As the energy transition accelerates, lithium-ion (Li-ion) battery energy storage systems (BESS) are becoming essential tools for enhancing grid flexibility, supporting decarbonization, and improving outage resilience. For Local Distribution Companies (LDCs), the integration of these technologies offers significant operational and environmental benefits. However, these advancements also introduce new risk exposures—ranging from fire hazards and regulatory compliance to cybersecurity and financial uncertainty—that require careful attention from corporate leaders, operational teams, and risk professionals.
In 2024 in Brantford, Ontario, a fire broke out in a battery container, causing a multimillion-dollar loss due to improper separation distances and suppression systems.[i] This incident underscores the importance of understanding and managing the risks associated with Li-ion battery storage.
Li-ion batteries offer fast response times, compact designs, and scalability, making them ideal for modernizing the grid. However, their high energy density and chemical composition introduce unique risks compared to traditional assets like transformers. These systems involve complex interactions between software, hardware, and electrochemical processes, meaning failures can result not only in equipment damage but also in severe incidents that threaten safety and infrastructure.
Fire and thermal runaway. One of the most pressing risks with Li-ion systems is thermal runaway—a chemical reaction that can lead to intense fires, explosions, and toxic smoke. Improper installation, overcharging, or mechanical damage are often precursors to such incidents.
Environmental and compliance concerns. Battery fires pose serious environmental and compliance challenges. When lithium-ion or other energy storage batteries ignite, they release toxic by-products such as hydrogen fluoride, heavy metals, and volatile organic compounds. These substances can contaminate air, soil, and water, creating environmental liabilities that may require specialized cleanup and remediation. From a compliance standpoint, battery systems must meet evolving regulatory requirements that vary by jurisdiction. These include siting regulations that govern where systems can be installed, fire protection standards such as NFPA 855, and chemical management protocols for labeling, storage, and disposal. Jurisdictional differences mean that companies must navigate a complex landscape of local, provincial, and national rules. Failure to comply can result in fines, operational delays, or reputational damage, making proactive environmental and regulatory planning essential for battery deployment.
Cyber and operational vulnerabilities. Modern energy storage systems are frequently integrated with supervisory control and data acquisition (SCADA) systems or cloud-based monitoring, introducing cybersecurity threats that could impact grid operations or data integrity.
Asset obsolescence and financial risk. The pace of innovation means storage technologies can become obsolete rapidly. LDCs must account for lifecycle costs, supplier viability, and resale or decommissioning strategies as part of prudent financial planning.
Mitigating risks associated with battery energy storage systems requires a proactive, multi-layered approach that begins with intentional planning and is sustained through ongoing risk governance. Organizations should implement the following measures:
Engineering and safety assessments. Engage independent, third-party experts to conduct comprehensive risk and compliance assessments prior to installation. These assessments should verify adherence to standards such as CSA, UL, and other relevant codes (e.g., NFPA 855), ensuring systems are designed and installed to minimize operational and safety risks.
Fire protection and adequate separation. Effective risk management in Battery Energy Storage Systems (BESS) is strengthened by the integration of fire resistive construction and strategic unit separation. The use of non-combustible materials and fire-rated barriers helps contain thermal events and prevent fire propagation. Locating BESS units outdoors further mitigates the risk of fire spread and structural damage. Adequate separation between units not only limits exposure and potential cascading failures but also minimizes operational downtime, ensuring continuity and resilience in energy storage operations.
Cybersecurity readiness. Protect system communications and controls through secure authentication, encryption, and robust patch-management programs. Conduct regular vulnerability scans and incident-response drills to identify and address potential cyber threats, safeguarding both operational integrity and data privacy.
Valuation and insurance reviews. Accurately capture and periodically review the replacement values of battery systems to ensure insurance coverage remains adequate. Work closely with insurance partners to confirm that policies address emerging risks, including pollution liability and cyber events, and update coverage as technologies and exposures evolve.
Vendor due diligence. Select technology and service partners with proven performance records, transparent supply chains, and documented safety practices. Contractual agreements should include clear terms for warranty, liability, and end-of-life management, ensuring accountability and risk transfer throughout the lifecycle of the battery system.
According to BloombergNEF, there are a number of alternative options to Li-ion batteries.[i]
Thermal Energy Storage (TES) uses materials like molten salts or phase-change substances to store heat, which can later be converted to electricity or used directly. With a low capital cost, TES is ideal for industrial and district heating applications. It efficiently utilizes excess renewable energy and supports long-duration discharge.
Compressed Air Energy Storage (CAES) stores energy by compressing air into underground caverns or tanks. When released, the air powers turbines to generate electricity. It is especially effective in regions with suitable geology.
Flow Batteries rely on liquid electrolytes stored in external tanks, allowing energy capacity to scale independently from power output. Technologies like vanadium redox and zinc-bromine are gaining traction due to their long cycle life, safety, and ability to discharge for over eight hours.
Gravity-Based Storage and Pumped Hydro use gravitational potential energy—either by lifting weights or moving water between elevations. These systems are highly scalable, cost-effective, and capable of multi-day discharge. Pumped hydro is widely deployed globally, while gravity-based systems are emerging as space-efficient alternatives.
Strategic Planning & Investment: LDCs should revisit their energy storage strategies as long-duration technologies like thermal, compressed air, and flow batteries become cost-competitive with Li-ion, influencing future capital planning and technology choices.
Grid Flexibility & Renewable Integration: Long-duration storage can help LDCs manage peak demand, reduce renewable curtailment, and provide backup power—supporting decarbonization and system resilience.
Cost Management: As storage technologies become more affordable, LDCs can benefit from lower capital costs and better economics, especially for applications beyond 4–8 hours.
Risk & Technology Assessment: Evaluating the maturity, safety, and reliability of emerging technologies is essential. This includes vendor vetting and reviewing long-term performance data.
Regulatory & Market Adaptation: LDCs should work with regulators to ensure evolving policies and market structures support new storage technologies and their operational models.
Insurance & Risk Mitigation: As LDCs diversify their assets, they must reassess insurance coverage—ensuring property is insured to full replacement value under MEARIE policies—and review cyber insurance to confirm limits reflect current eligibility and risk exposure.
The adoption of lithium-ion (Li-ion) and emerging long-duration energy storage technologies offers LDCs transformative opportunities to improve grid flexibility, integrate renewable energy, and advance decarbonization. However, these technologies also introduce complex risks—including fire hazards, cybersecurity threats, regulatory challenges, and financial uncertainties—that require careful, multidisciplinary oversight.
By By aligning with industry best practices and regulatory developments, LDCs can safely deploy these technologies, enhance reliability, and uphold their commitment to operational excellence and community safety.
[i] Wheeler, J. (2025, April 4). Economic benefits and safety considerations for battery energy storage systems. Envista Forensics. https://www.envistaforensics.com/knowledge-center/insights/articles/economic-benefits-and-safety-considerations-for-battery-energy-storage-systems/
[ii] BloombergNEF. (2024, May 30). Lithium-ion batteries are set to face competition from novel tech for long-duration storage: BloombergNEF research. https://about.bnef.com/insights/clean-energy/lithium-ion-batteries-are-set-to-face-competition-from-novel-tech-for-long-duration-storage-bloombergnef-research/
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