Florence Anglès
Battery energy storage systems (BESS) are now widely recognized as essential assets of the energy transition. This is no longer in dispute. However, how their value is realized in practice is more complex. Unlike traditional infrastructure, there is no single revenue stream that guarantees their sustainability. Value generally stems from a combination of services, optimization strategies, performance degradation, and regulatory conditions—all elements that do not necessarily evolve linearly or predictably. This creates a unique situation in the context of a merger or acquisition.
It is not a matter of acquiring a stable asset, but a system that evolves over time. Some aspects can be modeled, but a significant portion depends on the actual evolution of the situation—from a technical, commercial, and regulatory perspective. The question, therefore, is not simply whether the model works on paper. It’s more about understanding where it starts to weaken. In practice, risk assessment is less about listing problems one by one than about forming an opinion—admittedly imperfect, but coherent—on the actual viability of the investment project. And ultimately, this should answer a fairly simple question: should we move forward, renegotiate, or back down?
Ensuring Structural Viability: Protecting the Foundations of NPV
Before examining performance, a crucial question must be asked: does the project have a solid and enforceable right to generate cash-flow?
In an M&A transaction in the field of battery energy storage systems (BESS), the most concerning risks are not those affecting margins, but rather those relating to the legal, technical, and/or regulatory foundations of the project. These factors are essential to the existence, duration, and execution of future cash flows and therefore have a direct impact on valuation. The goal here is not to optimize returns, but to ensure that value can exist.
Grid Access and Interconnection Certainty
For a battery energy storage system (BESS), grid access goes beyond a simple technical criterion; it represents the economic lever through which all revenues flow.
The main risk factors are:
- Conditional or revocable grid connection rights,
- Production limitation clauses without compensation,
- Dependence on upstream grid reinforcement,
- Exposure to future grid congestion.
Without firm and transferable interconnection rights, projected revenues remain largely hypothetical. From a valuation perspective, network fragility affects: • Cash flow duration, • Eligibility for ancillary services, • The long-term viability of the asset. If network access is uncertain, the numerator of the NPV equation becomes speculative. In this context, simply changing the discount rate does not remedy the structural deficiencies. It is essential to address the risk at its source, or to review the investment. 1.2 Regulatory Stability and Market Eligibility Battery energy storage system (BESS) projects operate within an evolving regulatory environment. Market rules, remuneration schemes, and network code requirements can change over time, sometimes significantly. The key questions are:
- Is the asset prequalified for the planned ancillary services? • Are all compliance requirements fully met?
- Could a change in regulations affect revenue eligibility or operational constraints?
Regulatory uncertainty not only affects potential growth potential but can also directly impact on the asset’s ability to contribute to the market. In this context, risks must be assessed beyond the current situation, considering the project’s resilience to different regulatory scenarios.
Permits, Land Rights, and Transferability
In the context of mergers and acquisitions of battery energy storage systems (BESS), it is important to emphasize that legal transferability is not a minor detail, but a key element for value creation. The ability to transfer permits, land rights, and contractual commitments to the buyer directly impacts the project’s transition from the development phase to the operational phase.
At first glance, the permits and authorizations appear complete. However, their validity depends on their validity, conditions, and, above all, their transferability. Any uncertainty at this stage introduces an execution risk that is often underestimated during due diligence. Hidden charges may include unresolved legal challenges, conditional permits, or unusual obligations imposed on the developer. These factors These issues can have a considerable impact on the operation. They are not always clearly visible in the documentation but can have immediate operational implications. In practice, these risks can lead to:
- Restarting certain development phases,
- Disputes or administrative difficulties,
- Delays in commercial commissioning.
Time is a critical factor in infrastructure investments. Delays reduce NPV through discounting effects, while legal uncertainty increases perceived risk and, consequently, the required return. In this context, ambiguity regarding permit transferability is a classic source of value erosion.
Delivery Model and Contractual Architecture
The robustness of a battery energy storage system (BESS) project depends primarily on the consistency between its implementation model and its contractual framework. Even if the contracts appear comprehensive, their success largely depends on their adaptation to technical requirements and actual operation. One problem often overlooked in this field is battery degradation. It’s frequently considered a purely technical aspect, but it has a direct impact on finances. Over time, battery capacity and efficiency decrease, which also reduces their ability to generate revenue. If this isn’t properly factored into investment analysis, there’s a risk of overestimating expected performance. This naturally raises the issue of replacement. Indeed, key components (particularly batteries and containers) will require replacement during the system’s lifecycle. These interventions can lead to additional costs, operational constraints, and potential downtime. Consequently, in such an isolated or complex environment, the logistical challenges associated with these replacements can significantly contribute to increased costs and complexity. End-of-life issues are often neglected. Whether it’s recycling, recovery, or reuse, these aspects can impact residual value and must therefore be considered from the outset. Ignoring this can provide a partial view of the project’s profitability. Furthermore, managing battery degradation requires more than just technological improvements. It’s also essential to consider preserving their value over the long term. A sound investment isn’t solely based on perfect conditions, but also on considering the real-world constraints of use. Therefore, it’s crucial to anticipate degradation and its implications to ensure lasting protection.
The responsibilities between the various stakeholders – system integrator, inverter supplier, energy management service provider, and maintenance provider – are often unclear from the outset. On paper, this seems manageable, but it can cause performance issues or even conflicts once the system is operational. Contracts don’t cover all possible situations. If the commissioning doesn’t accurately reflect actual operation, gaps appear. Over time, these shortcomings become risks borne primarily by the investor. These risks have very real consequences. They can delay operational commissioning, disrupt operation in the first few months, or affect the effectiveness of the implemented safeguards. A poorly designed or weak contract increases the likelihood that these risks will become real, instead of remaining theoretical. But having a good contract isn’t enough. What really matters in the long run is the system’s daily performance. In practice, operational reality often differs from the assumptions made during the design phase. It is therefore essential to closely monitor performance continuously and quickly identify any discrepancies. This helps detect problems before they become serious. This is especially true for facilities in remote or hard-to-reach locations, where intervention is time-consuming. There, even a small issue can quickly escalate into a major problem if it isn’t identified early enough. Without effective monitoring, performance declines—whether in availability, efficiency, or production—often only become apparent once they have already impacted revenue. Monitoring should not be viewed merely as a technical function, but as a key tool for managing risk and protecting asset value. Contracts are inherently incomplete. Poorly designed service models amplify exposure to residual risks and transform operational uncertainty into capital. Ultimately, ensuring the continuous performance of an asset over time is not simply a matter of observing, understanding, and managing its behavior under real-world conditions. In this sense, monitoring is not optional; it is essential.
Safety and Insurability
Thermal runaways, fires, and more general safety failures represent infrequent but high-impact risks. Although they may seem distant, their consequences can be serious and immediate. In addition to reputational damage, such events can lead to:
- Permanent shutdown of the installation,
- Withdrawal of insurance coverage,
- Disconnection from the electricity grid,
- Significant depreciation of the installation.
These are not marginal risks. They can fundamentally alter future cash flows and residual value assumptions. This is why safety must be considered a fundamental element of the investment, not simply an operational matter.
A rigorous due diligence process must therefore assess:
- Technological and operational history,
- The adequacy of fire detection and suppression systems,
- The scope and strength of insurance coverage,
- Compliance with standards relating to critical infrastructure and security.
Ultimately, security risk is not a technical detail. It is a matter of capital preservation.
Conclusion
At this stage, we are not yet discussing performance but rather verifying whether the project is truly sound. If the foundations are weak, value is merely theoretical. Once this is established, the question evolves. It is no longer simply a question of whether value can be created, but rather whether it can be sustained over time, in an environment that is inherently unstable.
This is the topic I will explore in my next column.