If you’re developing or acquiring a grid-scale battery energy storage system in 2023, no doubt an effective equipment purchasing strategy ranks high among your critical concerns. While cost-effective and functional battery hardware and software are essential to realizing the economic outcomes for your energy storage project, navigating the volatile supply chain and getting to an executable purchase contract can test the mettle of the most seasoned procurement professionals.
“Welcome to the energy storage division, where nothing is easy” was our mantra in the early days of energy storage at Borrego (for us, that means 2016). This mantra still rings true for many developers approaching storage in 2023.
Whether you’re purchasing your first battery or pushing to redefine the record for “largest battery purchase ever” (which seems to scale by a factor of 10 every two or three years), you will certainly benefit from not repeating these common mistakes in energy storage procurement.
Don’t wait for complete certainty before purchasing.
We consistently hear from those looking to buy a BESS that they’re waiting for clarity on IRS guidance, particularly around domestic content, before finalizing their purchase. In a market with infinite product supply and decreasing costs, this might be an optimal solution. However, in many cases, this approach is sub-optimal. With many equipment supply contracts tied to raw materials indices, a quick increase in demand in the stationary storage or adjacent EV market may create a price spike that impacts you as the ultimate buyer. In the worst case, equipment supply for your project timeline will sell out before you’re certain that you have an optimal price, delaying the project’s ability to begin generating revenue. Simply put, once you have a battery solution that works for your project, you should try to lock it in. In a constrained-supply market, having battery supply secured at a workable price is better than delaying the project because you waited for an optimal choice. This goes for other key components of the battery energy storage system, namely power conversion systems and medium voltage step-up transformers, where shortages can create serious project timeline constraints.
Don’t assume your supply contract mitigates all execution risk.
We’ve negotiated many energy storage supply contracts—some extremely favorable to us as buyers, and some decidedly less so. In our experience, though, the strength of our contract has had relatively little bearing on the frequency and severity of issues that arise during engineering, product delivery, and commissioning. Strong contractual remedies can certainly provide a product manufacturer or integrator with incentives to perform, but in many cases, the vendor’s customer-service orientation and technical capabilities may have a greater impact on the time to resolution. In markets where a project’s financial returns are skewed toward the early years of operation, months of delayed commissioning cost the project significantly more than most vendors will accept in the form of delay liquidated damages. We like to think you’re more likely to achieve project success when you work with a team of engineers to buy a BESS rather than a team of lawyers.
Don’t put all your faith in a vendor’s experience.
It can be tempting to evaluate potential energy storage vendors based on their total quantity of products delivered, number of projects deployed, or ranking in various industry “leaderboards.” But three factors make such evaluations potentially misleading when you’re looking to buy a BESS:
- energy storage projects are complex and often unique;
- the hardware, firmware and software deployed are constantly under development and being updated; and the members of engineering and d
- delivery teams don’t stay with the same company forever (just ask an engineering manager at any leading energy storage vendor).
Chances are that your project will be the “first” for something, whether that’s a new project manager, release of PCS firmware, or use case for the EMS controls system. Our approach at Anza is to assume systems will fail during commissioning without rigorous third-party oversight. We’ve deployed over 55 projects and approach each ready to solve problems that will invariably arise during the design, construction, and commissioning phases.
Don’t overlook or oversimplify lifecycle costs.
BESS, PCS, EMS —we love acronyms as much as the next energy storage engineer, but we’d like to motion to retire “LTSA” as a short-hand way of describing the operating costs and operating agreements for a given energy storage system. LTSA simply means “long-term service agreement,” which can include (or exclude) many of the critical services required by a system owner over the lifecycle of the system. Comparing two LTSAs that do not have comparable services is like comparing the overall price of two BESS with different usable energy capacities. Without a robust model capable of considering excluded costs, you’re unlikely to derive a meaningful conclusion from the comparison. At Anza, we avoid using the “LTSA” acronym in favor of itemizing the constituent services, including preventive maintenance, capacity guarantee costs, and predicted augmentation costs, to be able to compare like-for-like across a variety of OEM products. As for augmentation, we could write another whole book on this topic (and maybe we will!), but suffice to say your vendor’s first proposal in terms of an augmentation schedule probably won’t be the cost-minimizing plan.
We hope you can learn from our experience to avoid these pitfalls when you buy a BESS. Given supply chain volatility and long product lead times, these choices will directly impact if your project moves forward on your target schedule. Knowing that your BESS deployment invariably carries some execution risk, choose the right technical team to have on your side to help you solve the problems that are bound to arise, rather than relying on contract remedies alone. Finally, establish comparable scope to compare long-term operating costs and agreements, and consider that operating costs can have a major impact on the optimal product selection.
Submit your next BESS project at app.anzarenewables.com to meet our team and see how our platform can aid your decision-making process.