Commercial risk is reshaping BESS procurement

Estimated reading time: 6 minutes · Last updated: 9 September 2026

Developers, lenders and investors increasingly judge battery energy storage projects by their commercial contracts as much as by equipment cost or performance. Procurement choices about supply agreements, warranties, long-term service agreements (LTSA) and software rights can determine whether a project remains financeable and operable across a 20-year asset life. New rules and guidance — notably IRS Notice 2026-15 and foreign entity of concern (FEOC) requirements — add a regulatory layer that can change risk after contracts are signed. This analysis draws on reporting by Terri Denning, as first reported by pv magazine USA, and focuses on how to structure procurement to preserve options and protect bankability.

Why supply-chain rules now drive commercial risk

Recent policy moves make sourcing decisions a commercial, operational and tax issue rather than a narrow procurement exercise. Rules that screen equipment tied to a foreign entity of concern (FEOC) and the interim IRS guidance in Notice 2026-15 mean an OEM’s sourcing practices can affect a project’s eligibility for clean energy tax credits. Developers who focus only on upfront price risk discovering later that their supply chain choices reduce or strip tax incentives.

That exposure is not only fiscal. If an OEM changes suppliers, substitutes components, or alters manufacturing footprints after a contract is signed, the project owner can lose access to critical information needed for compliance and finance teams. Contract language that obliges suppliers to disclose sourcing plans, to notify owners of material changes, and to secure approval for substitutions turns supply risk into a manageable contractual duty rather than an open-ended operational threat.

Practical procurement therefore pairs technical and price evaluation with legal and tax review. Teams should require suppliers to state where cells and modules are made, how future spares will be sourced, and how tariff liabilities are allocated. Where clarity is absent, projects need specific contractual remedies so that a change in sourcing does not create a downstream hole in tax-credit eligibility or spare-parts continuity.

How contract alignment prevents gaps at operation

Large BESS projects sit under multiple agreements: the supply contract, EPC, warranties, LTSA, software licences and offtake arrangements. Problems arise when those documents use different definitions, testing methods or performance points. For example, availability or round-trip efficiency defined one way in the supply agreement may be measured differently under the offtake contract, leaving the owner without the remedy it expected if shortfalls occur.

Owners and lenders therefore must map obligations across contracts to see which agreement responds to particular failures and whether monetary caps, exclusions or liability limits block meaningful recovery. It is common for a warranty to address hardware faults while the LTSA covers response times and performance guarantees; the two must be read together so liability caps and exclusions do not create an effective gap.

A disciplined commercial diligence process reconciles definitions, aligns testing protocols and harmonises liability regimes before award. That exercise also flags assignment restrictions that could prevent refinancing or sale, and confirms whether software entitlements and IP access permit third-party servicing if the OEM withdraws support.

Design procurement around lifecycle operations

Procurement choices today shape operational options decades from now. If a supplier discontinues a product line, the owner needs contractual rights to maintain the system: access to source code via IP escrow, documentation, spare parts commitments, and the right to appoint qualified third-party servicers. These are not negotiation extras; they are lifecycle insurance for a 20-year operating horizon.

Augmentation strategy is another lifecycle decision that must be set at procurement. Owners must decide whether future capacity additions remain tied to the OEM or whether they will procure later themselves. Keeping augmentation with the OEM centralises performance guarantees but requires pre-agreed pricing and integration commitments. Shifting augmentation responsibility to the owner lowers single-supplier dependence but exposes the project to future price and compatibility risk.

Drafting these options into the initial supply agreement preserves future choices and reduces the cost of change. Training rights, transitional support obligations and defined spare-parts pools are practical measures that ease a later shift to self-performance or a new service provider.

Bankability: test the whole agreement system

Lenders underwrite projects by testing where and how risks are allocated and whether remedies are enforceable. A strong warranty looks useful on paper but can be hollow if exclusions, caps or conflicting contract clauses limit recovery. Commercial due diligence therefore examines the full network of agreements against financial models and operating assumptions.

Negotiation leverage is highest before OEM selection. During a competitive process, developers can compare not only device price and performance but also warranty scope, sourcing transparency, tariff exposure, software rights and augmentation terms. Once an OEM is chosen, design locks in and leverage diminishes, making late commercial fixes expensive or impossible.

The objective for project sponsors is to place each material risk with the party best able to control it and to secure enforceable obligations and meaningful remedies. That approach protects financing, supports reliable operation and preserves long-term asset value.

How this could play out

The bottom line

Procurement for utility-scale BESS is no longer a narrow exercise in sourcing hardware. Regulatory switches, notably IRS Notice 2026-15 and FEOC rules, make supplier practices a potential trigger for tax and operational risk. Sponsors and lenders should treat supply agreements, warranties, LTSAs and software licences as a single, interconnected risk system and lock in rights that preserve operational choice across a 20-year life. Addressing these commercial elements while leverage is highest — during a competitive OEM selection — is the most practical way to protect financing and long-term value.

What to watch

• Watch for final Treasury or IRS rulemaking that follows Notice 2026-15; no date has been set.
• Watch for OEMs to publish standardised sourcing and substitution disclosures; no date has been set.