Overview

Australia’s transition to renewable energy has led to a surge in large-scale Battery Energy Storage System (BESS) projects. In fact, the first quarter of 2025 alone saw record investment in big battery projects nationwide (six projects with a combined value of AU$2.4 billion reached financial commitment). BESS installations (whether standalone or co-located with solar/wind farms) are critical for stabilising the grid and storing intermittent renewable energy. However, these complex projects also give rise to unique disputes across design, construction, and operation.

Key risk points

Design risk

• Non-compliance with AEMO and NER due to poor grid impact modelling
• Technology selection not suited to environmental or operational conditions
• Ambiguous design accountability in split EPC models and inadequate interface coordination
• Inadequate flow-down of design obligations in wrapped EPC contracts

Construction risk

• Delays from land use approvals, community opposition, or lack of fast-tracking mechanisms
• Delivery of non-conforming or defective components due to global supply chain constraints
• Lack of contractual clarity on delay cost allocation, force majeure, or pricing adjustments
• Grid connection delays outside market participant control affecting liquidated damages exposure
• Performance test failures causing disputes over causation and payment triggers

Operational risk

• Failure to meet frequency or contingency services due to battery degradation or firmware faults
• Breaches of O&M obligations impacting SRAS readiness or asset availability
• Safety incidents linked to inadequate maintenance, faulty components, or thermal protection
• Non-compliance with cybersecurity obligations under the SOCI Act

Risk mitigation strategies

• Clearly allocate grid integration, design, and interface obligations in contracts
• Use interface deeds for multi-party projects and define interface scopes
• Ensure back-to-back warranties, indemnities, and risk pass-through mechanisms
• Align safety and cyber compliance with AS/NZS standards and the SOCI framework
• Define robust testing, retesting, and performance benchmarks with clear consequence regimes
• Include tiered dispute resolution clauses (executive escalation, mediation, expert determination) to encourage early and cost-effective resolution

The remainder of this article examines in more detail common dispute hotspots in Australian BESS developments, and how stakeholders (owners, contractors, suppliers, investors, etc.) can manage and mitigate these risks through effective contract structuring, interface management, and clear risk allocation.

Design risks

Integrating a BESS with generation assets and the grid requires sophisticated engineering, rigorous compliance, and clearly defined responsibilities. Disputes commonly arise where:

1. Grid integration is poorly managed: BESS projects must comply with the ‘National Electricity Rules’ and meet performance standards set by the Australian Energy Market Operator (AEMO). Design shortcomings, such as inadequate modelling of grid impacts or incompatibility with local grid conditions, particularly in weak grid zones, can result in non-compliance or performance issues that only emerge during commissioning. International disputes have shown that poor system integration and inadequate inverter-battery coordination can lead to litigation between designers, integrators, and operators. For example, in Germany, the Federal Court of Justice (Case EnVR 1/24) ruled on a dispute involving grid integration costs for a standalone BESS project, highlighting how design and compatibility issues can escalate into legal and financial consequences when expectations around performance and regulatory compliance diverge.

2. Technology selection is flawed: Battery selection, such as lithium-ion versus flow batteries, carries distinct operational and safety risks. Lithium-ion batteries are susceptible to thermal runaway and faster degradation under stress, while flow batteries offer greater safety and longevity but lower energy density. If the system design fails to account for Australian conditions (e.g. high temperatures, bushfire risk, dust), this may result in disputes over underperformance, safety incidents or failure to meet grid or warranty requirements.

The contracting model plays a key role in how design liability is allocated and managed:

(a) Under a split Engineering, Procurement, and Construction (EPC) contracting model, the owner separately engages key contractors and suppliers (such as the BESS supplier, Balance of Plant (BOP) contractor, and integrator). This structure allows the owner greater visibility and control over design and procurement, but it also introduces higher interface risk. In this model, disputes about design suitability or failure (e.g. poor inverter-battery integration or thermal protection issues) often hinge on whether responsibility lies with the BESS vendor, the integrator, or another party. Owners must rely on detailed interface agreements and coordination deeds to manage these risks effectively.

(b) Under a wrapped EPC contract, a single EPC contractor assumes end-to-end responsibility, including for the design (even if elements of that design are subcontracted downstream to specialist consultants or original equipment manufacturers (OEMs). While this structure provides the owner with a clear point of contractual responsibility, it can obscure where liability lies within the contractor’s supply chain. The EPC contractor bears liability to the owner but may in turn dispute whether a defect stems from a design error by a subcontractor or a failure by a supplier. These downstream issues are often resolved by back-to-back warranties and indemnities. However, if contractual flow-downs are poorly structured, the EPC contractor may be exposed to risk they cannot effectively pass through.

In either model, performance failures (especially those related to technology choice) can raise complex causation and liability questions. Owners should ensure that:

(a) design obligations explicitly account for environmental and operational conditions
(b) contracts contain robust warranties on system design and component suitability, and
(c) the chosen contracting structure includes effective coordination and risk pass-through mechanisms.

A clear understanding of how liability is apportioned upstream (owner-contractor) and downstream (contractor-designer-supplier) is essential to managing disputes and ensuring fit-for-purpose in Australian BESS projects. 

3. Interfaces are unclear: Split procurement models, where the BESS supplier, BOP contractor, and integrator are separately engaged, create high interface risk. Without coordination protocols or interface deeds, failures at the intersection of design scopes (e.g. inverter control not aligned with battery protocols) can lead to disputes. Developers should ensure interface risks are clearly assigned and that coordination obligations are embedded in each contract.

To help mitigate design related disputes, contracts should:

(a) define detailed performance and grid compliance obligations
(b) set out interface scopes and coordination responsibilities, and
(c) include warranties on system performance and limitations of liability.

Construction risks

Construction and commissioning in BESS present well-known construction risks, compounded by BESS-specific complexities.

1. Sitework and approvals risk: Site selection must consider access to grid infrastructure and compliance with land use and environmental planning laws. Delays in approvals or community opposition, especially related to safety concerns, can delay mobilisation. In Victoria, the ‘Development Facilitation Program’ helps fast-track energy projects, but not all States have equivalent planning pathways. If project commencement is delayed, disputes may arise over extension entitlements, demobilisation costs or claims for delay damages.

2. Supply chain distribution: The BESS sector remains heavily reliant on imported components - particularly batteries, inverters, and control systems sourced from China, the United States, South Korea, and parts of Europe. Ongoing global supply chain disruptions, driven by geopolitical tensions, inflationary pressures, and residual COVID-19 impacts, continue to present material delivery risks. These disruptions have caused delays in the supply of critical components and, in some cases, the delivery of non-conforming or defective equipment. Where contracts are silent or vague on delivery risk, pricing adjustments, or performance guarantees, disputes may arise over extensions of time, cost escalation, or rectification obligations - particularly where late or faulty components impact commissioning or regulatory compliance.

To mitigate these risks, best practice is to clearly define in the contract:

(a) force majeure and delay cost risk allocation, including thresholds, notice requirements, and carve-outs
(b) fixed-price vs cost-plus pricing regimes
(c) appropriate lead-time buffers and critical path assumptions, to protect against delays, and
(d) robust warranty terms for key components, including warranties from the supplier or OEM that are either expressly in favour of the project owner or capable of being assigned or novated to the project owner, to ensure the project owner has direct recourse to suppliers, if necessary, in the event of defects, non-performance, or specification non-compliance caused by those suppliers.

3. Delays, liquidated damages, and grid connection risks: Delays can erode project viability, particularly where grid services or capacity firming revenues are lost. While liquidated damage (LD) clauses are standard, disputes often arise when delay causation is contested. For example, if substation works by the network operator are delayed, but the contractor is held accountable, litigation may follow. Grid connection requires approvals from both AEMO and the relevant network service provider, and delays can be outside the contractor’s control. To manage these risks, contracts should:

(a) clearly assign responsibility for grid access
(b) provide for delay events outside the contractor’s scope, and
(c) address variation mechanisms for new or evolving grid compliance requirements.

4. Testing and commissioning failures: Performance testing often triggers practical completion and payment. If a BESS fails testing, such as not meeting MW/MWh performance, efficiency, or response time, disputes may arise over the cause - whether due to design faults, equipment underperformance, or external factors like grid voltage fluctuations. The 2021 fire at the Victorian Big Battery during commissioning, which destroyed two Tesla Megapacks, offers a cautionary example. The incident was traced to a coolant leak and undetected short circuits, raising critical questions about liability, insurance and risk allocation between the contractor, battery vendor, and project owner.

To minimise such disputes, contracts should:

(a) clearly define performance testing regimes and re-test entitlements
(b) Set out consequences for underperformance (e.g. LDs or make-good obligations), and
(c) allocate risk for incidents during testing.

Operational risk

After commissioning, BESS facilities must generally perform consistently over a 10–20-year lifespan. Common disputes include:

1. Performance and regulatory compliance failures: BESS operators are expected to deliver services such as energy arbitrage, capacity firming, and frequency control in line with contractual and market obligations. However, battery degradation, technical faults, or system interface issues can lead to shortfalls in output or responsiveness. This may expose operators to liquidated damages under offtake agreements or warranty claims from asset owners.

In parallel, regulatory enforcement is an increasing source of operational risk. Australia’s electricity markets are governed by distinct frameworks, each imposing compliance, dispatch, and performance obligations relevant to BESS operations:

• the National Electricity Market (NEM), spanning the eastern and southern states, governed by the ‘National Electricity Law’ and NER
• the Wholesale Electricity Market (WEM) in Western Australia, regulated under the Electricity Industry Act 2004 (WA) and associated market rules, and
• the Interim Northern Territory Electricity Market (I-NTEM), administered by Northern Territory Electricity System and Market Operator (NTESMO) under the Electricity Reform Act 2000 (NT).

A key precedent is the Australian Hornsdale Power Reserve case, where the operator failed to deliver registered contingency Frequency Control Ancillary Services (FCAS) under the NEM due to a firmware error. The Federal Court found a breach of the rules and imposed a AU$900,000 penalty (AER v Hornsdale Power Reserve Pty Ltd [2022] FCA 738).

Regulatory breaches often begin with audits or notices but may escalate to formal enforcement or litigation, especially where systemic under-performance is involved. Compliance should therefore be viewed as central to BESS operations, not ancillary.

2. Asset management failures: Routine maintenance is essential for asset performance and safety. Failures, such as ignoring system warnings, delaying fault repairs or inadequately responding to faults, can result in underperformance, major incidents (including battery fires or network outages) and potential regulatory enforcement. Such failures can also undermine a party’s credibility and eligibility for participation in future market projects. Disputes commonly arise between asset owners and maintenance service providers under Operation & Maintenance (O&M) contracts, often relating to fault attribution, delayed rectification, or the management of latent and serial construction defects. Poorly defined obligations or ineffective maintenance practices can directly contribute to unsafe conditions and degraded asset performance.

A particular risk arises where the asset is also subject to obligations under ancillary service agreements, such as System Restart Ancillary Services (SRAS) contracts. These are negotiated between AEMO (on behalf of the market) and the market participant/SRAS Provider (which may be the asset owner) and impose strict technical and performance requirements - such as the ability to restart independently (as a general restart source) or remain online in islanded mode (via trip-to-house-load). For example, if a generator (e.g. a BESS) under an SRAS contract fails to start during a system event due to poor maintenance of auxiliary systems (such as batteries or switchgear), AEMO may consider the market participant/SRAS Provider (e.g. the owner of the BESS) in breach of the SRAS contract, with potential regulatory and commercial consequences.

If the breach of the SRAS contract arises from the O&M contractor’s performance but the O&M contract does not contain back-back provisions or otherwise clearly allocate responsibility for SRAS operation, readiness and performance, the SRAS Provider (e.g. BESS owner) may be left without an effective remedy or ability to pass through liability to the O&M contractor. Conversely, if the SRAS provider (e.g. BESS owner) and the O&M contractor have not properly flowed down the SRAS provider’s obligations from the SRAS contract into the O&M contract, the O&M contractor may, depending on the interpretation of the O&M contract, be exposed to performance risks beyond its intended scope.

To avoid disputes and mitigate risks, well-drafted O&M contracts should include:

(a) clearly defined inspection, maintenance, and reporting regimes
(b) specified response times for fault diagnosis, escalation and rectification
(c) access to operational and performance data for early issue detection, and
(d) in the event of an asset owner under an O&M contract also having an ancillary service agreement (such as SRAS) with AEMO, clear flow-down of technical, performance, and availability obligations to the O&M contractor, to ensure the asset is maintained, operated and performs in a manner consistent with the asset owners/SRAS Providers obligations to AEMO under the SRAS contract.

These measures are especially critical in light of real-world incidents that underscore the risks of poor asset oversight. Between 2017 and 2019, the ‘South Korean Ministry of Industry’ reported 27 separate BESS fire incidents, with the majority (23) occurring in a single year. A subsequent government-led investigation identified several key contributing factors: inadequate fault protection systems, poor environmental controls - such as unmanaged dust, humidity, and temperature swings (particularly relevant in the Australian climate), substandard installation quality, and a lack of centralised monitoring.

As of July 2025, these findings remain highly relevant to Australian BESS projects, serving as a cautionary example of how failures in asset management can lead to both safety hazards and operational degradation, with wider implications for stakeholder accountability and project viability.

3. Safety incidents: BESS contain flammable electrolytes and high-voltage equipment, presenting significant fire and explosion risks. Such incidents can lead to project shutdowns, WHS/OHS investigations, and insurance claims. Under Australia’s work health and safety legislation, including the Occupational Health and Safety Act 2004 (Vic), Persons Conducting a Business or Undertaking (PCBUs) have a duty to eliminate or minimise risks so far as is reasonably practicable, using the hierarchy of controls. If a fire results from defective components, poor installation, or inadequate maintenance, litigation and regulatory enforcement may follow.

The ‘Victorian Big Battery’ fire prompted a comprehensive industry-wide review of commissioning safety practices. In response, contracts must clearly assign liability for damage, require robust emergency response plans, and mandate compliance with Australian Standards, such as:

• AS/NZS 5139 – Electrical installations – Safety of battery systems for use with power conversion equipment
• AS 1851 – Routine service of fire protection systems and equipment, and
• AS/NZS 3000 – Electrical installations (Wiring Rules).

These measures are essential to ensure safe deployment, operation, and maintenance of BESS infrastructure.

4. Cybersecurity vulnerabilities: As BESS become increasingly reliant on digital control systems, they are exposed to cyber threats. While no major attack has yet affected Australian BESS projects, the Security of Critical Infrastructure Act 2018 (Cth) (SOCI Act) imposes strict obligations on responsible entities (such as operators) and direct interest holders of critical infrastructure assets, including those in the energy sector.

Under the SOCI Act, entities must:

• report cyber incidents to the Australian Cyber Security Centre (ACSC)
• maintain a Critical Infrastructure Risk Management Program (CIRMP), and
• provide asset information to the Register of Critical Infrastructure Assets.

A cyber-attack affecting BESS operations could lead to disputes between operators, contractors, subcontractors, software providers and regulators. Disputes may also arise over data integrity, access rights and operational continuity.

To mitigate these risks, project contracts should explicitly address:

(a) cybersecurity standards, update protocols and compliance obligations
(b) NEM licensing and registration requirements (clearly define which party is required to obtain authorisations)
(c) liability for cyber breaches, data loss and operational disruption, and
(d) data sharing protocols between stakeholders.

Strategies to minimise BESS disputes

While the sources of disputes are varied, several legal strategies can mitigate risk:

1. Robust contract drafting and risk allocation: Clearly delineate scopes and responsibilities. Allocate risk to the party best placed to manage it - for instance, network connection delays may be best borne by the developer, while system integration is often within the EPC contractor’s remit. Multi-party projects should include interface coordination deeds. Ensure force majeure, variation, and dispute resolution clauses are enforceable and practical.
2. Early communication and coordination: Project success depends on clear communication across all stakeholders. Establish regular coordination meetings during design and construction and maintain structured issue-logging processes. In multi-contract models, cooperative engagement between the BESS supplier, inverter provider, and civil works contractor is essential to reduce interface risk.
3. Due diligence and quality control: Engage independent experts to review design integration and performance modelling. Conduct factory acceptance testing, site inspections, and third-party commissioning checks. Regular operational testing and performance benchmarking helps identify defects early and avoid claims under performance guarantees.
4. Dispute resolution protocols: Tiered dispute clauses (starting with escalation to executives and mediation) encourage early resolution and preserve commercial relationships. Technical disputes may benefit from expert determination rather than lengthy litigation. For BESS-specific issues (e.g. battery cell fault diagnostics), having pre-agreed access to independent technical experts can expedite resolution.
5. Safety and cybersecurity planning: Build safety and cyber compliance into contracts. Require adherence to work health and safety laws, fire standards, and manufacturer specifications. Implement cyber risk management plans consistent with ISO and SOCI standards and include insurance for both physical and cyber-related incidents.

Conclusion

Battery Energy Storage Systems are indispensable to Australia's clean energy transition, enabling grid stability and renewable integration as coal-fired generation retires. However, their development introduces significant technical complexity and legal risk.

Australian States, including Victoria, New South Wales, and Queensland, are accelerating battery rollouts under respective energy strategies. These efforts are supported by Federal and State backed mechanisms such as the ‘Capacity Investment Scheme Agreements’ (CISAs) and ‘Long-Term Energy Service Agreements’ (LTESAs), which aim to de-risk investment and ensure dispatchable capacity. As project sizes increase and global supply chains remain constrained, disputes are likely to arise, particularly around integration, performance and delivery timelines.

To mitigate these risks, project participants should proactively address common dispute triggers at the outset, including:

• Design clarity and integration responsibilities
• Interface management between contractors and suppliers
• Performance expectations and testing protocols
• Operational reliability and maintenance obligations

Legal risk in BESS projects is best managed through foresight, planning, and cooperative contracting. This includes selecting appropriate contract models (e.g. EPC, split contracts with interface deed), allocating risk to the party best placed to manage it, and embedding clear dispute resolution mechanisms.

Developers, contractors, and financiers alike should prioritise:

• Clear and comprehensive documentation
• Defined scopes and responsibilities
• Ongoing collaboration throughout design, construction and commissioning.

By doing so, stakeholders can ensure Australia’s energy storage infrastructure is not only built efficiently, but built to last - supporting a resilient and decarbonised electricity system.

How Dentons can help

We are committed to helping you navigate, deliver, and secure the future of energy. If you require assistance managing disputes or contractual risk in connection with your BESS project (or broader energy or infrastructure developments) please reach out to our specialised Construction, Energy, Infrastructure and Major Projects Disputes and Transactions Team.

Our team advises across the full project lifecycle, from procurement and contracting through to claims and dispute resolution. We have deep experience advising on both transactional and contentious matters in the renewables, energy and infrastructure sectors.