Client Alert: Fragmented Contract Structures in the Energy Transition – Case Studies in Offshore Wind and BESS

1. Executive Summary

Projects that rely on advanced, highly specialized technologies — such as offshore wind turbines and battery systems — are often structured without a single EPC contractor taking full responsibility. In these fragmented arrangements, owners, contractors, suppliers, and integrators all face heightened risks. Misaligned scopes, overlapping responsibilities, and complex interfaces increase the potential for delays, disputes, and cost pressures across the entire project.

Offshore wind projects and battery energy storage systems (BESS) highlight this dynamic. Offshore wind projects face rising turbine costs, vessel shortages, and escalating marine works, alongside significant policy uncertainty in the United States and ongoing reforms in Japan. By contrast, BESS projects, while typically smaller in scale, are shaped by volatility in mineral prices, rapid technology evolution, and reliance on a concentrated set of global suppliers.

 In both offshore wind and BESS, the limited scope taken on by OEMs means that no single party assumes overall responsibility. This leaves multiple contracts to be managed in parallel, with gaps and overlaps in obligations. The result is greater exposure for owners, contractors, and suppliers alike — from execution risks and cascading delays to disputes over scope, performance, and responsibility.

The key takeaway is that fragmented structures in offshore wind and BESS demand proactive risk allocation, early alignment of obligations, and stronger multiparty coordination to ensure bankable, deliverable projects.

Case Study 1: Offshore Wind

Offshore wind development has been strained by sharp inflation in turbine prices, shortages of installation vessels, and persistent bottlenecks in marine logistics. In Japan, sponsors have had to grapple with the lack of a domestic turbine OEM, intensified competition for high-capacity models and the depreciation of the yen in recent years. These challenges have already caused project delays and cancellations.

Adding to this, policy frameworks remain unsettled in the United States, for example, where federal actions—including moratoria on new leases and permitting reversals—have amplified investor uncertainty. In Japan, by contrast, reforms are underway to clarify lease terms, streamline permitting, and expand incentive mechanisms such as FIT and FIP, all aimed at providing greater stability and investor confidence.

From a contractual standpoint, turbine suppliers generally provide equipment but avoid assuming marine construction risk. This forces project owners to enter into separate contracts for balance of plant, foundations, installation vessels, grid connections, and local works. The fragmented structure creates coordination challenges, as delays in one scope cascade through the project.

Warranty and performance obligations of suppliers and contractors are often misaligned since many warranties and performance guarantees commence and expire at different times and are subject to different terms and conditions.

Further, fixed-price supply or services contracts signed early in development can quickly become unworkable when faced with cost escalation. In particular, these contracts often permit cost pass-throughs that would not be allowed under EPC fixed lump-sum contracts, leaving the owner to absorb cost increases. This places the owner in a risky position, as power purchase agreements with offtakers (whether electricity companies or large corporates) typically do not provide for price adjustments to account for such escalation.

Exit mechanisms are also limited, often restricted to force majeure or insolvency events, leaving both owners and contractors exposed to macroeconomic shocks such as inflation spikes or currency swings, with few contractual remedies available.

For contractors, fragmented scopes often mean inheriting risks which are beyond their reasonable control, particularly if OEM warranties or performance guarantees do not align with their obligations.

Case Study 2: Battery Energy Storage Systems (BESS)

BESS projects face a distinct risk profile. Their cost structure is highly sensitive to volatility in lithium, nickel, and cobalt prices, as well as to the pace of technology evolution. Developers are further exposed to supply concentration risks, as the market depends on a small number of global battery OEMs. These challenges differ from offshore wind’s marine and policy uncertainties, but are equally complex in terms of financing and execution.

Similar to offshore wind, BESS projects rarely use a full EPC wrap. Battery OEMs typically supply cells and provide associated warranties but do not assume responsibility for overall project delivery. System integration, PCS (power conversion system), EMS (energy management system), and balance of plant are left to integrators, while civil and grid scopes are handled by separate contractors.

This fragmentation gives rise to misaligned warranties, coordination risks, and disputes over performance obligations. For contractors, this can translate into exposure to risks outside their scope or control. As in offshore wind, fixed-price supply or service contracts are difficult to reconcile with volatile input costs, and exit provisions are limited.

In addition, BESS projects face unique operational risks. Performance warranties are tied to degradation curves, round-trip efficiency, and availability metrics, which are often defined inconsistently by OEMs, integrators, and offtakers, creating gaps in coverage and leaving owners without clear remedies when systems underperform. Insurance products for battery degradation and fire risk also remain limited, adding to investor uncertainty.

Policy and Collaboration

Japan is actively enhancing its policy framework for both offshore wind and BESS. Reforms include clarifying lease terms through designated promotion zones, simplifying approval procedures, and reinforcing incentive mechanisms.

Collaboration is also beginning to take root: METI has established frameworks with OEMs such as Siemens Gamesa and GE Vernova, as well as with local manufacturers like TDK and Nippon Steel, to build a resilient offshore wind supply chain. In the BESS market, partnerships such as the MoU between Bison Brothers and Engelhart CTP reflect an emerging trend of coordinated development and financial structuring. While full alliance contracting remains nascent, these initiatives show a shift toward more integrated approaches to risk management.

By contrast, the United States has recently amplified uncertainty rather than reducing it. A federal moratorium on new offshore wind leases, combined with project halts and regulatory reversals, has dampened investment appetite and shifted attention from contracting innovation to basic project viability. For contractors, this environment can make project pipelines uncertain and reduce opportunities for long-term engagement.

Key Takeaways

Offshore wind and BESS projects illustrate how fragmented contract structures create significant risks, even if the specific drivers differ. For offshore wind, marine works, turbine OEM limitations, and policy instability are the primary concerns. For BESS, rapid technological change, commodity-driven costs, and a concentrated supply chain are central risks.

In both cases, this fragmented structure gives rise to several challenges, including the following:

• Coordination risks increase as multiple interfaces must be managed between OEMs, integrators, and contractors, often creating cascading delays.

• Warranty and performance obligations are not always aligned, leading to potential gaps between battery degradation guarantees or turbine availability commitments and contractor obligations.

• Fixed-price contracts that were signed early in project development frequently prove unworkable when faced with equipment cost escalation and raw material inflation.

• For the owners and investors, exit mechanisms may be limited, leaving owners to bear the brunt of macroeconomic shocks with few contractual remedies.

All participants in projects must proactively manage risk allocation, align warranties, and introduce coordination mechanisms early. In particular, the contractors should seek early engagement in multiparty discussions to ensure that contractual obligations reflect practical delivery risks.

Upcoming Seminar – Risk Allocation & Management in Multiparty Contract Structures

We will be hosting a seminar on 'Risk Allocation and Management in Multiparty Contract Structures,' where we will share insights drawn from both offshore wind and BESS case studies.

The seminar will explore:

• Practical examples of multiparty contract disputes in the energy market.

• Strategies for risk allocation and management among developers, contractors, OEMs, and financiers.

• How evolving market and policy frameworks can enable bankable project delivery.

This event will be of particular interest to energy developers, contractors, OEMs, financial institutions, and policy makers.

For more information and to register, please stay tuned or contact seminar@tkilaw.com

(Written by: Hojung Jun, Michael Lynch, Yusuke Takeuchi)

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*This newsletter is provided for educational and informational purposes only, and is not intended and should not be construed as legal or tax advice.
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