. Even after the fire is out, the risk of reignition persists due to the ongoing chemical reactions within the lithium.
The most common factors contributing to failure and ignition include:
- Overheating: Lithium-ion batteries generate heat during operation and charging. In the worst-case of uncontrolled failure, this internal heat combines with the stored energy to create a dangerous reaction causing ignition. These fires reach very high temperatures (over 400°C) and are extremely difficult to extinguish due to their self-sustaining nature. Overheating can be caused by faulty chargers, overcharging, or internal short circuits. The excessive heat damages the battery and triggers a dangerous chain reaction (known as thermal runaway), where heat generation spirals out of control and fire occurs.
- Physical damage: Punctures, crushing, or other physical damage can cause the flammable electrolyte to leak, posing a safety risk and environmental contamination, along with potential fire risk.
- Battery defects: Manufacturing flaws and internal short circuits have been identified as primary causes of fires. Given the technology is being widely used in consumer electronics and children’s toys, cheap manufacturing process and equipment has been linked to fires breaking out in household environments.
Emerging regulation
Australia has made significant strides in regulating lithium batteries, however specific focus on compliance for commercial buildings is still evolving.
A range of regulatory and industry responses are underway which are expected to include:
- Fire safety standards: Building codes and regulations are being updated to address the specific risks associated with lithium batteries.
- Installation guidelines: Clear guidelines for the installation, maintenance, and inspection of lithium battery systems in commercial buildings are being developed.
- Emergency response planning: Fire and emergency services are adapting their procedures to handle lithium battery fires effectively.
It’s essential for building owners and managers to stay informed about the latest regulations and best practices to mitigate the risks associated with lithium batteries. Until the above regulations are finalised, property owners and occupiers lack a clear set of guidelines to adhere to when installing any systems using lithium-ion technology.
Insurance considerations
Insurers are cautious about the risks associated with lithium batteries. Due to the potential for fires, explosions, and other hazards, they are carefully evaluating the use of these batteries in commercial settings. You can expect that insurers will ask for detailed information in relation to specification and maintenance of any installations as part of their risk review process.
Bellrock recommends the following steps to address risks associated with lithium batteries.
- Planning considerations: Ensure engineering and fire advisors are involved during the initial planning phase to ensure the best possible protection for the existing facilities. Many ESS systems will incorporate fire suppression systems. Policyholders need to have the technical data in relation to the suppression systems for insurer review prior to installation if possible.
- Safety standards: Insurers often require adherence to strict safety standards for battery handling, storage, and charging.
- Fire prevention systems: Installing fire suppression systems specifically designed for lithium battery fires is a crucial first line of defence. Additionally, implementing temperature monitoring systems allows for early detection of overheating and helps prevent thermal runaway.
- Prepare for inspections: Insurers are conducting thorough assessments of premises using lithium batteries to identify potential hazards and evaluate fire safety measures, ventilation, and storage conditions.
- Maintenance: Demonstrating an ongoing maintenance agreement for the systems will give insurers confidence that the system will be maintained in good working order.
A balanced future
Whilst Lithium batteries represent a significant leap forward in energy storage technology, their widespread adoption demands a proactive approach to risk management. By planning and implementing safety measures, adhering to regulations, and prioritising responsible practices, businesses can harness the power of lithium batteries while mitigating the associated risks.
The installation of lithium batteries in commercial buildings requires careful consideration. Consult your risk advisor early in the process to assess potential liabilities. Ensure the installer is qualified and provides detailed documentation guaranteeing the system won’t damage the property. Ongoing maintenance is crucial and should be evidenced for insurance purposes.
If tenants propose installing lithium batteries, carefully evaluate the increased risks and insurance implications, as well as the suitability of the building to have such installations included.
For expert guidance on lithium battery installations and related risks, contact Bellrock.
