Construction & delivery risk - BESS projects - A comparative between the laws of England & Wales and Germany
BESS project risk and financing
This article has been co-authored by Suriya Edwards from Freeths, UK and Volker Herrmann from orka, Germany. We advise on energy projects where delivery risk is material - particularly where projects are complex or under pressure.
Increasingly, the defining question for investors, lenders and developers in the BESS market is not whether a project can be built - but whether it can be delivered without destabilising the project’s business model. Financing decisions are made on the assumption that risk has been properly understood, structured and priced. When that assumption proves wrong - when delays materialise, performance under-delivers, or third-party liabilities arise - the issue is no longer theoretical. It becomes immediate: where does the risk sit, and who ultimately absorbs the cost?
This is particularly true for battery energy storage system (BESS) projects. BESS is now infrastructure-scale construction with repeatable risk patterns and increasingly standardised documentation. The differentiator is no longer who can draft an EPC or LTSA in isolation, but who can understand interlinked risk in a changing (regulatory and global) market - structuring it across fragmented contracts, reconciling project delivery with grid uncertainty, supply chain constraints and investor requirements, and making it buildable to perform as originally anticipated, its purpose.
It is precisely in this nexus that our team specialises. We focus on drafting and negotiating contracts, but equally on identifying practical and innovative solutions when projects face uncertainties. Our role is often to step in when projects begin to drift and step out once clarity, strategy and control are restored.
Our objective is straightforward: to turn legal and associated project risk into bankable, financeable energy storage assets at scale.
This approach is reflected in recent client feedback: “They are exceptionally responsive, commercially minded and prepared to take clear positions when required. Their advice is practical, strategic and focused on solving problems rather than simply identifying them.”
In this three-part series, we focus on those core building blocks of risk allocation in BESS contracts, drawing on recent cross-border experience (England & Wales and German law).
Part 1: Limitation of liability
Our view: “Most projects don’t fail on the headline cap - they fail in what sits outside it. This is the provision that defines the outer boundary of financial exposure and often creates the greatest misconception about where risk truly sits.”
This single provision grounds the risk allocation in terms of the financial exposure. It asks a very simple but essential question – what is the worst-case scenario in terms of money for each party? In BESS contracts this liability is usually capped, and the percentage figure can vary depending on the bargaining power between the parties and market forces (determined by regulatory environments, supply chain issues, procurement constraints and market design updates - a complex set of circumstances that make this industry interesting).
In construction contracts financial caps typically exist to protect the contractor’s commercial exposure. Bankability however is an important aspect in respect of how a project SPV is expected to view risk; so, in BESS projects we see mutual caps that also apply, where the client / employer and the contractor both cap their financial exposure.
Contracts under the laws of England and Wales also exclude indirect or consequential losses, such as loss of profit (often this can be direct & indirect, and is therefore fact dependent as to what is excluded), loss of business opportunity, loss of revenue etc. Such losses are not recoverable by either party from the other – a generally accepted position in such contracts. To preserve expressly agreed contractual remedies such provisions however make clear that liquidated damages or termination payments will not be seen as indirect loss items.
This cap however is rarely the whole story. Most contracts carve out certain liabilities, so they are uncapped. This applies as a special sub-set or a code that performs a ring-fenced programme that operates outside this financial envelope. Typically, such carve outs can include intellectual property rights breaches, environmental indemnities / liabilities, confidentiality breaches, third party claims etc. The headline cap is rarely the real risk. In practice, most exposure sits in what is carved out - and this is where we see projects materially misprice risk.
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So, what must you watch out for?
Indemnities & carve outs: Are indemnities inside or outside the cap? This varies between contracts and can materially change risk
Scope of such carve outs: How wide are the carve-outs? Broad drafting (e.g. “breach of law”) can create effectively uncapped exposure
Insurability: Is the cap insurable? A contractual cap above available insurance is a commercial red flag, although how this interacts with newer and more relevant aspects of insurance such as political risk insurance in this market, remains to be seen
A note on German law:
German law equally permits parties to agree on contractual liability caps. However, though parties can generally limit or exclude liability in individually negotiated contracts (subject to intentional misconduct as well as mandatory liability pursuant to the Product Liability Act), the freedom to do so is subject to significant constraints pursuant to the mandatory statutory content control of standard business terms of a party under the German Civil Code.
Where BESS contracts use such standard business terms (e.g., contract templates, model contracts, terms and conditions), any limitation or exclusion of liability for injury to life, body or health resulting from negligence, or for other damage resulting from a grossly negligent or intentional breach of duty, will be void, unless the respective clause has been individually negotiated between the parties.
In addition, statutory law (pursuant to its interpretation by the German Federal Court of Justice) does not permit an exclusion or limitation of liability in case of a negligent breach of fundamental contractual obligations in standard business terms. This is particularly problematic given that the main contractual obligations of a seller respectively a service provider will constitute fundamental obligations, e.g., the punctual and fault-free delivery and service. This represents a mandatory floor that cannot be contracted away – a notable difference from English law, where parties enjoy broader freedom to limit or restrict liability even in case of intentional misconduct.
Furthermore, under German law there is no direct equivalent to the English law concept of excluding "indirect or consequential losses".
From a German law perspective, what must you watch out for?
Content control: Statutory review (“content control”) of standard business terms applies broadly: Even in B2B transactions, German courts may strike down limitation of liability clauses that have not been individually negotiated and do not provide the mandatory carve outs necessary in this case
The scope of such caps: A blanket cap that also covers cardinal obligations may be struck down. Contracts should distinguish between different categories of breach and calibrate caps accordingly
Mandatory liabilities: Even in individually negotiated contracts, liability for intentional misconduct cannot be excluded under German law. Similarly, strict liability pursuant to the Product Liability Act and for fraudulent concealment of defects remains mandatory
Limitation of liability therefore sets the framework - but it does not define the full risk position. In BESS projects, the real exposure often lies in what sits outside the cap, and how that interacts with the wider contractual structure, as you will see in Parts 2 and 3.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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