Battery Energy Storage Systems (BESS) are increasingly critical in the transition to renewable energy, but their design, construction and operation can lead to various disputes. In this article, we explore some of the issues that can arise, and how they can be mitigated and avoided.
Design Phase Disputes
Integrating BESS with existing power grids and renewable energy sources is complex as the variability of renewable energy sources like wind and solar requires sophisticated algorithms and control systems to ensure stability and efficiency. Choosing the right battery technology (e.g., lithium-ion, flow batteries, solid-state batteries) is also crucial.
Typically, we see contractors undertake both a design and construction role on BESS projects, which avoids interface between a separately appointed design team, the construction contractor and the battery supplier. Whatever the procurement structure it is important to ensure that the designer considers the limitations of battery choice in terms of energy density, lifespan, cost, and safety and the connectivity to the grid and any performance related issues that may arise.
At the design phase, all of these decisions will be critical to the eventual success of the project, although issues may not manifest until much later during testing/commissioning or when in operation.
As BESS projects grow larger, more challenges with the design and specification of the battery infrastructure and interfaces will arise. Clients should ensure that project briefs are clearly articulated, and expectations understood by the design team. Designers need to carefully consider the scope of their work and state any limitations due to battery distance to the grid connection which could lead to current frequency distortion in high voltage cables and/or compliance of the specified battery with UK standards. Clearly drafted contracts will be essential to properly allocate risk between the parties and provide for any limitations on liability, especially if design related issues result in significant reduction in the BESS performance on construction.
Construction Phase Disputes
Finding suitable locations for BESS installations can be difficult. Sites need to be close to renewable energy sources and existing grid infrastructure, and must also meet environmental and regulatory requirements. The construction of BESS also relies heavily on a global supply chain for components such as batteries, inverters, and control systems. Disruptions in the supply chain, such as those caused by geopolitical tensions or natural disasters, can delay projects and increase costs.
Construction delays can lead to significant disputes, and delay damages can be substantial to take into account lost revenue and damages for failure to comply with any grid connection agreement. Delays can be caused by various factors, including supply chain disruptions, labour shortages, or unforeseen site conditions. Like many construction projects, disputes over cost overruns and variations to scope are common in BESS projects.
The interface of BESS with existing or new grid infrastructure can also be problematic, whether due to delays with connection and/or achieving grid specific parameters for export. We regularly see debates between parties as to who takes the responsibility for grid connection delay, which is something that should be considered and allocated in the contract terms.
Another area of disagreement arises during testing and commission if the BESS project does not achieve its output parameters. Clearly defined testing protocols and processes are required to ensure that the testing regime is fair, objective and achievable. Failures to pass commissioning tests can sometimes be difficult to diagnose and correct given the complex BESS technology and interfaces involved.
Operational Phase Disputes
Ensuring the reliability and longevity of BESS requires regular maintenance and monitoring. This includes checking for issues such as battery degradation, thermal runaway, and system malfunctions. Operating BESS in conjunction with the power grid requires sophisticated control systems to manage energy flows and ensure grid stability. This includes balancing supply and demand, managing peak loads, and providing ancillary services such as frequency regulation.
Performance issues therefore typically arise and can have a significant impact to generation. Ensuring a clear approach to operation and maintenance, with a proactive maintenance regime, can help mitigate technical issues before they impact performance and allows parties to quickly spot latent construction defects and address these to avoid damage to the battery and to avoid unnecessary downtime.
As BESS are integrated with smart grids and ‘internet of things’ devices, they can also be vulnerable to cyberattacks. Protecting these systems from hacking, ensuring data integrity and avoiding operational and information technology vulnerabilities is critical. Disputes can arise over liability for data breaches and disruptions to the power grid with significant legal and financial disputes.
Mitigating Disputes
To mitigate the disputes that may arise on BESS projects, parties should put in place:
1. Clear Contracts: Ensuring that contracts are clear and comprehensive can help prevent disputes. This includes clearly defining the scope of work, performance specifications, and responsibilities of each party.
2. Effective Communication: Maintaining open and effective communication between all parties involved can help identify and resolve issues before they escalate into disputes.
3. Regular Inspections and Testing: Conducting regular inspections and testing throughout the design, construction, and operational phases can help identify potential issues early and ensure compliance with standards and specifications.
4. Dispute Escalation Mechanisms: Including dispute escalation mechanisms in contracts, such as senior representatives’ meetings and/or mediation, can provide a structured process for resolving conflicts without resorting to formal dispute resolution.
5. Proactive Cyber security measures: Taking steps to proactively enhance cyber-security on all BESS systems, reinforcing standby resilience and procedures to quickly address a cyber-attack to avoid the impact of a cyber-security breach and the disputes that will follow such an event.
Conclusion
While Battery Energy Storage Systems are crucial for the transition to renewable energy, they come with a range of potential disputes that can arise during the design, construction, and operational phases. By understanding these challenges and implementing strategies to mitigate them, stakeholders can help ensure the successful deployment and operation of BESS projects. Collaboration, clear communication, and proactivity are key to navigating the complexities of these projects and minimizing the risk of disputes.
Navigating Energy Disputes
The Burges Salmon Energy team is market-leading across energy and net zero technologies, drawing upon specialists from throughout the firm to provide seamless legal support to our clients’ energy projects.
We have created our ‘Energy Disputes Guide: Managing risk and avoiding disputes in your energy project’ guide to support clients by offering comprehensive strategies for managing and mitigating risks throughout the lifecycle of energy projects. It draws on the firm’s extensive expertise to provide practical advice on avoiding disputes from project inception through to completion. The guide includes real-life case studies to illustrate key points and offers insights into legal, commercial, and practical measures to handle potential conflicts effectively.
If you would like further information on the subjects mentioned in this article or have any questions about, or challenges with, your energy projects, please speak get in touch.