Battery energy storage systems (BESS) are an essential component of California’s leading energy transition strategy, enabling the state to integrate renewable energy production, stabilize the grid and ensure a reliable energy supply. California now hosts over 13 GW of installed BESS capacity—more than 20% of its peak demand—and is projected to contract over 52 GW by 2045.
In recent years, several high-profile BESS fires have intensified scrutiny, including incidents at the 139 MW Valley Center Energy Storage Facility in 2022 and 2023, the 20 MW Kearny South Energy Storage Facility in 2024 and the 250 MW Gateway Energy Storage Facility in 2024. The latest major fire, which occurred on January 16, 2025, at the 300 MW Moss Landing Energy Storage Facility, triggered a decisive regulatory shift.
California regulators are now adopting stricter measures and proposing sweeping reforms and legislation that could significantly impact utility-scale BESS development. Below are some key trends and risks that developers should consider as they navigate this evolving landscape.
Navigating Permitting, Regulatory and Legislative Changes
In California, BESS projects typically require discretionary county permits—including conditional use and building permits—subject to compliance with the California Fire Code. Recent fires have led to increased scrutiny, longer permitting timelines and more stringent conditions—a trend that is likely to accelerate in the wake of the Moss Landing incident.
At the state level, the California Public Utilities Commission (CPUC) is expected to vote in February on new safety measures aimed at strengthening fire prevention protocols for BESS facilities. Developers must closely monitor these changes to ensure compliance and mitigate potential risks. They should also prepare for ongoing compliance costs once projects come online and begin to operate on the grid.
Meanwhile, the California state legislature is moving swiftly to introduce new regulations. For instance, Assembly Bill 303 proposes stricter permitting requirements for BESS projects over 200 MWh, increasing local community engagement and limiting the California Energy Commission’s ability to fast-track approvals. Such measures could add complexity and delays to project development, particularly in environmentally sensitive or residential areas.
Key Considerations for Offtake Agreements
Even if the proposed regulatory and legislative changes are moderated to maintain BESS development momentum, developers should anticipate heightened permitting and legal risks. Below are important factors to consider for offtake agreements in this evolving environment:
- Project Schedule & COD Deadlines: Power Purchase Agreements (PPAs) and tolling agreements with utilities and Community Choice Aggregators (CCAs) typically impose strict Commercial Operation Date (COD) deadlines, with penalties for delays. Fire permit delays are generally considered a seller risk, with limited relief (if any) available under force majeure provisions. Developers may require expanded schedule relief, including exemptions from delay damages, longer extension periods and more flexible force majeure protections.
- Off-Ramps: If new fire safety regulations impose infeasible or costly permitting requirements, developers may need stronger termination rights and liability limitations to mitigate exposure.
- Pricing Protection: Given ongoing supply chain volatility, variable pricing mechanisms are increasingly common in storage offtake agreements. Developers can consider structuring contracts to allow capacity pricing adjustments to account for added capital and operational costs due to fire-related regulations.
- Change-in-Law Protections: Many California offtake agreements include some level of change-in-law protection for the seller, often with a compliance cost cap. Developers should use this mechanism to limit their regulatory exposure if new fire safety regulations impose significant unforeseen costs.
- Technology Risk: To the extent that legislation imposes technology limitations or fire-related investigations reveal technology deficiencies, developers can consider negotiating additional excuses and flexibility relating to the offtake agreement’s performance requirements.
- Project Substitution: If new legislation enforces geographical or locational constraints on BESS development, developers may benefit from project substitution rights, allowing them to shift capacity to alternative sites.
Key Considerations for Other Development Agreements
Developers must also account for increased permitting and regulatory risks in their procurement, construction and maintenance contracts. Developers should consider the following:
BESS Procurement
- Performance Requirements: Testing for commissioning or long-term performance guarantees must include regulatory or operational considerations, particularly around compliance with fire codes, permitting, ongoing technical updates and restrictions from the manufacturer.
- Remedies for Performance Guarantees: If systems are required to restrict operations due to safety concerns, developers should allocate the resulting risk based on whether the safety concerns are driven by the manufacturer’s technology vs. statewide changes in standards.
- Force Majeure Relief: Developers should ensure that the manufacturer cannot claim force majeure relief if a fire or other incident is caused by their equipment.
EPC Agreements
- Force Majeure & Schedule Relief: It is important to negotiate clear relief provisions for permitting-related delays and increased costs.
- Compliance Risk Allocation: Most EPC Agreements allocate the risk of changing regulatory requirements to the developer. They should be negotiated back-to-back with offtake agreements as much as possible to ensure consistency and continuity.
- Site Responsibility: It is important to be clear on who has control and risk of the site at all stages of equipment delivery, installation, testing and operation.
- Insurance: Developers should revisit insurance requirements to ensure coverage for fire risk and to protect against large exposure to contractor negligence that might not be covered under limitations of liability.
O&M and Long-Term Service Agreements
- Regulatory Changes: Developers should expect regulatory changes and ensure the O&M provider has an obligation to comply with such changes, even if change orders are triggered.
- Limits of Liability: Consider higher limits of liability where poor O&M may lead to major events. This dynamic may incline developers to contract with original equipment manufacturers for O&M.
- Insurance: As with EPC Agreements, ensure insurance requirements cover fire risk and protect against large exposure to contractor negligence that might not be covered under liability limitations.
What’s Next: Navigating the Future of BESS in California
While California’s aggressive push toward energy storage presents significant opportunities, developers must proactively manage emerging regulatory risks. Staying ahead of legislative changes, incorporating contractual safeguards and implementing strategic risk management measures is critical to ensuring project success.
Orrick’s Energy & Infrastructure team is actively tracking these developments and advising clients on mitigating risks in BESS transactions. For further guidance, please contact Patrick Ferguson, Rohit Sachdev, Eric Stephens or any other member of our team.