In this article, Suriya Edwards, construction and engineering partner at law firm Freeths, examines how construction and supply risks in battery energy storage systems (BESS) projects are allocated through contractual mechanisms, particularly the limitation of liability clauses, and why proper risk allocation is critical to securing project financing.
As BESS projects continue to expand, the defining question for developers, investors and lenders is increasingly less whether projects can be built, but whether delivery risks are properly understood, allocated and priced.
Financing decisions are made on the assumption that program security, contractual performance and project risk have been appropriately assessed. When this assumption proves incorrect, delays, performance issues, or third-party liabilities can quickly transition from construction challenges to financing problems. The question then immediately becomes: where does the risk lie and who ultimately bears the costs?
This is especially important in the BESS market. These projects are no longer small-scale or experimental. They are infrastructure-scale construction projects, with repeatable risk patterns and increasingly standardized documentation. The differentiator is no longer who can draft an engineering, procurement and construction contract (EPC) or a long-term services agreement (LTSA) individually, but who can understand the interconnected risks across the entire project structure.
This means that construction delivery must be tailored to grid uncertainty, supply chain pressures, regulatory changes, operational performance requirements and investor expectations. Any of these issues can affect bankability. Both can also create a gap between what the parties believe they have agreed to and where the contractual risk actually lies.
Following the UK connectivity reforms, many projects now have more clarity about their queue position. Since June 2026, hundreds of projects have received protected offers. However, a protected offer is not the same as guaranteed project success. Technical limitations, network reinforcement requirements, procurement pressures and delivery issues can still impact program certainty and commercial assumptions.
For stakeholders, the question is therefore simple: what level of confidence should be placed in key project milestones, liability structures and financial assumptions?
The energy transition creates a number of these intersections, where technical, regulatory, commercial, legal and political considerations intersect. It is often within these interfaces that project risks emerge. Based on recent cross-border experiences in England, Wales and Germany, this article examines one of the key contractual mechanisms used to allocate and manage these risks in BESS projects: limitation of liability.
Limitation of Liability
Most projects don’t fail in terms of the headline cap. They fail at what lies beyond.
Limitation of liability is one of the most important provisions in any BESS contract because it defines the outer limit of financial risks. In simple terms it asks: what is the worst-case financial position of each party if something goes wrong?
With BESS contracts, liability is usually limited. The percentage will vary depending on bargaining power, market conditions and project-specific pressures, including regulatory developments, supply chain constraints, purchasing dynamics and broader changes in market design.
In construction contracts, financial ceilings typically exist to protect the contractor’s commercial exposure. However, bankability is equally important from the perspective of the project’s Special Purpose Vehicle (SPV), investors and lenders. As a result, BESS contracts often contain mutual ceilings, which means that both the client or employer and the contractor limit their financial risks.
Contracts governed by the laws of England and Wales also generally exclude indirect or consequential damages. This may include loss of profit, loss of business opportunity or loss of revenue, although the classification of such losses depends on the specific wording and facts. Generally, these losses cannot be recovered by one party from the other.
However, contracts will generally retain expressly agreed remedies. For example, they can make it clear that damages or severance payments should not be treated as indirect or consequential damages.
However, the limit of liability is rarely the whole story.
Most contracts specify certain obligations, so they fall outside the limit. These cutouts can effectively create unlimited exposure. Typical examples include intellectual property violations, environmental damages or liabilities, confidentiality breaches and third-party claims.
This is where projects can materially misjudge risk. The headline cap may seem commercially acceptable, but the real exposure is often in the exceptions.
What should developers, investors and lenders pay attention to?
There are three important points to consider:
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Damages and carve-outs: Are the reimbursements within or outside the limit? This varies per contract and can significantly change the risk profile.
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Scope of such car-outs: How broad are the exclusions from the limit? A broad formulation, such as unlimited liability for “violation of law,” can create significant and potentially unintended exposure.
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Insurability: Is the cap insurable? A contractual limit that exceeds available insurance can be a commercial red flag. This may become increasingly relevant as the market matures and newer insurance products, including political risk insurance, are considered in the context of energy infrastructure and cross-border investments.
For investors and lenders, these points are not merely legal issues. They influence the overall risk profile of the project, its resilience to disruptions and ultimately its bankability.
A note on German law:
From the perspective of German law, the situation is similar in some respects, but fundamentally different in others.
German law allows parties to agree on contractual limits of liability. Although parties may generally limit or exclude liability in individually negotiated contracts, subject to willful misconduct and mandatory liability under the Product Liability Act, that freedom is subject to significant legal limitations.
An important point is the mandatory content check of standard business terms under the German Civil Code. When BESS contracts use standard terms and conditions, such as templates, model contracts or general terms and conditions, limitation or exclusion clauses may be subject to legal review.
Any limitation or exclusion of liability for injury to life, limb or health resulting from negligence, or for other damages resulting from gross negligence or willful breach of duty, shall be null and void unless the relevant clause has been separately negotiated.
Furthermore, German statutory law, as interpreted by the German Federal Court of Justice, does not allow the exclusion or limitation of liability for negligent breaches of fundamental contractual obligations in standard business terms. This is particularly important because the most important obligations of a seller or service provider, such as prompt and error-free delivery or service, are likely to constitute fundamental obligations.
This creates a mandatory floor that cannot simply be contracted out. It is a notable difference from English law, where parties generally have wider discretion to limit or limit liability, subject to applicable statutory controls and enforceability principles.
There is also no direct German law that is equivalent to the English legal concept of excluding “indirect or consequential damages”.
What should parties take into account from a German law perspective?
There are three practical points.
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Content control: The statutory revision of standard business terms is broadly applicable. Even in business-to-business transactions, German courts can override limitation of liability clauses that have not been individually negotiated and do not contain the required exceptions.
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The scope of such ceilings: A general limit that also applies to cardinal or fundamental obligations may be unenforceable. Contracts should distinguish between different categories of infringements and set limits accordingly.
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Mandatory obligations: Even in individually negotiated contracts, liability for intentional misconduct under German law cannot be excluded. Likewise, strict liability under the Product Liability Act and for fraudulent concealment of defects remains mandatory.
These differences are important for cross-border BESS projects. A risk allocation structure that appears acceptable under English law may not work in the same way under German law. This could impact negotiations, investor assumptions and the practical enforceability of key protections.
Why this is important for financeability
As the BESS market matures, the focus of investors and lenders is shifting beyond technology risk and towards security of supply.
Liability structures, risk allocation mechanisms and contractual interfaces are no longer legal details to be addressed at the end of a process. They are fundamental components of the bankability of projects. If not properly understood from the start, they can undermine confidence in program certainty, commercial returns and long-term asset performance.
For developers, this means ensuring construction and operational risks are appropriately addressed before committing to financing assumptions. For investors and lenders, this means looking beyond the nominal limit and testing where the exposure actually lies.
The central question is not only whether a project can be delivered. What matters is whether this can be achieved without destabilizing the business model that supports it.
Limitation of liability provides the framework, but does not define the entire risk position. For BESS projects, the real exposure often lies in what is outside the limit, and in how that exposure interacts with delay, performance, grid connection and operational risk in the broader contractual structure.
