Navigating risk: implementation of battery energy storage projects

Deployment of Battery Energy Storage Systems (BESS) continues across the UK and Europe at a tremendous pace, driven economically by a market demanding the essential services these systems are now reliably providing, and fuelled by a competitive supply chain driving down costs and ensuring sufficient manufacturing capacity. But whilst this presents a positive outlook, there are risks which investors and developers should be aware of to increase the likelihood of delivering a successful project. Here, we explore some of the risks and possible routes of mitigation.

1. Environmental Due Diligence Informing Site Selection

With many BESS assets being developed in rural environments on either a stand-alone basis or co-located with renewables, the development locations are often in areas where a level of environmental awareness and sensitivity is necessary. Robust environmental due diligence is an essential risk management activity. Should such risks be realised, they could incur a considerable cost and impact the scheduling of project, or may even deem the project unviable from a planning perspective due to the environmental impact. Demonstrating proactivity in this area can also demonstrate to local stakeholders that developments are considerate of these obligations.

An example of this is where peat is found in a development location. Peatlands are unstable, water-logged and have low weight bearing capacity. They are also rich in carbon and when disturbed can release large amounts of greenhouse gasses into the atmosphere. Other considerations may involve impermeable surfaces, where poor drainage could lead to flooding and equipment damage, or in the event of fire may lead to contaminated runoff affecting sensitive habitats. Beyond the technical and commercial impact of managing such challenges, developers must demonstrate that they have considered all alternatives and have a robust plan to mitigate any environmental impact.

Whilst rural locations are commonplace for utility scale systems, smaller BESS assets have been developed in urban locations. Although these are not subject to the same environmental challenges, other challenges emerge, such as noise during operation, concerns over safety in populated areas and the added challenges of installing the associated infrastructure within the built environment.

2. Regulatory and Planning Certainty

Alignment with regulatory and planning requirements is critical to the success of BESS projects. Delays or denials in planning permission, restrictive conditions and slow permitting processes can significantly impact project timelines and viability. Developers must also contend with limited opportunity to secure and discharge consents, increasing the risk of missed milestones. Grid compliance documentation, if submitted late, can further delay energisation.

To mitigate these risks, developers should engage early and consistently with planning authorities, statutory consultees and grid operators. Building strong relationships, maintaining transparent communication and aligning project schedules with regulatory timelines are essential. Proactive development in areas such as traffic management plans, drainage strategies etc. can also help to pre-empt objections. Ultimately, regulatory certainty is achieved not just through compliance, but through collaboration and foresight.

3. Operational & Commercial Risk

A BESS project's profitability depends on its ability to participate in several markets simultaneously; the associated ‘revenue stack’ includes ancillary services, arbitrage and capacity markets. Whilst this revenue diversification is a plus, these markets are nonetheless variable and are susceptible to external factors. A financial model might represent an attractive case today, but it is based on assumptions about how these markets will operate for the next 10-15 years and governmental and regulatory changes can alter those assumptions, whether through market saturation of BESS assets, changes to policy in the capacity market or wholesale market volatility.

4. Technical Design & System Integration

The Battery Management System (BMS) plays a significant role in the safe and efficient operation of a BESS. An improperly calibrated BMS can lead to a range of issues, from inaccurate State of Charge (SoC) to poor performance or even catastrophic reliability events. System integration is also a key technical risk to manage, and this can manifest itself in several ways. A mismatch between the inverter and the battery in relation to voltage and power characteristics can lead to reduced efficiency and accelerated battery degradation, while similarly, due to the significant amount of heat generated by BESS, an inadequately designed HVAC system can lead to overheating which will reduce battery life and increase the risk of fire. Aligning with standards such as NFPA 855 and UL 9540A, whilst not mandated in the UK, does demonstrate best practice and can improve regulatory confidence and planning success.

Grid compliance and system performance present technical risks which a developer must be aware of. In regions such as the UK, there are long lead times for grid connections. However, the technical specifications themselves can cause additional delay if they do not meet the grid operator’s specific requirements, necessitating redesigns and resubmissions. BESS must be able to accommodate grid disturbances – such as voltage sags or frequency fluctuations – without disconnecting. Failure to specify and implement this capability can lead to fines, loss of revenue and reduced grid stability. Developers must specify the system's performance, including its round-trip efficiency, degradation rate and usable capacity over time. Inaccurate specifications can lead to a failure to meet performance guarantees, resulting in penalties and a loss of confidence from investors and off-takers.

The UK has strict fire and safety standards for BESS installations, and their influence on the design must be understood from the outset. Spacing between BESS containers, transformers and other equipment is critical for fire safety. Incorrectly specified layouts can hinder emergency services' access and increase the risk of fire spreading. The integration of fire detection and suppression systems, along with off-gas ventilation, must be a core part of the technical design. The industry has witnessed some projects adopting a different approach to fire management, where rather than attempting to extinguish a fire, instead the asset may be intended to burn whilst ensuring the perimeter is protected. This approach has stemmed from the view that the volume of suppressant required could have the unintended consequence of contaminating the water table and causing a larger environmental issue. This demonstrates the current uncertainty in how to manage the risk of fire at BESS sites as the industry evolves, however, regardless of the option chosen, a failure to properly specify an approach with appropriate buy in from the local fire department can lead to non-compliance with local regulations and an inability to obtain necessary permits.

The BESS safety landscape is rapidly changing, and developers must stay ahead of the curve as projects designed to outdated standards may require costly retrofits or be deemed uninsurable. 

5. Supply Chain Management

Many risks associated with supply chain management which could have been identified during the early project development stages will materialise during the implementation of the project. Adherence to the contractual delivery schedule is the most prevalent and this can be realised through several scenarios.

Late delivery of critical components is the largest risk within this context. Due to the significant demand being placed on the battery market and that of the associated electrical infrastructure, developers should be mindful of late delivery and the subsequent risk to meeting target Commercial Operations Dates (COD). Typical mechanisms for managing such risks, including the application of liquidated damages and contractual witness inspection points, can mitigate the likelihood and impact of the risk.

The risk of manufacturing defects leading to delays in COD or the equipment not performing as expected is another risk which should be managed through the procurement process. A robust qualification and tendering exercise as part of an effective due diligence process, design specifications which clearly align with Employer’s Requirements (ERs) documentation and a witnessed ‘factory acceptance test’ can largely mitigate this risk.

The completion of construction work may be delayed should the project find that equipment has been damaged during transit. Long distance shipping can increase the likelihood of damage, added to the often-rural transport routes nearer to the development location. This is a factor to consider when evaluating site selection, equipment procurement strategy and commercial terms.

6. Construction Phase Risk Management

Once construction commences on-site, risks move toward execution: safety, logistics, quality control and commissioning.

The construction of BESS assets typically requires an amount of excavation and land preparation followed by the movement of large, packaged equipment. Implementing a safe system of work to manage risks to personnel, equipment and the environment is essential. This risk extends into the commissioning phase where the potential for electrocution and fire/explosion hazards is significant. The appointment of a reputable EPC contractor should ensure that an effective construction methodology is developed and implemented alongside established site safety processes, such as HSE plans, safety stand-downs, lock-out procedures, etc. It is typically expected that the developer will also utilise their Owner’s Engineer during this phase to provide dedicated on-site construction supervision and closely follow the contractors’ alignment to their execution strategy and safety processes.

Consideration must also be given to the commercial and delivery risks associated with the construction and commissioning phase. Common construction challenges in remote sites includes challenges such as a lack of local accommodation or site welfare, traffic management, logistics and access to resource. These topics are often overlooked during early project planning but can have an impact late into the project when there is little opportunity to mitigate or recover these delays.

Conclusion

The risks outlined in this article are not exhaustive, but they reflect real challenges encountered on live BESS projects, each requiring tailored control measures to manage effectively. Every project is unique, and developers must adopt a robust, proactive approach to risk identification and management from the earliest stages. The earlier risks are identified, the more options are available to mitigate them, and the less likely they are to negatively impact project outcomes.

Ricardo’s team of Clean Power consultants have supported BESS projects in the UK and in the Americas and are attuned to the risks experienced in project implementation. This capability, when integrated with Ricardo’s wider project development capability across environmental, planning and regulatory sectors, combine to offer a compelling proposition as an essential technical advisor to our clients.

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