During the past couple of years at renewable energy conferences and industry events, the conversation regarding battery energy storage systems has focused on the prevailing notion that energy storage, from an emerging technology standpoint, is where traditional solar was roughly eight to 10 years ago.
In the utility-scale context, despite the increasing deployment of battery energy storage systems, some utilities are still hesitant to purchase energy storage systems because the costs and technology are still evolving. From a contractual standpoint, utility-scale battery energy storage system transactions present unique legal issues and require special analysis of traditional contract provisions.
Here are the top five legal issues to consider when contracting for utility-scale energy storage:
1. Uptime Guarantee
2. Intellectual Property
3. Security for Payment and Performance
4. Force Majeure and Changes in Law
5. Indemnity and Insurance
Uptime Guarantee
A critical performance component of a battery energy storage system is the guarantee the vendor and/or manufacturer is willing to provide the purchasing utility regarding the amount of time (usually reflected as a percentage and calculated monthly or annually) the system will be fully operational (i.e., the system’s “uptime” or performance assurance).
From a contractual standpoint, several critical issues regarding uptime guarantees must be considered and negotiated:
- How to define uptime, which requires, among other things, the parties’ agreement on
the scheduled maintenance parameters for the system because scheduled maintenance
is not counted as downtime for purposes of calculating the system’s uptime; - How to define and quantify damages from a breach of the system’s uptime guarantee.
In states such as Texas, where utilities can generate significant revenue from energy
storage systems by performing frequency regulation, damages from a breach of the
uptime guarantee are typically tied to the revenue lost by the utility during the time
the system was down beyond the uptime guarantee; - The vendor’s and/or manufacturer’s monetary liability caps as a result of revenue lost
by the purchasing utility due to breaches of the uptime guarantee; and - Contingencies of the uptime guarantee, such as the requirement that the vendor and/or manufacturer perform operation and maintenance services on the system.
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