Risky business: managing the great energy transition
- Published: Friday, 08 July 2022 08:46
Future energy resources are one of many considerations on the agenda of enterprise risk managers as they seek to set and reach ESG goals. Sustainable energy will be key to this, but also comes with its own set of risks, as Dr. Lou Gritzo explains.
The United Nations COP26 climate conference in November 2021, and recent reports from the Intergovernmental Panel on Climate Change (IPCC), have brought climate change into sharp focus for world and business leaders alike. Businesses are facing pressure to respond to this climate challenge, both from the perspective of responding to the risks from the changing climate on their business and in reducing the impact of operations on the environment. There is also increasing demand for companies to publicly prove how they are responding to the risks associated with these challenges. The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), for example, are being embraced around the world.
Within this context, heightened further by the ongoing war in Ukraine, many businesses are actively looking to reduce their reliance on carbon intensive energy and have set out their plans to reach net zero levels of emissions in the coming years. To reach their environmental, social, and governance (ESG) goals, many businesses are introducing and using newer technologies to mitigate their contribution to the changing climate. However, this essential part of sustainability doesn’t come without risks.
For example, electrical faults associated with photovoltaic (PV) or solar panels have the potential to cause fires. Fire is a risk also associated with lithium-ion batteries, which are a vital part of the electric revolution by allowing energy generated by sustainable sources such as PV panels or wind to be stored and used when needed, bringing industrial scale power with reduced carbon emissions. Fires can be triggered by an event called cascading thermal runaway, where one of the battery cells overheats due to an internal failure, releasing flammable gases, heating adjacent cells. These volatile gases can easily ignite, causing adjacent cells to also catch fire, with the blaze having the potential to cascade and cause significant damage. Aside from the obvious business interruption which an event like this could cause, there is also an environmental cost of rebuilding a structure and recovering the equipment located inside when damaged by any kind of fire. In summary, any efforts to manage risk also promotes good ESG practices.
One of the ways to help ensure that a company can be resilient, while also pushing forward the sustainability agenda, is to actively involve risk managers as early in their ESG efforts as possible. Building a connection with the Chief Sustainability Officer or Head of ESG can help to ensure that risk management and partners can serve as facilitators and supporters of long-term sustainability. If partners, like FM Global, are involved early, our expertise, research and data can also be used to help risk managers find the right solutions.
For the lithium-ion batteries example, the risks associated with this technology are best managed through using compartmentalisation when planning the layout of a facility. This could mean imagining a potential worst-case scenario and arranging the batteries to make this scenario more manageable, with the cells split into smaller groups. Installing certain protective measures to limit any potential damage is also an important step. Devices like firebreaks or firewalls can provide protection, reducing cascading thermal runaway, if it does occur, to only a small group of cells. Dividing the cells in this way also makes traditional fire protection measures more effective since they cover a smaller area and reduce smoke and water damage.
Having the right battery management system – the system that manages rechargeable batteries, ensuring they operate efficiently and safely – in place is also an important element of good risk management practice. This system needs to include certain safely features to maintain resilience; any set-up needs to build-in multiple tests and maintenance checks to ensure all critical systems are operational. For instance, it is important to factor in HVAC maintenance into plans, as cooling technology is vital to keep the entire system at the right temperature and less susceptible to fire risk. Some businesses may need to repair and replace air filters more often than others, particularly in dusty locations, so this should be accounted for. Other checks required for the proper maintenance of a HVAC system include coolant checks, compressor/heater core checks and duct/cable checks.
Establishing a battery replacement programme is another proactive strategy for maintaining a resilient battery management system. This involves finding information on the lifespan of the batteries being used and establishing timelines for replacing old batteries. The advice we provide our clients on this and other methods for safely utilising electrical energy storage is captured in FM Global Property Loss Prevention Data Sheet 5-33, Electrical Energy Storage Systems (1).
This kind of insight, along with other risk mitigation measures, considered early in the planning and design phase can help facilitate the resilient use of sustainability-driven newer technologies, and demonstrate how risk management is an integral partner in responding to, and supporting, the objectives to address climate challenge and remain resilient.
Dr. Lou Gritzo, VP and manager of research at FM Global.
- FM Global Property Loss Prevention Data Sheet 5-33, Electrical Energy Storage Systems, Interim Revision, July 2020. https://www.fmglobal.com/research-and-resources/fm-global-data-sheets ©2022, FM Global. All rights reserved. This information is the property of Factory Mutual Insurance Company (FM Global). It is made available for informational purposes only. It is not to be shared with other parties. No liability is assumed by or through the use of this information. The liability of FM Global is limited to that contained in its insurance policies