Partner Hamburg
"In both the development and acquisition of greenfield projects as part of M&A processes, it is important to carefully consider the regulatory and permitting requirements in a dynamically changing market and regulatory environment."
Germany is currently experiencing a boom in the construction of and investment in large battery energy storage systems (“BESS”). This is due to the enormous demand for storage capacity related to energy transition and the increasing importance of energy security. The Federal Network Agency (“BNetzA”) has identified a demand of around 24 GW for large-scale BESS by 2037. With only around 1.9 GW of large-scale BESS currently installed in Germany, a significant increase in expansion and investment is expected in the future. The capacity is expected to increase to around 7 GW by 2026.
There are several relevant factors for the successful realisation of and investment in BESS projects. In both the development and acquisition of greenfield projects as part of M&A processes, it is important to carefully consider the regulatory and permitting requirements in a dynamically changing market and regulatory environment (see A) and to contractually reduce the risks typically associated with construction and procurement (see B). Regarding M&A processes, special features arise in the drafting of share purchase agreements (“SPAs”) and co-development joint ventures (see C).
A. Compliance with the regulatory and licensing framework
For successful BESS projects, observing legal and regulatory requirements is crucial. Key factors include:
Permitting law and grid connection
For a successful BESS project, it is important to determine whether BESS facilities require a planning permission according to state building regulations or are exempt from having to obtain a building permit. Only the Bavarian Building Code currently exempts “storage facilities” in outdoor areas under certain conditions. Notwithstanding, the project must still comply with building regulations. This must be verified during M&A due diligence. Compliance with building law is therefore essential for the realisation of BESS projects.
Securing connection to the desired electricity grid at the respective voltage level is another key criterion. Grid operators often require proof of project status, such as a building permit or at least a preliminary building permit to reserve grid connection capacity. Delays in granting permits can affect the grid connection, causing significant delays and additional costs.
Different BESS projects, such as co-location BESS (i.e. in combination with wind or solar parks) or stand-alone BESS projects, have unique requirements. The business model also influences grid connection use.
Costs for establishing the grid connection (construction cost subsidy)
If a BESS is connected to an electricity grid via its own grid connection, contributions to construction costs (Baukostenzuschüsse – “BKZ”) regularly play an important role. These one-off fees, charged by the grid operator, can be considerable and are important for the financial model.
Key contacts
Partner Düsseldorf
Counsel Düsseldorf
Managing Associate Düsseldorf
"Different BESS projects, such as co-location BESS (i.e. in combination with wind or solar parks) or stand-alone BESS projects, have unique requirements."
The Düsseldorf Higher Regional Court confirmed in its ruling of 20 December 2023 (case no. 3 Kart 183/23) that charging contributions to construction costs is permissible. How the contribution to construction costs is to be charged in individual cases, however, has not yet been clarified. The court has rejected levying of a contribution to construction costs on the basis of the “performance price model”, in which the power provided is multiplied by the published performance price. Specific requirements for levying contribution of construction costs have not been set by the court. The decision of the court is not yet legally binding, as the BNetzA has lodged an appeal. A decision by the Federal Court of Justice (“BGH”) is expected mid-year. The BNetzA itself currently continues to adhere to the performance price model (see position paper of the BNetzA, Decision Chamber 8, position paper on levying of contributions to construction costs).
For BESS projects where considerable contributions to construction costs are to be paid, careful consideration should be given as to how to deal with these uncertainties – in particular, if the current practice of the BNetzA and the network operators proves to be unlawful.
Illegality of “customer facilities” under EU law
The issue of “customer facilities” (Kundenanlagen) also plays a central role, particularly in more complex projects with several participants. This involves exemptions in the Energy Industry Act for certain types of pipeline infrastructure that are not subject to strict grid regulation. In this context and based on a decision of the Court of Justice of the European Union dated 28 November 2024, the German Federal Court of Justice essentially confirmed this decision in its own decision dated 13 May 2025. This casts doubt on the exemption from grid regulation for customer installations. Whether this decision has or can have an impact on the specific BESS project must be assessed on a case-by-case basis.
"For BESS projects where considerable contributions to construction costs are to be paid, careful consideration should be given as to how to deal with these uncertainties."
Overbuilding of grid connections/flexible grid connection agreements
Since 25 February 2025, the overbuilding (Überbauung) of grid connections has been possible in accordance with the German Renewable Energy Sources Act (“EEG”) and the German Energy Industry Act (“EnWG”). In contrast to standard grid connections, the installed capacity for generation, consumption or for storage systems to be connected is not made available without restriction in this case. The grid connection capacity can be permanently or temporarily limited to a level below the installed capacity of the respective generation, consumption or storage system by means of a flexible grid connection agreement (see Sections 8, 8a and Section 17 (2b) EnWG). This applies, for example, to situations in which the capacity of the BESS to be connected exceeds the available connected capacity at the grid connection point due to the other generation system(s) already connected or still to be connected. The regulation offers more flexibility and is intended to speed up the overall grid connection of the various systems. It is also intended to save grid connection costs that would be incurred by more distant or otherwise more expensive grid connection points.
It is important to precisely agree the content of the required flexible grid connection agreement and to consider the commercial effects in the financial model. The law only provides a minimum framework for the flexible grid connection agreement, which creates scope for design, but also means that individual topics must be carefully assessed from a legal and technical perspective and should be adapted in the grid connection agreement (possibly as part of an addendum).
"The conclusion of an Engineering, Procurement and Construction (“EPC”) contract as a turnkey contract offers certain advantages for the successful implementation of the respective project."
Business models
Very recently, BNetzA published a discussion paper in which they request a debate on whether to introduce grid fees for take-off and feed-in to the grid for BESS projects. This leads to questions from multiple market participants on the commercial side of such projects. However, it is not yet clear when, whether, and to what extent such changes would come into force. Given that BESS projects will be necessary to truly manage the energy transition in Germany, we believe that there will be a heavy discussion on this topic in the near future that should be closely monitored.
B. Construction
As part of a development project or respective M&A transaction, structural realisation must also be considered as a decisive success factor. Key factors include:
Conclusion and review of EPC contracts
If planning, construction and procurement are outsourced, interface risks must be taken into account.
The conclusion of an Engineering, Procurement and Construction (“EPC”) contract as a turnkey contract offers certain advantages for the successful implementation of the respective project. As part of such a contract, the contractual partner undertakes to construct the turnkey system and to provide all the necessary planning, procurement, construction and installation services itself or through subcontractors. In this way, the aforementioned interface risks can be mitigated to an appropriate extent.
Ensuring the quality of the system
The quality of the components used in BESS projects must be ensured. This must be assessed as part of the technical due diligence as far as possible based on empirical values.
"The question of who bears the risk of quality and reliability should therefore be regulated by contract. Generally, the manufacturer should be responsible for the quality of its product. "
The technical market environment for BESS is constantly evolving and innovations are to be welcomed. The customer of an EPC contract has an interest in acquiring the latest technology – provided it is mature and guarantees reliable operation.
Manufacturers of BESS are faced with the dilemma that they want to sell their latest technology but are not always able to make accurate assessments long-term reliability due to its novelty.
The question of who bears the risk of quality and reliability should therefore be regulated by contract. Generally, the manufacturer should be responsible for the quality of its product. The subject matter of the contract, i.e. what exactly is owed as a product and with what performance data, must be defined clearly and in detail.
Contractual provisions that allow the supplier to unilaterally replace the owed product with a “newer, better” product should be avoided. This may seem tempting but should only be done if the customer agrees in each individual case and all effects of this replacement (time frame, warranty, planning, procurement, approval, etc.) are regulated in each individual case.
A good contract often hedges the quality risk by agreeing performance and/or availability guarantees, whereby the breach of these result in severe contractual penalties.
Regulations for the exclusion of delay risks
If an EPC contract has been concluded (see B.1. above), the contractor generally bears the risk of project delays. However, the customer is not served by the contractor being liable if the consequences of this liability are less cost-intensive for the contractor than the (regularly very expensive) taking of adequate acceleration measures.
The EPC contract should therefore contain detailed provisions on contractual penalties and (generously measured) maximum limits of liability for damages caused by delay. Generally, the contractual penalties must be so severe that the contractor is sufficiently motivated to proactively avoid delays and/or take acceleration measures.
Good contracts often contain complex systems of graduated maximum limits for contractual penalties, which are also coordinated with the maximum limits for contractual penalties for performance or availability guarantees.
Limitation of damage risks
The EPC contract should also anticipate any damage risks and limit them in favour of the system operator. Third parties other than the contracting parties may be injured during the construction, installation and/or assembly of the BESS. The contract should anticipate such damage risks and regulate the internal distribution of risk.
Regulations on fire protection
Furthermore, the issue of fire protection should be adequately addressed. Lithium-ion batteries can catch fire. This must be taken into account as early as the planning and approval phase. Particularly, the regulations on permissible fire loads must be observed for large BESS, which only allow batteries to be stacked within narrow limits.
"Both in the context of M&A processes and co-development joint ventures, thorough due diligence is crucial to ensure that all regulatory and licensing requirements of the respective BESS project are met or can be met."
The EPC contract should also specify which fire protection measures are owed during construction, assembly and installation, who is to provide the fire protection officer and how the internal responsibilities are distributed. The responsibilities should also be regulated (see B.4. above) if a fire causes damage to third parties.
C. Consideration in company purchase agreements (“SPA”) and co-development joint ventures
Due diligence in the M&A process
Both in the context of M&A processes and co-development joint ventures, thorough due diligence is crucial to ensure that all regulatory and licensing requirements of the respective BESS project are met or can be met.
For greenfield BESS projects, it is particularly important to consider compliance with the legal requirements for the building permit (including any deadlines for the start of construction), the grid connection (both reservation deadlines and notification obligations as well as costs for grid expansion measures), securing land (either purchasing or leasing the site property and securing the land required for the cable route) and already concluded project contracts, as delays in the commissioning of the project often have a significant impact on the financial model. Generally, project developers structure BESS projects in single-purpose project companies (“SPVs”) whose shares can be sold once a certain stage of development has been reached.
In addition to the legal review, technical due diligence is required to assess the quality and reliability of the BESS technology. This includes checking the components used and compliance with building regulations. The technical due diligence should ensure that all technical specifications and performance data are clearly defined.
"The SPA should contain clear provisions on risk allocation, in particular with regard to the buyer's rights of rescission (e.g. if the RtB status cannot be achieved by a long stop date) and the seller's liability limits due to breaches of warranty."
Contract drafting in the company purchase agreement (“SPA”)
When purchasing pre-developed BESS projects, the development status of the project must be assessed, in particular whether it has achieved the ready-to-build (“RtB”) status or, if not, which requirements still need to be met to achieve it.
In principle, development risks for RtB projects are borne by the project developer until RtB status is achieved. Outstanding development work for RtB status is usually agreed as a condition of completion in the SPA. Risks after RtB but before commissioning (particularly delay risks) can be reflected by purchase price structures (e.g. earn-out purchase prices).
Specific vendor guarantees for the BESS project (e.g. regarding compliance with regulatory requirements and the technical specifications of the BESS) should also be included in the SPA. This can include guarantees regarding grid connectivity (and the conditions of the grid connection) and the quality of the components used.
The SPA should contain clear provisions on risk allocation, in particular with regard to the buyer’s rights of rescission (e.g. if the RtB status cannot be achieved by a long stop date) and the seller’s liability limits due to breaches of warranty.
Co-development joint ventures
In the case of co-development joint ventures (e.g. between a developer or investor with experience abroad and a developer operating in Germany), it is important to clearly define the roles and responsibilities of the partners in the joint development agreement (“JDA”) or – in the case of joint ventures under company law – in the shareholders’ agreement (“SHA”). This includes the division of tasks in project development, procurement and construction. A clear structure helps to minimise interface risks and to increase the efficiency of project implementation.
"Overall, many factors are decisive for successful BESS developments and investments. The specifics of the individual project should be carefully considered. "
Financing of the project SPV (within the framework of corresponding funding obligations through equity or shareholder loans) should be clearly regulated, including the allocation of costs for construction subsidies and external project development costs. Substantial costs are often incurred even before RtB status is achieved.
Additionally, in corporate joint venture structures, clear exit strategies should be defined for partners to ensure that both parties can protect their investments. This can include provisions for the sale of shares or for a partner to take over the project. A well thought out exit strategy helps to avoid potential conflicts and ensures that both partners can achieve their long-term goals.
D. Summary
Overall, many factors are decisive for successful BESS developments and investments. The specifics of the individual project should be carefully considered. In addition to the legal analysis, the involvement of a technical consultant is also regularly required to identify risks at an early stage and minimise them.
The importance of due diligence in the M&A process and in co-development joint ventures is crucial. The contract design in the SPA should contain clear regulations on risk distribution and specific guarantees regarding BESS projects. In co-development joint ventures, a clear structuring of roles and responsibilities as well as careful financial planning and exit strategy is crucial to maximise the efficiency of joint project implementation and avoid potential conflicts.
This article was originally published in the M&A Review.
Key contacts
Partner Hamburg
Partner Düsseldorf
Counsel Düsseldorf
Managing Associate Düsseldorf
