Battery energy storage system market is well placed to thrive

Amid this impressive growth, however, there are challenges with many BESS projects facing increasingly complex commercial, regulatory and financing headwinds. As the sector matures, developers, funders and supply-chain participants are encountering structural pressures that require early, strategic legal intervention.

Grid reform is among the key issues. The introduction of the first-ready, first-connected model, alongside the new Gate 1/Gate 2 queueing system, has fundamentally reshaped project timelines and investment strategies.

Under ongoing reforms, projects will need to demonstrate defined readiness criteria to secure a grid offer or maintain their queue position. These reforms also apply retroactively to existing offers, requiring many projects to reassess their delivery milestones and risk allocation.

In advising our developer clients, we have placed a heavy emphasis on the importance of understanding their Gate 2 status, the acceptance deadlines, and the consequences for financing and construction sequencing.

Supply chain volatility is a further challenge with rising costs of critical minerals, constrained global supply chains, and geopolitical exposure. These risks often translate directly into procurement delays and contract uncertainty.

This is reinforced by market commentary suggesting growing insolvency risks and instability among certain Engineering, Procurement, and Construction (EPC) firms and specialist contractors, creating uncertainty for projects reliant on multi-contract models. Emails concerning supply-chain counterparties show real-time examples of developers assessing contractor financial health before committing to construction project management or disaggregated contracting models.

The UK’s maturing BESS market is also experiencing financing challenges. As revenues from the dynamic services suite stabilise and merchant business cases face pressure, investors are increasingly focused on bankable revenue structures and clearer risk allocation across construction and operational contracts.

Lenders are increasingly scrutinising BESS projects, including credit support for suppliers, commissioning and Commercial Operation Date (COD) risk allocation, change in law exposure, termination mechanics, and availability regimes aligned with Original Equipment Manufacturer warranties.

This environment is creating growing concerns that early-stage projects may struggle to secure investment as grid queues delay delivery or single-route merchant strategies become less attractive.

Legal experts are adding value by helping developers optimise contract packages – whether disaggregated, EPC-wrap, or hybrid arrangements – to allocate risk effectively across BESS supply agreements, infrastructure, operations and maintenance, optimisation and revenue agreements.

From our own experience across large UK projects, we’ve seen how early involvement in contracting strategy can help manage interface risk between multiple contractors, back-to-back liability alignment, force majeure regimes, and commissioning/COD interaction across the supply chain.

With grid reforms affecting both existing and new projects, clients increasingly require support in interpreting Gate 1/Gate 2 outcomes as well as advice on milestone obligations and potential termination rights.

Amending construction agreements to reflect queue-management requirements, and engaging with the National Energy System Operator, distribution network operators and lenders on strategic alignment can also mitigate the risk of projects losing their grid connection position or failing lender diligence.

By preparing clear Heads of Terms, aligning revenue contracts with lender expectations, drafting robust risk transfer mechanisms and advising on lender-required direct agreements, the UK BESS market can continue to thrive and meet its ambitious growth targets.

Kirsty Nurse is a partner at CMS