ENERGY STORAGE

Expert Panel: How to minimise risk in BESS construction

Tamarindo’s Energy Storage Report convenes expert panel to analyse construction risks in battery projects

BEN COOK

April 4, 2024

  • Tamarindo’s Energy Storage Report convenes expert panel to analyse construction risks in battery projects
  • BESS construction disputes have increased in the last 12 to 18 months
  • Finding the right EPC partners can be challenging due to ‘lack of experience’, panellists said
  • Conducting effective supply chain due diligence is vital, panel concluded

Annual battery storage installations are set to soar in the coming years. Modelling by research company Rystad Energy has projected that annual battery storage installations will surpass 400GWh by 2030, which would represent almost a ten-fold increase on the 2022 level, when installations totalled 43GWh. As McKinsey & Company has highlighted “Battery storage is an essential enabler of renewable energy generation, helping alternatives make a steady contribution to the world’s energy needs despite the inherently intermittent character of the underlying sources.”

In order to maximise the prospect of projected battery storage installations being realised, it is vital that steps are taken to minimise the risks associated with the construction of such projects. As the BESS sector evolves, asset owners are increasingly utilising a range of contracting structures for construction and procurement – in addition to traditional EPC [engineering, procurement and construction] contracts, the use of EPCm [engineering, procurement and construction management] contracts and other multi-contract approaches is a growing trend. EPCm contracts can be an appealing option for energy storage projects given their potential for lowering costs, increasing flexibility, and speeding up the completion of projects. However, an EPCm contract can also potentially pose significant risks with regard to possible liabilities and raise doubts about channels for seeking recourse if disputes do arise.

Tamarindo’s Energy Storage Report, in partnership with Eversheds Sutherland, convened a panel of energy storage industry experts – including representatives from Gore Street Capital, NextEnergy Capital, Anesco, Field Energy, AMP Clean Energy and Constantine Energy Storage – to discuss the most significant energy storage-related construction challenges. The panel also explored the relative merits of traditional EPC contracts and some of the newer contracting methods using an EPCm approach. In addition, the panel analysed the risks associated with different approaches. Panellists said sourcing EPC partners with sufficient experience was a major challenge, while adding that it was crucial to perform effective due diligence on supply chains because of the huge variation in the quality of suppliers. Meanwhile, the significant increase in BESS construction disputes in the last 18 months was also highlighted. Panellists also said there had been a clear shift from EPC to EPCm contracts in the last three years, with one advantage of EPCm being a greater tendency for projects to be completed in a timely manner.

Identifying the right EPC partner can be challenging

NextEnergy Capital’s global commercial and construction manager Bhagyashri Joshi said one of the most significant BESS construction-related challenges her organisation has faced in recent months has been “finding the right EPC partners as there’s a lack of experience”. This has been exacerbated by the fact that a number of highly regarded contractors went out of business in the last year. In order to de-risk projects, Joshi said that options include hiring external design consultants to oversee the EPC partners’ designs.

Eversheds Sutherland partner Richard Streeter said that in the batteries sector, the risk profiles are very different to those for traditional energy generation projects. He explained: “There is risk associated with having to make key decisions very early in the process – for example, having to buy batteries and transformers well in advance, paying large fees upfront and not getting a lot of security from some suppliers – this just isn’t a feature for solar and wind projects.” This poses a challenge for clients who are used to buying for other types of energy projects, as well as lenders, Streeter added.

One of the fundamental issues impacting on BESS construction is the fact that batteries are a relatively new technology in the context of the renewable energy sector, said AMP Clean Energy general counsel James Bruce. “Everything needs to be assessed, this includes working with contractors and suppliers that may themselves have not dealt with this technology before, as well as specific requirements for procurement of batteries which differ from other technologies,” he said. Bruce added that a crucial lesson that has been learnt is that it is very important to do due diligence on the supply chain as there is huge variation in the experience of contractors and suppliers in the sector.

Responsibility for different project elements should be assigned early

A key problem affecting BESS construction projects is the lack of an initial dialogue involving all of the parties involved, said Hildagarde McCarville, CEO of Anesco. She added that, investing time and resources upfront, even before reaching FID or issuing ITTs (invitation to tender), can help to “avoid future potential issues impacting on project realisation, be that due to a lack of clarity on the role and scope of parties to the tender or procurement process”. McCarville said it is important to have that “initial conversation to see who is best placed” to oversee different parts of the project execution process, such as the early procurement of long lead items such as transformers. She added that, while the immaturity of the sector is an issue, equally important are considerations about which party will take the responsibility and associated risks for “different aspects or work streams of a project”.

Another significant challenge for BESS projects is “contract realisation”, according to Constantine Energy Storage operations director Louis Burford. “You can do a lot of hard negotiation and then come up against very basic issues – such as best practice health and safety, and sometimes cultural differences,” he explains. “With technology developing quickly, you’re doing things for the first time and everyone has a different approach and there is no market leader.” Burford adds that, particularly post-pandemic, there were issues related to the securing of items such as transformers and circuit breakers.

Richard Wagstaff, head of project development at Gore Street Capital, said the rapid evolution of storage technology prohibits the type of pre-construction design phase that is common with wind projects, for example. He added that it can be difficult for contractors to make a profit in the sector because of the constant technological changes and this can impact on their appetite for taking on storage projects. “The market proposition is much more complex and the system needs to achieve the commercial intent of the project – that relies on the owner having a clear picture of what that’s going to be, which relies on the market designers having a clearly incentivised plan for what they want or flexibility regarding how you configure that system to adapt to future changes,” Wagstaff said.

BESS construction disputes on the increase

There had been concerns that with some contractors going under due to financial difficulties, there would not be enough of them to build out developers’ BESS pipelines, said Stephen White, CFO of Field Energy. However, he added that actually there are “lots of contractors that want to move into storage and there should be capacity in the medium term”. But White said there are software-related challenges that need to be considered. “One of the hardest things to determine is the BMS [building management system], how the system will operate and what will happen at the commissioning stage,” he explained. “It’s hard to assess that at the procurement stage, so when you get to commissioning, that’s when you find a lot of the challenges.

Eversheds partner Caroline Clapham said there has definitely been an increase in BESS construction disputes in the last 12 to 18 months, often involving parties using EPCm structures. “For example, there may have been delays with completion of commissioning tests and that delay then has a knock-on effect on the other contracts in the structure,” she said.


This is an abridged version of a special report, ‘Minimising risk in BESS construction’, which offers insights into the most effective contracting structures for battery storage construction and procurement from a panel of experts convened by Tamarindo’s Energy Storage Report, in partnership with Eversheds Sutherland. To download your free copy of the full report, click here

Main image, members of the expert panel (clockwise, from top left):  Caroline Clapham, partner, Eversheds Sutherland; Bhagyashri Joshi, global commercial and construction manager, NextEnergy Capital; James Bruce, general counsel, AMP Clean Energy; Richard Wagstaff, head of project development, Gore Street Capital; Stephen White, CFO, Field Energy; Louis Burford, operations director, Constantine Energy Storage; Richard Streeter, partner, Eversheds Sutherland; Hildagarde McCarville, CEO, Anesco.

The panel discussion summarised in the report was the second of a series of three such debates organised by Tamarindo’s Energy Storage Report in partnership with Eversheds Sutherland. For information about upcoming Energy Storage Report panel discussions and to enquire about participating, email Energy Storage Report editor Ben Cook at ben.cook@tamarindo.global