US: Energy transition

The US energy transition construction landscape may be characterized by three developments: Utility-scale battery energy storage systems (BESS); data center-linked hybrid power infrastructure; and large-scale renewable generation (primarily solar and onshore wind, with offshore wind advancing unevenly), together with transmission and grid infrastructure.

Battery storage is an evolving segment. Standalone BESS projects continue to be deployed at scale, but a significant trend is emerging in co-located storage, with BESS increasingly installed behind the meter at data center campuses, paired with behind-the-meter generation, or integrated into hybrid renewable installations.

In several major US data center markets, developers are incorporating BESS into project delivery strategies, driven by utility capacity constraints and multi-year interconnection queue times. A 100-megawatt (MW) data center campus may require tens of MW of on-site storage capacity – and potentially dispatchable generation – to manage peak demand, improve load flexibility, and support grid connection.

Data center developers are also deploying multi-technology on-site generation, pairing BESS with natural gas generation and, in some cases, early-stage technologies such as geothermal or small modular reactors, as part of their grid connection strategy rather than solely as backup power.

In certain constrained markets, these solutions are increasingly being used to support project delivery. Green hydrogen remains at an early stage, with pilot projects advancing and commercial-scale construction remaining limited. Offshore wind is progressing, although the pipeline has slowed due to cost escalation, supply chain pressure, and project restructuring.

US energy transition construction now ranges from individual BESS installations of tens of MW to multi-gigawatt portfolios with capital commitments in the billions of dollars.

US contracting models for energy transition projects are adapting, though unevenly, and risk allocation is continuing to mature.

This article focuses on the construction perspective. Interconnection, permitting, regulatory, and financing structures may vary considerably by jurisdiction and project type. Early engagement with appropriate technical, regulatory, and project advisors may be relevant depending on the project.

For BESS projects – particularly those co-located with data centers – several contracting structures are in use, each reflecting a different allocation of construction, technology, and operational risk. These include the following:

• Full-wrap engineering, procurement, and construction (EPC), with a single lump-sum turnkey contractor assuming primary schedule, cost, and integration risk.
• Split-package procurement, with separate contracts with the battery original equipment manufacturer (OEM), balance-of-plant contractor, and systems integrator.
• Developer-led construction with an owner’s engineer.
• Integrated campus delivery, where the battery installation is incorporated into the data center general contractor’s scope.

Each model presents distinct risk-allocation considerations:

• Full-wrap EPC provides single-point accountability but may command a premium and concentrate risk in a contractor that may not have extensive battery experience.
• Split-package procurement can reduce or eliminate the EPC risk premium on equipment, but it also transfers integration and interface risk to the developer, potentially requiring an owner’s engineer to manage responsibility gaps.
• Developer-led construction can maximize control but requires energy construction management capability, which differs from conventional construction in technology, safety, and regulatory dimensions.
• Integrated campus delivery may reduce interface risk but relies more heavily on the general contractor’s ability to manage complex energy systems – a capability that is still emerging in the US market.

Across all models, a common challenge is aligning the EPC performance guarantee with the OEM product warranty. Data center operational demands may require more aggressive battery cycling or higher states of charge than the OEM’s warranty anticipates.

If the EPC guarantee and OEM warranty differ on guaranteed capacity, degradation curves, or round-trip efficiency, the owner may face a coverage gap that becomes apparent after commissioning, when corrective measures can be more complex and costly.

Energy transition technologies – particularly battery storage and hybrid power systems – introduce risks that differ from conventional power or construction projects, including:

• Technology performance and degradation risk: Battery systems degrade over time, and a 15-to-20-year power contract may outlast the battery’s useful life. Augmentation or replacement costs may need to be allocated upfront, although they often are not. Potential mitigation measures include defining performance obligations by performance output (for example, capacity, availability, and response characteristics, with express capacity-addition thresholds and cost-allocation mechanisms), rather than tying the contract to specific equipment that may need mid-contract replacement.
• Operational control complexity: When BESS is co-located with a data center, control may be distributed across the developer, EPC contractor, optimization software provider, and utility – each of which can have different priorities. Challenges may arise if the optimizer’s dispatch strategy accelerates degradation beyond the warranty’s assumed profile, or if the utility curtails output when the data center needs stored energy. Potential mitigation measures include clear definitions of dispatch control, conflict-resolution protocols, and allocation of financial consequences at the documentation stage.
• Multi-technology integration risk: Combining BESS with gas generation or emerging technologies typically may require managing multiple vendors, overlapping warranties, and integrated commissioning across systems that may not have been designed to operate together. Interface and controls-integration risk among the battery, generation asset, site electrical infrastructure, and load can be a source of project complexity. Potential mitigation measures include clear scope definitions, well-drafted interface agreements, and integrated commissioning protocols.
• Warranty and degradation management under aggressive operation: Aggressive battery operation – elevated cycle counts, deeper discharges, and higher thermal loads – can impair, reduce, or void OEM warranty coverage, leaving augmentation costs unallocated. Contracts may address this risk by aligning the operating conditions covered by the warranty with actual operational demands and by addressing consequences when demands exceed warranty assumptions.

US energy transition projects may face a range of delivery challenges affecting timelines, cost certainty, and contracting strategy.

Grid connection delays are currently among the most significant delivery constraints. In concentrated data center and renewable energy markets, new large-load connections may face queue times of four to five years or longer. Utilities face increasing demand, and grid studies increasingly identify transmission bottlenecks that may lead developers to consider on-site storage or generation before permanent service becomes available. As a result, temporary bridge generation may remain the primary power source for longer than anticipated – potentially requiring battery augmentation or re-permitting of gas generation initially authorized as temporary. Permitting and interconnection requirements vary by jurisdiction.

Permitting complexity is another delivery pressure. Battery installations are subject to requirements distinct from standard construction approvals, involving different authorities and compliance frameworks. Behind-the-meter generation at data center scale may trigger additional requirements, and entitlements granted under temporary or expedited pathways may not remain available indefinitely, with local scrutiny in this area increasing in some jurisdictions. Requirements can vary by state and locality.

Workforce capability gaps are emerging at the intersection of energy and digital infrastructure. Data center construction management differs from energy asset construction management in technology, safety, and regulatory dimensions. Developers who are self-performing construction management for co-located energy assets, or general contractors integrating battery systems into campus delivery, may encounter skill gaps that can increase project risk.

Supply chain constraints for battery cells, inverters, and critical electrical equipment (particularly transformers) continue to affect schedules, though conditions have improved. Fuel-supply logistics – including pipeline interconnection timing and firm transportation arrangements – can add complexity for gas-backed behind-the-meter systems.

Potential mitigation measures may include:

• Early engagement on interconnection and permitting
• Realistic scheduling that accounts for queue delays
• Procurement strategies that secure long-lead equipment early where feasible
• Contracting structures that allocate schedule and cost consequences rather than leaving them as shared assumptions

The overall effectiveness of these measures typically depends on project, jurisdiction, and market conditions.

Beyond technology and delivery risk, several other areas may affect US energy transition projects.

• Scheduling coordination between multiple contracts: Where BESS is co-located with a data center or other infrastructure, the battery installation is typically required to achieve substantial completion in coordination with broader campus construction milestones, including civil works, electrical infrastructure, and network commissioning. Questions may arise regarding responsibility for delay costs when one contractor is ready to proceed but another is not, and regarding how liquidated damages interact across parallel contracts. Potential mitigation measures include coordinated milestone schedules with clear allocation of delay risk and costs at the documentation stage.
• Counterparty conduct under pressure: Large cloud providers and data center operators may enforce contracts strictly under adverse conditions, including price spikes, supply shortages, and force majeure events. Commercial terms governing flexibility, renegotiation rights, and step-in remedies may carry particular importance with these counterparties. Vague good faith or reasonable endeavors formulations may be subject to close scrutiny. Potential mitigation measures include drafting flexibility rights, cure periods, force majeure provisions, and performance remedies with precision.
• Combining multiple revenue sources and market rule uncertainty: Projects dependent on grid-market revenue, including frequency regulation, ancillary services, and capacity-market participation, may be exposed to regulatory frameworks that change materially throughout the asset’s life. Challenges may arise if assumed revenue streams do not materialize or if market-rule changes affect project economics. Potential mitigation measures include cautious financial projections that treat grid-market revenue as upside rather than a core economic component.
• Sharing efficiency gains: Efficiency gains frequently default to the party with the most operational control – typically the optimization provider – unless the contract defines measurement methodology, allocation mechanics, and audit rights. Challenges can arise from ambiguity about what constitutes upside versus baseline performance, how degradation costs offset revenue, and whether the offtaker shares in optimization revenues. Potential mitigation measures include addressing these points expressly at the outset.
• Load volatility and contract rigidity: When a tenant’s computing strategy evolves, power demand may fall materially below the level that justified the storage investment – creating unused capacity for the asset owner and, in rigid take-or-pay structures, disproportionate costs for the tenant. Potential mitigation measures include load-adjustment mechanisms, such as minimum and maximum bands, periodic adjustment rights, and demand-change corridors, that reflect the possibility that demand assumptions will evolve over a 15-to-20-year asset life.

Stakeholders across the energy transition project lifecycle may consider a range of measures to position themselves for potential growth in US-based energy transition projects.

• Project owners and developers: Relevant considerations include contracting and risk-allocation frameworks specific to energy assets, which differ materially from conventional construction or data center development. Developers new to battery storage may need to build or acquire energy construction management capability. Early engagement on interconnection and permitting may be beneficial, as these are often significant project development activities, although requirements tend to vary by location. Project participants may also consider contracting frameworks that define performance obligations in output terms – such as capacity, availability, and response characteristics – rather than equipment terms, which can preserve flexibility for augmentation and technology refreshes.
• Contractors: Relevant considerations include developing competence in battery and hybrid energy-system installation – including interface management, commissioning, and warranty coordination – which distinguish energy asset delivery from conventional construction. EPC contracts drafted for standalone storage projects may not adequately address co-located data center installations without modification for interface management, schedule coordination, and the requirements of critical digital infrastructure. Warranty offerings may also need to reflect realistic operational profiles rather than standard assumptions.
• Lenders and investors: Relevant considerations include recognizing that the risk reduction from a creditworthy tenant may be partial and evaluating projects accordingly, with attention to technology lifecycle risk, augmentation cost allocation, and counterparty conduct under stress. Financing considerations vary by project structure and lender requirements. Financial assumptions may focus primarily on contracted load and treat grid-market revenue as potential upside. In mergers and acquisitions and exit analysis, diligence may focus on transferability, including whether the platform’s value can be sustained by a new owner within the existing contractual framework without dependence on relationships or undocumented knowledge.
• All stakeholders: Documentation quality remains a recurring consideration across US energy transition projects. Questions may arise not from what the contract says expressly, but from what the parties assumed it meant. Specificity at the documentation stage – particularly regarding degradation management, dispatch authority, performance measurement, interface risk, and schedule coordination – may help reduce uncertainty after commissioning.