Utility-Scale Energy Storage Procurements in 2026: Contracting and Risk Allocation

2026 Utility-Scale Storage Market Outlook

The US storage sector experienced significant growth in 2024 and 2025. Approximately 12 gigawatts (GW) of utility-scale storage capacity was deployed in 2024, representing one of the largest annual increases on record. Growth continued in 2025, with approximately 19 GW forecasted to be installed. Industry forecasts project that installations may falter slightly in 2026, but development will pick up again in the near term with approximately 93 GW expected to be installed in the next five years.

Installed costs for lithium-ion battery systems declined significantly between 2018 and 2024 due to economies of scale, manufacturing expansion, and declining raw material prices. Prices are expected to continue dropping further in 2026. However, cost reductions may moderate, or rise, as batteries are increasingly sourced domestically due to ongoing trade restrictions with China.

One of the most significant drivers of storage deployment is the continued expansion of renewable generation. As solar penetration increases, grid operators are increasingly relying on battery storage to shift renewable generation into evening peak periods and provide ancillary services such as frequency regulation and operating reserves. Storage resources are therefore becoming an important complement to intermittent renewable resources and a flexible alternative to traditional peaking generation.

Another emerging driver of storage deployment is the rapid growth of electricity demand from artificial intelligence and hyperscale data centers. Technology companies and data center operators are seeking reliable sources of low-carbon power capable of supporting around-the-clock operations.

In response, developers are increasingly pairing renewable generation with battery storage or developing standalone storage projects designed to support large industrial loads. Storage can help smooth intermittent renewable output used to power these facilities, provide reliability during grid disturbances, and enable participation in wholesale energy and ancillary service markets. As electricity demand from data centers continues to grow, this trend is expected to create new opportunities for energy storage deployment and procurement structures.

Energy storage is also beginning to play a larger role in transmission and distribution planning. Utilities have started deploying battery systems at substations or other strategic locations on the grid to address localized reliability constraints and defer infrastructure upgrades. In certain circumstances, storage can serve as a cost-effective “non-wires alternative,” allowing utilities to avoid or postpone costly transmission or distribution investments. As utilities gain more experience deploying storage in these applications, storage may become an increasingly common component of grid modernization strategies.

Storage growth has been particularly pronounced in California and Texas, which together account for a significant share of US battery installations. However, deployment is beginning to expand into other regions as well: PJM, the Southeast, and the Midwest are expected to see increasing storage development as utilities respond to tightening reserve margins and incorporate storage resources into integrated resource plans.

The PJM region, in particular, may become a significant growth market for energy storage over the next several years. PJM has experienced increasing reliability concerns as a result of generator retirements, slower-than-expected new generation development, and rising electricity demand. These dynamics have contributed to tightening reserve margins and significant increases in capacity market prices, which may improve the economic case for new energy storage resources.

Interconnection backlogs have historically slowed the development of new resources, including storage projects, however, PJM has begun implementing a series of reforms designed to accelerate the processing of interconnection requests in the region. PJM and its stakeholders are also evaluating market rules affecting the participation of energy storage resources, including capacity accreditation rules and operational parameters for storage resources providing ancillary services.

State policy initiatives are also expected to play an important role in driving storage deployment. Several states have adopted storage procurement mandates, targets, or incentive programs that are accelerating the development of new projects. California continues to lead the country in storage deployment through a combination of procurement mandates and reliability-driven procurements by load-serving entities. New York has established ambitious storage deployment targets and incentive programs aimed at integrating renewable energy and supporting grid reliability.

Other states—including Illinois, Massachusetts, New Jersey, and Virginia—have also adopted policies encouraging storage development through procurement mandates, incentive programs, or integrated resource planning requirements.

Federal policy has also played a significant role in supporting storage deployment. The Inflation Reduction Act (IRA) created new incentives for energy storage, including standalone eligibility for the investment tax credit and manufacturing incentives designed to stimulate domestic battery production. These policies have contributed to a surge in announced US battery manufacturing facilities. At the same time, evolving domestic content requirements and trade restrictions may increase costs in the near term while accelerating the development of domestic supply chains.

Despite these favorable market drivers, several policy and market developments could create headwinds for storage deployment in the near term. One important source of uncertainty relates to US trade policy and supply chain restrictions. China currently dominates much of the global battery supply chain, including battery cells, cathode and anode materials, and other critical components used in lithium-ion batteries. Tariffs and other trade actions targeting Chinese battery materials and components may therefore increase procurement costs for energy storage projects.

Additional uncertainty arises from ongoing antidumping and countervailing duty investigations involving battery supply-chain materials. If new duties are imposed on key inputs such as graphite or anode materials, developers may face higher equipment costs and potential delays in securing battery supply.

Supply chain compliance requirements also continue to evolve. The Uyghur Forced Labor Prevention Act (UFLPA) has introduced additional diligence requirements for companies importing products that may involve supply chains connected to regions associated with forced labor concerns. Another emerging policy issue involves the “Foreign Entity of Concern” (FEOC) restrictions associated with federal clean energy tax incentives, discussed further here.

Taken together, these market dynamics and policy developments indicate that energy storage is likely to remain one of the fastest-growing segments of the US power sector in the coming years. Although trade policy, supply chain constraints, and evolving regulatory requirements may introduce near-term uncertainty, the underlying need for flexible, dispatchable resources to support a changing electric grid is expected to continue driving significant growth in the energy storage market.

CONTRACTING FOR ENERGY STORAGE

While the market for energy storage continues to grow as outlined above, procurement contracts for energy storage systems must address the same issues that have been addressed in the past. This section addresses contracts for the sale of the output of a battery energy storage project (or for the sale of the project in its entirety). The next section focuses on contracts for the procurement of batteries to be incorporated into a battery energy storage project.

The majority of new energy storage installations over the last decade have been in front-of-the-meter utility-scale energy storage projects that will be developed and constructed pursuant to procurement contracts entered into between project developers (or a special-purpose project company owned by such developers) and the utilities.

These contracts allocate the risks of project development, construction, and performance between the parties and include the price that will be paid by the utility for the resource or the energy storage services that are to be provided. The balance of this paper identifies key types of procurement contracts and the key risks that must be allocated between the parties.

Utilities under procurement mandates or requirements to consider storage in integrated resource planning will need to carefully consider these risks. Delays in the procurement of batteries could lead to failures to comply with regulatory mandates or, for utilities opting to install storage as non-wires alternatives in place of other system upgrades, the failure to implement necessary system improvements.  

The same considerations apply to developers that are considering entering into procurement contracts to deliver energy storage systems. Delays and price increases may lead to an inability to deliver such projects on time or for a cost that is economical, and thus lead to a risk of loss of performance security as well as reputational harm. The industry also continues to react to news about fires at battery energy storage facilities, and developers can expect additional rules from policymakers and regulators related to safety. These issues should be considered carefully in the context of procurement contracts, including with respect to the risk allocation for additional costs and delays incurred in connection with complying with such rules.

There are three main types of procurement contracts: (1) power purchase agreements (PPAs) or energy storage services agreements, (2) engineering, procurement, and construction (EPC) agreements, and (3) build-transfer agreements (BTAs). Developers, and project owners to the extent they will self-procure batteries, should also consider contracting options to procure battery systems from manufacturers.

Power Purchase Agreements

A PPA for new resources typically provides that the utility will have the exclusive rights to and obligation to purchase 100% of the output of a project, output that typically (but not always) includes all regulatory attributes, including resource adequacy and renewable energy credits if applicable.

Some PPAs for new nonrenewable generation will be entered into on a “tolling” basis, meaning that the utility is responsible for providing the necessary inputs required to operate a project. Energy storage PPAs are often tolling arrangements because developers will not want to assume the cost of electrical energy input into a project, and utilities are almost always in a better position to bear that risk.

While this is the general rule, there are exceptions, and some PPAs for new energy storage resources have been structured as capacity contracts in which the developer is responsible for the sale of energy and all costs associated therewith—including the costs of the required energy procured from the utility.

These contracts shift the task of determining the value of the storage resource back to the developer, and developers that enter into these contracts must have a robust outlook on how the storage resource will be able to generate revenues long into the future. This task is further complicated by the evolving market rules around energy storage. These types of capacity contracts are becoming more common, particularly in states such as California where many load-serving entities have capacity procurement obligations (which is known as resource adequacy or RA in California).

In this context, project owners will need to consider multiple revenue streams for their projects. Unless these revenues are hedged, this will necessarily entail a degree of uncertainty. The value of energy storage tends to increase with the installation of intermittent renewable energy resources, since these can lead to greater energy arbitrage opportunities. On the other hand, storage resources become less valuable when other energy storage resources are installed or new transmission projects come online, since these often reduce the volatility of power prices in a given market. Energy storage resources can often provide valuable ancillary services to the grid, including frequency regulation.

The key advantage of a PPA from the perspective of the utility is that it allows the utility to avoid any risks associated with the ownership of a project or the project’s failure to perform. If the project does not perform, the project owners will not be paid; if the failure to perform continues unabated, the utility may even be able to terminate the contract. Moreover, if the project is over budget and/or behind schedule, the developer is responsible for all incremental costs or delays, as applicable.

Another contract structure is a virtual PPA. These are often entered into by companies seeking to reduce their greenhouse gas emissions by acquiring the rights to renewable energy without actually acquiring the underlying energy and capacity, and payments are settled through financial settlements (similar to a so-called contract for differences). As companies have focused on offsetting their carbon emissions on a real-time basis, they have also sought to procure storage services (either directly or through a virtual contract) to offset their consumption of energy in real time.

We have also seen an increase in the number of hedging contracts that are being entered in connection with energy storage projects. These contracts are particularly prevalent in Texas, which is an energy-only market (i.e., there is not a separate market for the sale of capacity). As a result, many energy storage resources will enter into hedges that will provide them with some fixed revenue streams to facilitate a project financing.

These can be in the form of a “floating for fixed” swap, in which a hedge counterparty will pay for all or a portion of the output from the project in exchange for a fixed payment. Hedge counterparties may also provide a revenue put option to provide a minimum floor for revenues without the project having to give up all of the potential upside. Other contract structures are also being explored. These hedges are often settled on a financial basis, meaning that the hedge counterparty does not actually purchase the physical output of the project and will instead make a financial payment to the energy resource based on market pricing.

One of the key challenges for these contracts is ascertaining the revenues that would have been obtained by a given project had it been dispatched in an optimal fashion. There are various schemes that can be put in place to measure “percent of perfect” performance, including theoretical backward-looking “optimal dispatch” schemes to simpler “top-bottom” market price evaluations.

Each of these approaches has its own advantages and disadvantages. Since these contracts are settled on a financial basis, contacting parties should be carefully aware of basis risks and situations where a settlement payment is required even if the project is not operational.

Engineering, Procurement, and Construction Agreements

Utilities may also solicit contracts to develop new generation resources that will be owned by the utility. In such an event, utilities will typically solicit bids for an EPC contract. Utilities often prefer to structure these contracts on a “full-wrap,” “turnkey,” or “fixed-price” basis.

A “full-wrap” means that the developer is responsible for warranting the performance of all subcontractors and vendors (including, in the case of a battery energy storage project, the batteries and inverters) and for completing the project in its entirety on time.

The term “turnkey” means that the project will be fully completed by the developer. The developer is responsible for coordinating the activities of all of the other contractors and delivering a completed project to the utility.

Lastly, the term “fixed-price” means that the price to be paid by the utility will be set in advance and, absent certain previously agreed-to exceptions, the developer will not be entitled to pass through any cost increases to the developer. These exceptions are becoming more heavily negotiated given some of the volatility in the battery supply market.

EPC contracts can be used by utilities to take advantage of preexisting sites that may be well situated for new generations. This is particularly true for battery energy storage, which has a relatively small footprint and can often be developed by utilities on utility-owned land that is immediately adjacent to substations and where such energy storage resources may have incremental value in terms of deferring upgrades. Such sites also may be easier for the utility to permit.

Note that under an EPC contract structure the utility may be responsible for certain aspects of a project’s development. For example, if the project is developed on a utility-owned site, then the utility likely is responsible for any environmental conditions on the site or any change orders required as a result of subsurface discoveries below the site. In addition, the owner under an EPC contract is typically responsible for permitting a project and for interconnection-related risks. If an issue arises in connection with the construction of a project, the utility may be required to enter into a change order that may shift the risk of incremental cost or delay to the utility. These risks can be mitigated to some extent through the EPC contract itself.

The parties may also elect to enter into a construction or equipment supply agreement that does not provide a full-wrap, turnkey, and/or fixed-price solution. In such a case, the owner typically enters into separate contracts for the equipment supply and the balance of the plant.

While this approach is likely to be cheaper than a traditional EPC approach, the owner will need to bear the risk of the various project contractors blaming each other (i.e., finger-pointing risk) in the event that something goes wrong and, depending on the structure of the contracts, the risk of cost overruns. It will be critically important to ensure that the contracts are aligned on key aspects, such as delivery dates and schedule extensions (such as force majeure), to ensure that construction risk has been shifted from the project developer to the applicable contractors.

Build-Transfer Agreements

Another approach that contains some features of both a PPA and an EPC contract is a BTA. Under a BTA, the developer is responsible for all of the same things it would be responsible for under a PPA (i.e., all risks associated with the development and construction of a project). Unlike a PPA, however, once a BTA project achieves commercial operation, the developer sells the project to the utility. This provides the utility with long-term ownership but without the risks inherent in project development and construction.

However, this typically comes at a price that is higher than what the utility would pay for a comparable project under an EPC structure. Unlike a PPA, where the developer can ascribe some value to the post-PPA life of a project, under a BTA the developer has to assume that there is no upside beyond the purchase price. Thus, developers need to price all contingencies into their bids. This includes risks associated with development and construction that would be borne by the utility under an EPC contract structure.

Further, BTAs can be more difficult to negotiate than PPAs and EPC contracts because they involve combining many of the features of an EPC contract with a purchase agreement. Moreover, it is typically more difficult to obtain a change order under a BTA than under an EPC contract, which means that the parties will spend more time finalizing a detailed scope for the project.

Note that the constructs described above are not mutually exclusive. For example, a utility may offer a PPA that contains an option for the utility to purchase the project at the end of the term (or a right of first offer in the event the project will be sold or if a change of control will occur).

Utilities will often structure solicitations for more than one type of contract. For example, a utility may ask for bidders to price both a PPA offer and an EPC and/or BTA offer. Utilities will sometimes do this to determine whether it would be cost-effective for the utility to acquire a new resource as opposed to contracting for the resource through a PPA. In the case of investor-owned utilities, such data can be useful to present to the applicable public utilities commission if the utility decides to enter contracts for utility-owned resources and seeks approval to add such assets to its rate base.

Regardless of the contract structure selected, developers will need to source equipment from their vendors that can meet whatever commitments the developers have made to their utility counterparties. Developers can use a variety of contract structures to do so and will often enter into EPC contracts and long-term service agreements with their vendors that will warrant the long-term performance of their projects.

CONTRACTUAL CONSIDERATIONS

Utilities and developers will encounter many of the same issues in an energy storage solicitation as they would in any other competitive solicitation for generation-only resources, including the timing of delivery of the project, financeability-related provisions, and the general allocation of development, construction, and operational risk related to the project. However, these negotiations will differ from those for generation-only resources (whether conventional or renewable) because energy storage resources require charging and storage in addition to the discharge of energy.

In addition, energy storage often involves new and advanced technologies with a variety of use cases as both load and supply. If the energy storage system is being paired with a renewable energy resource, whether on a hybrid or a co-located basis, then the procurement contracts will need to address issues that are relevant for both generation and energy storage. As a result, energy storage procurement negotiations involve issues and terminology that differ from those involved in the negotiation of conventional and renewable resources.

Take capacity as one example. Both energy storage and conventional and renewable generation will have a maximum-rated power output. However, unlike for conventional and renewable generation, the capacity of an energy storage project will also be limited by the number of MW that can be utilized to charge the project (which amount may vary depending on the state of charge of the project) as well as the total number of MWh that can be stored.

In most cases, the cost of an energy storage project will be more closely correlated to its MWh of storage capacity rather than its MW of output capacity, which is very different than conventional and renewable generation, for which the cost is typically based on the nameplate capacity in MW. As a result, energy storage negotiations will involve the consideration of new terminology (charging capacity, charging duration, storage capacity) and new issues (how quickly can the unit charge and how much energy can it store).

In many ways, storage procurement contracts incorporate certain features of both conventional and renewable generation procurement contracts. Similar to conventional gas-fired peaking generation, storage is typically dispatchable (in fact, this ability to be dispatched and ramp up quickly is why storage has grown as a necessary complement to intermittent renewable generation) and therefore the payment structure for energy storage PPAs typically includes some fixed-cost recovery through a capacity payment.

Like renewable generation, battery energy storage is a modular technology. Accordingly, we often see buy-down concepts (or options to increase the size) if the originally promised storage capacity cannot be provided (or if excess capacity is desired and is supported by land and interconnection constraints). In addition, buyers will consider the risk of serial defects and may request some sort of a serial defect warranty, particularly in the EPC and BTA contexts.

KEY TERMINOLOGY

The following is a discussion of certain key terminology and issues that are useful in the context of the negotiation of energy storage procurement contracts.

MW and MWh

An MW is a unit of power and describes the instantaneous rating of power at any given moment in time. It is the equivalent of 1 million watts, or 1,000 kilowatts. An MWh is a unit of energy and is the amount of energy equal to a single MW delivered over a period of one hour. In the context of energy storage, an MW is used to describe the amount of power that a project can either charge or discharge at any given moment in time, often referred to as the nameplate capacity in the context of conventional generation.

Unlike generation-only resources, energy storage resources are also limited by their storage capacity, which is the amount of energy (typically in MWh) that the facility can store. Accordingly, the size of an energy storage facility should typically include both a reference to its power rating (MW) and energy storage capacity (MWh), such as a 100 MW/400 MWh facility.

In lieu of referring to the number of MWh that a project can store, the size may also include the duration for which the facility is capable of discharging its maximum output, such as a 100 MW, four-hour facility. This is equivalent to a 100 MW/400 MWh facility since the facility would discharge 400 MWh over the course of four hours at its maximum discharge capability.

State of Charge

The state of charge (SOC) of a battery is typically expressed as a percentage of the total storage capacity of the battery that is currently being utilized. Certain types of batteries will degrade if they are kept at an SOC that is either too high or too low for long periods.

The performance of certain batteries may vary depending on their SOC. For example, many batteries charge more slowly as they near a 100% SOC and will discharge more slowly as they near a 0% SOC. These constraints should be considered in the procurement contract and may also be addressed through overbuilding a battery.

Cycles

A battery cycle represents some level of charging and discharging of the battery. A “deep” or “full” cycle typically refers to a complete charge (up to ~100% SOC) and a complete discharge (back to ~0% SOC). As the name implies, a partial cycle refers to a charge/discharge that is less than the full energy storage capacity of the battery. Most batteries degrade based on the number of cycles, particularly deep or full cycles, and many procurement contracts will include limitations on the number of full cycles (or their equivalent).

These limitations are also sometimes expressed in a throughput limitation. A throughput limitation is a limit on the total number of MWh that can be charged and/or discharged into or out of the battery. For a 100 MW/400 MWh battery, a 40,000 MWh throughput limitation would be the equivalent of a 100 full cycle limitation (assuming that the cycle limitation aggregated partial cycles).

It is important to note that different battery chemistries can have different cycle lives (i.e., the number of cycles a battery can undergo during its useful life). The cycle life may be impacted by a number of factors including ambient temperatures, SOC management, and the rate of charging and discharging.

Round-Trip Efficiency

The round-trip efficiency (RTE) of a storage resource is expressed as a percentage and refers to the percentage of charging energy that can be returned as discharging energy after accounting for losses during energy storage. For example, a storage resource with a round-trip efficiency of 80% will return 80 MWh for every 100 MWh utilized to charge such storage resource.

Note that the RTE can vary depending on a number of factors, including ambient temperatures, the type of storage technology being utilized, the duration for which energy is stored (with longer durations resulting in a decrease in the RTE due to loss of charge over time), the SOC, the rate of charging and discharging, and the number of cycles. The RTE tends to degrade over time for storage resources.

Operating Limitations

This terminology is not unique to batteries as many conventional generating resources will be subject to various operating limitations. As the name implies, these limitations restrict the operation of the facility. The reason that it is flagged here is because energy storage systems tend to have a number of operating limitations that are not relevant in the context of generation-only facilities.

For example, many battery energy storage systems will include limitations on the average SOC, the number of cycles, and/or periods between charging and discharge. And, of course, the operation of any energy storage resource will be subject to providing such resource with the requisite charging energy. These limitations should be reviewed carefully since they can limit the ability of the storage resource to fulfill certain use cases that may be valuable for the offtaker/owner.

Augmentation

In the context of energy storage, “augmentation” refers to the process of adding storage capacity to a project over time and is typically seen in the context of battery energy storage projects.

Battery projects tend to degrade over time, and augmentation can be used to restore a project to its former capabilities from an energy storage capacity standpoint. However, augmentation is not limited to this purpose and can also be used to increase the capacity of an existing resource beyond its original capabilities. Augmentation can also refer to the addition of storage capabilities to a generation resource, such as wind or solar, that did not previously have any storage capabilities.

DC vs. AC Coupled

“AC” refers to alternating current and “DC” refers to direct current. The electric power grid transmits electric power utilizing an alternating current, which means that the direction of the flow of electrons alternates. The rate of this change is known as frequency and is measured in hertz (Hz) to denote the number of times in each second that the frequency alternates. The US power grid operates on an AC current at 60 Hz.

Most renewable generation (wind and solar) and battery energy storage generate direct current, meaning that the flow of electrons is in only one direction. A transformer is required to transform this DC into AC so that it can be transmitted onto the power grid.

The terms “AC coupled” and “DC coupled” are used in the context of a storage facility that is coupled with a renewable energy generator. An “AC coupled project” means that energy generated by the renewable facility is first converted by inverters into AC before being utilized to charge the battery. On the other hand, a “DC coupled project” means that energy is transmitted as DC into the battery.

There will be important implications for a combined renewables plus storage project depending on whether the project is AC or DC coupled. For example, AC coupled systems are generally viewed as simpler since the renewable energy and storage resources can be connected separately with AC power. However, DC coupled systems can be more efficient overall since they avoid energy losses that can occur when DC is converted to AC from the renewable generator and then AC back to DC when such energy is utilized to charge the battery.

Grid Charging

“Grid charging” refers to the charging of the energy storage system from energy on the power grid (as opposed to a paired energy generation resource such as wind or solar). Prior to the passage of the IRA, energy storage could be eligible for investment tax credits (ITCs) if it was paired with renewable generation and subject to certain restrictions around grid charging for the first five years of operation. After the passage of the IRA, energy storage is eligible for ITCs on a standalone basis, and thus the delineation between grid charging and non-grid charging may become less relevant for these projects.

Station Use

“Station use” energy refers to energy that is required for the operation of an energy generation or storage resource in order for such resource to operate. For certain types of resources, the station load can be significant. In the context of energy storage, station use often must be separated from charging energy for both legal and commercial reasons. However, in certain areas such as integrated thermal management for batteries (i.e., temperature management), the line between station use and efficiency losses can become blurred.

This may have important implications for projects since charging energy is typically procured at wholesale prices (since it is intended for resale), whereas station use may need to be procured at retail prices (since it is an end use in and of itself). This can have significant economic ramifications for the project.

Co-Located and Hybrid Resources

These terms are relevant in the context of storage resources that are paired with a separate generation resource. In that context, a co-located resource refers to a project in which the storage and generation resource both have separate resource IDs and are viewed as two separate resources by the system operator. A hybrid resource on the other hand has a single resource ID and is viewed as a single integrated resource by the system operator.

The treatment of a system as a co-located or hybrid resource may have important implications for how such system is interconnected, how its capacity is valued, and how it will be dispatched in market operations. System operators are continuing to evaluate different approaches as these resources proliferate throughout the grid.

Operational and Technical Risk Considerations in Utility-Scale Storage Procurement

Below is a summary of several of the operational considerations for negotiating contracts for energy storage resources.

Degradation

Storage technologies experience different types of degradation than traditional energy generation. Traditional generation resources experience degradation in only two dimensions: output and efficiency. However, storage projects may degrade based on three other performance metrics: (1) a storage resource can degrade with respect to its charging speed (i.e., how quickly a battery can be fully charged), (2) a storage resource’s storage capacity may degrade over time, and (3) a storage resource can lose energy over the life of the project.

Each of these aspects of performance degradation may be impacted by a variety of factors. In the case of batteries, this includes factors such as the current state of charge, number and depth of the cycling of the battery, ancillary services provided by the battery, operational life of the battery, and ambient conditions.

As a result, the primary use cases of the battery will have a significant impact on the life of the battery and developers will want to design a battery that is best suited for a given use case. If that use case changes or is not properly understood, the battery may degrade much more quickly than anticipated by the parties. Any procurement contract will need to take these characteristics into account. For many novel technologies or new battery chemistries, the degradation profiles have not yet been fully developed, so there is some element of risk.

Operating Limitations

Energy storage resources may be subject to operational constraints that do not affect traditional generation projects. For example, certain battery technologies will degrade more quickly if the state of charge is not actively managed within a certain range. Batteries may also be subject to limitations on the number and depth of cycles and/or provision of ancillary services (such as frequency regulations). These operating limitations are often heavily negotiated because they impact the utility’s ability to use a project. It is critical that utilities and developers consider their specific-use cases when contracting for energy storage resources.

Performance Measurement and Testing

Due to the unique characteristics of energy storage resources discussed above, additional performance measurements may be required to adequately judge a project. For example, in addition to the metrics that are typically applied to generation, the performance of energy storage resources may need to be measured for charging time, charging rate, round-trip efficiency, and self-discharge.

Each of these various performance measurements may need to be separately tested. Such testing may need to occur on a periodic basis or may occur solely in connection with the commissioning of a project. The scope and level of performance testing will have important implications through the procurement contracts, including as conditions to substantial completion for BTA and EPC agreements and as events of default under PPAs.

If a long-term services agreement (LTSA) is entered into in connection with a BTA or EPC (some owners may require that the parties enter into an LTSA as a condition of the underlying BTA or EPC), the performance requirements may also be incorporated therein.

Technology Risk

Certain types of energy storage technology are well developed (such as pumped hydro storage, which basically involves pumping water up a hill) while others are on the cutting edge (many types of batteries and flywheels). For any project that involves technology risk, utilities will have to consider what structural protections are available and can be implemented in an economically feasible manner to protect the utility from such risk.

These structural protections can include anything from traditional credit support from the developer (letter of credit and guaranties) to back-to-back warranties from key vendors (such as battery and inverter manufacturers). Contracting parties could also negotiate long-term service arrangements upfront to shift operational risks back to the developer.

Safety

Minimum safety and operating requirements are common considerations for energy projects. Energy storage resources present additional safety concerns given their unique technological profiles. For battery storage technologies in particular, safety requirements should adequately address fire risks. Battery fires for utility-scale systems can be especially dangerous, and those concerns are only compounded as battery chemistries evolve to incorporate higher-energy densities and operate at higher temperatures.

Several private organizations offer codes and minimum standards for various energy storage technologies that address installation, fire hazards, emergency response, and other safety-related factors. Some states, such as New York, have developed safety guidelines and checklists for battery storage project installations (commercial and residential).

Periodic testing and safety compliance inspections may be prudent depending on the project’s technology, use profile, and ambient surroundings. A recent spate of fires involving battery energy storage facilities may increase scrutiny from lawmakers and regulators on battery energy storage facilities and this may increase the time required to obtain requisite permits for these projects.  

Combined Storage Projects

Projects that combine an energy storage resource (often a battery) with another energy resource (often wind or solar) present unique challenges. Energy storage can serve a myriad of functions when paired with another resource, including energy storage combined with natural gas resources to provide “spinning reserve” ancillary services, energy storage that is paired with a large solar project on an island to provide ramping capabilities, and large energy storage resources that are paired with renewable energy to provide load shifting and “peak” energy, to name a few.

Each of these functions will require a customized procurement. The parties will need to consider how the solar and battery are coupled (on either a DC or an AC basis), which will affect round-trip efficiency losses as the energy is transmitted across various inverters. Finally, the parties will need to consider how to allocate value as between the solar array and battery energy storage system.

Key Financeability Provisions

Energy storage resources may also be financed on a nonrecourse basis and, as with any other project financed in such manner, will need to address issues upon which nonrecourse lenders will focus, including assignment, events of default, performance requirements, key dates, and collateral. We discuss these in detail in Project Financing Trends for Global Energy Storage Projects in 2026 and Beyond.

IRA and ITCs for Standalone Energy Storage

The IRA makes standalone energy resources eligible for ITCs, subject to compliance with certain requirements. The IRA further contains a number of adders based on various criteria, including for projects that utilize prevailing wage and certain apprenticeship standards, are constructed utilizing materials that meet domestic content rules, and are located in disadvantaged communities, among others. We discuss these in more detail in How ‘FEOC’ Rules Are Reshaping Energy Storage Tax Credit Eligibility.

Changes in Law

Energy storage procurement contracts must also take into account the ever-evolving suite of laws and regulations applicable to energy storage projects, including as a result of the recent change in administration in the United States. On the supply side, as noted above, the UFLPA may limit the ability to import equipment required for battery energy storage projects, and the risks of any such limitations should be considered in any procurement contract. Tariffs and FEOC concerns are also of particular concern, as further discussed in Tariffs and Trade Risk in Energy Storage: 2026 Outlook.

Additionally, the value of energy storage resources to offtakers can be based on the ability to store energy to provide certain products to the grid such as energy, capacity, and ancillary services. If the rules around the requirements to provide these products change, then the ability of energy storage to deliver these products—and hence the value of the energy storage resource—may also change, and the risks of these changes should be properly allocated by the parties.

By way of example, certain transmission tariffs provide that the maximum capacity of a resource is capped by the amount that such resource can discharge on a continuous basis for four hours. If the rule changes and the time requirement is increased to eight hours, this will effectively halve the amount of a capacity that such resource can provide. Many procurement contracts will cap the costs that the project developer is required to bear as a result of a change in law. 

How each of these issues is addressed will vary depending on the structure of the procurement (i.e., PPA, EPC, or BTA). In each case, there are a number of different options and alternatives.

OPTIONS FOR STRUCTURING STORAGE SYSTEM PROCUREMENTS

When developing an energy storage project, a project owner can engage an EPC contractor to provide a fully-wrapped EPC agreement that will encompass the procurement, installation, and commissioning of batteries. In many cases, however, owners will contract directly with battery suppliers for battery supply and commissioning. The EPC will then be responsible for the balance of plant.

This option may be less expensive for the project owner than a fully-wrapped EPC, but the project owner will bear additional EPC risk if there are delays in deliveries or issues are encountered in the commissioning of the batteries. In either event, the EPC contractor might be entitled to a delay in the project schedule and/or an increase in the EPC contract price.

There are primarily three types of agreements relevant to battery procurements: (1) purchase agreements, (2) master supply agreements (MSAs), and (3) capacity reservation agreements (CRAs). A buyer will often seek to simultaneously enter into an LTSA obligating the battery supplier to provide long-term warranties and performance guarantees.

A purchase agreement encompasses all of the legal terms and conditions and project-specific details related to the batteries being procured pursuant to that agreement. An MSA will typically include legal terms and conditions governing the supply and purchase of batteries but allow for the buyer and seller to enter into individual purchase orders memorializing project-specific details and commercial terms for the purchase of batteries for individual projects.

An important aspect of negotiating MSAs is determining the conditions under which the buyer can issue a purchase order and the supplier is obligated to accept the purchase order. Buyers will typically look for as much certainty as possible with respect to price and delivery terms while suppliers, especially in the recently more constrained market, may attempt to contract for greater discretion (i.e., a buyer may issue a purchase order under an MSA but the supplier may not be obligated to accept it). As a result, while legal terms and conditions will generally be negotiated and agreed to under the MSA, key commercial terms for individual projects, such as price, payment, and delivery terms, may be subject to further negotiation.

A CRA may provide greater certainty to buyers than an MSA. Under a CRA, the buyer is paying the supplier for capacity in the battery supplier’s manufacturing pipeline. Utilization of these agreements has increased as buyers have attempted to secure greater certainty in supply and pricing terms. Similar to an MSA, the CRA will typically include master terms and conditions governing the sale and purchase of batteries and provide buyers with guaranteed availability of batteries for the supplier’s pipeline for a specified period. The CRA will typically include a window during which the buyer will have the right—or obligation—to purchase batteries.

Often, the CRA will include minimum and maximum order specifications. If the buyer’s order is less than the stated minimum (including no order) then the buyer may be subject to financial penalties. Conversely, if the buyer’s order is within the agreed-upon specifications but the supplier cannot fulfill the order, the supplier will be subject to penalties. If the buyer’s order is above the agreed-upon limits, there will be no penalties but acceptance will be at the supplier’s discretion. Both MSAs and CRAs will also usually include an obligation for the seller and buyer to work together cooperatively to forecast both the buyer’s needs and the supplier’s supply chain capabilities.

LTSAs are utilized to memorialize the long-term warranty and performance guarantees provided by a battery supplier. When a supplier installs and commissions a battery system, the supplier will typically need to meet specified performance requirements (e.g., achieving minimum levels of availability, capacity, and round-trip efficiency) to achieve substantial completion under the supply agreement. The LTSA will backstop the long-term performance of the battery system.

Buyers typically prefer to execute the LTSA contemporaneously with the supply agreement or prior to, or as a condition of, substantial completion under the supply agreement. Often, a form of the LTSA will be included as an exhibit to the supply agreement, the reason being that the buyer may be able to maximize its negotiating leverage prior to execution of the supply agreement (a buyer may have paid for approximately 80%–90% of a battery system by delivery, but if substantial completion and the associated payment are contingent on execution of the LTSA, the buyer may have greater leverage in negotiating terms).

A summary of key commercial terms, relevant to each type of purchase agreement, follows:

Price

Parties may negotiate a fixed price or, under an MSA or a CRA, the price may be subject to further change when a purchase order is issued. Suppliers also may seek to pass through certain commodity costs to buyers (e.g., an agreement may include an adjustment mechanism to account for swings in the wholesale lithium market), trade and tariff costs, and delivery costs. Parties may seek to negotiate a walkaway right if prices increase beyond a certain point.

Payment Terms

Parties will negotiate how payments are allocated from execution of a supply agreement or purchase order up until commissioning. Typically, milestones include some variation of the following: execution of the agreement, issuance of notice to proceed, delivery of design, delivery of major materials to the factory, factory acceptance testing, delivery to the site, and substantial completion/commissioning.

These terms are subject to change in every agreement, but often approximately 60% of the overall contract price may be paid by factory acceptance testing, 80% to 90% may be paid by delivery, and approximately 10% may be paid at commissioning.

Scope of Work/Services

The supply agreement will specify the supplier’s scope of work and the services provided. Batteries are typically modular systems with little design required by the supplier. Further, the supplier will almost always be obligated to deliver and commission the battery system.

Delivery Requirements

The supply agreement should contain a guaranteed delivery date. If the batteries are not delivered by that date (subject to extension for specified circumstances, such as force majeure), the supplier will incur delay liquidated damages. The buyer, however, may seek to contract for flexibility in the ability to push the guaranteed date back. For example, there could be site issues and the buyer may not be ready for delivery and commissioning.

A buyer’s ability to shift the delivery date or location will be a negotiated point. If a buyer is permitted to do so under a supply agreement, it will be at the buyer’s cost. There may also be specific requirements regarding the delivery, such as Incoterms (often DDP, Delivered Duty Paid), the permitted rate of delivery (typically in MWh), and site readiness conditions required by the supplier.  

Completion Stages

An agreement may include terms for partial completion (i.e., delivery) and substantial completion (i.e., satisfactory commissioning). If the supplier fails to deliver the batteries by a guaranteed delivery date, the supplier will begin to incur delay liquidated damages. Similarly, there may be delay and/or performance liquidated damages if substantial completion has not been met by a guaranteed substantial completion date.

Performance Guarantees

The supply agreement will contain specified operational parameters that must be achieved in order to achieve substantial completion (i.e., the successful installation and commissioning of the battery system). It will be a negotiated point as to whether the supplier may be able to achieve substantial completion by achieving a lesser level of performance and paying liquidated damages, or whether there will be a strict guarantee.

Warranty Terms

The supply agreement will contain a defect warranty on the battery system and a workmanship warranty on any work performed. Defect warranties may extend out to five years while workmanship warranties are often one to two years.