Storage (BESS) Contracts: What Business Owners Need to Know
By Clarence Tan
1. Introduction
(a) Battery energy storage systems — commonly known as BESS — are increasingly being installed at commercial and industrial premises across Singapore. Under the Green Plan 2030, the government has been actively encouraging this shift, and the Energy Market Authority has opened regulatory pathways that make BESS deployments more commercially viable than ever before.
(b) If you own or manage a commercial or industrial property, you may already have been approached by an energy developer proposing to install a battery system at your site at no upfront cost to you. In exchange, the developer typically promises to reduce your electricity bills — and keeps a share of the savings generated. This arrangement is known as Energy-as-a-Service, or EaaS.
(c) On the surface, the proposition is attractive: lower electricity costs, no capital expenditure, and the developer takes on the technical and operational risk. But the contract you sign — usually called an Energy Services Agreement, or ESA — is a long-term commitment that contains a number of commercial terms that deserve careful scrutiny before you put pen to paper.
(d) This article sets out the key issues that business owners should understand when reviewing an EaaS agreement. It is intended to help you ask the right questions — and to understand what you are agreeing to.
2. What You Are Actually Signing
(a) An EaaS agreement is not a simple services contract. In practice, it combines three distinct arrangements in a single document: a licence allowing the developer to install and operate equipment on your premises; a performance commitment under which the developer promises to deliver measurable electricity savings; and a profit-sharing mechanism that determines how the financial benefits are divided between you and the developer.
(b) Each of these components has different implications for you as the site owner. The site licence affects your property — it determines who owns the equipment, what happens to your premises when the agreement ends, and whether your landlord or bank needs to be notified or give consent. The performance commitment determines what you are actually guaranteed to receive. The profit-sharing mechanism determines whether you get any benefit beyond that guaranteed amount.
(c) Many ESAs are drafted primarily from the developer’s perspective. That does not make them unreasonable, but it does mean that the terms governing your rights — particularly around what you are guaranteed, what you can do if performance falls short, and what happens at the end of the agreement — warrant close attention.
3. Understanding Your Guaranteed Saving
(a) One of the most important things to understand in any EaaS agreement is what you are actually guaranteed to receive, and how that amount is described in the contract.
(b) In most EaaS structures, the developer promises you a fixed saving — a defined reduction in your electricity costs. Everything the BESS generates above that fixed amount belongs to the developer. That is the basis of the commercial model: the developer takes on the performance risk and, in return, keeps the upside if the system performs well.
(c) However, some agreements describe your guaranteed saving as a “floor” rather than a fixed amount. This distinction matters. If the contract says your saving is a “floor,” it could be read as meaning you are entitled to receive more than that floor amount if the system outperforms — which would contradict the developer’s commercial model and create a source of dispute.
(d) Before signing, you should confirm exactly how your guaranteed saving is defined, and whether the contract clearly reflects your understanding of what you will receive. If the developer’s intention is that you receive a fixed amount and nothing more, the contract should say so plainly.
4. Your Obligations Do Not End at Signing
(a) A point that surprises many business owners is that an EaaS agreement typically imposes ongoing obligations on you — not just on the developer.
(b) One of the most commercially significant is the obligation to apply to reduce your contracted capacity with Singapore’s network operator. Here is why this matters: your maximum demand charge — one of the larger components of your electricity bill — is calculated by reference to a registered demand level. For the developer’s BESS to generate meaningful savings, your registered level needs to be reduced once the system has demonstrated that it can consistently keep your actual demand below a certain threshold.
(c) If your ESA does not include a clear obligation on you to make this application once the system has proven its performance, the developer may deliver exactly what it promised — but the corresponding reduction in your electricity tariff may never materialise, because the administrative step to unlock it has not been taken.
(d) You should check whether your ESA sets out this obligation clearly, specifies when it is triggered, and addresses what happens if you do not comply. This is a point where your interests and the developer’s interests are aligned — but the contract still needs to reflect it expressly.
5. What Happens if the System Fails Permanently
(a) EaaS agreements typically include a performance guarantee: if the BESS underperforms, the developer still pays you the guaranteed amount. This is one of the features that makes the EaaS model attractive — the developer carries the performance risk.
(b) But consider a more extreme scenario: the battery system suffers a catastrophic failure and cannot be repaired or economically replaced. What happens then? In many ESAs, the answer is that the developer’s obligation to pay you the guaranteed amount continues for the remainder of the agreement term — even though the system is no longer operating. That may sound like a strong protection for you, but it also raises a practical question: can the developer actually meet that obligation over a long period if the system is no longer generating any revenue?
(c) A well-structured ESA should address this scenario directly. One approach is to include a provision that gives the developer a defined right to exit the agreement in a genuine total-failure scenario, in exchange for a pre-agreed compensation payment to you. This gives you certainty about what you would receive if this situation arises, rather than leaving you to pursue an uncertain claim against a developer who may be in financial difficulty.
(d) When reviewing your ESA, you should ask how permanent system failure is defined, what your rights are in that scenario, and whether the compensation payable to you is clearly specified.
6. If the Developer Participates in Grid Programmes
(a) Some developers register their BESS installations under EMA’s Demand Response programme, which allows the battery to earn additional revenue by responding to signals from the national grid. This is a legitimate secondary revenue stream — but it introduces a potential conflict that your ESA should address.
(b) The issue is one of priorities. The primary reason the BESS is at your site is to manage your peak electricity demand and reduce your bills. If the grid sends a dispatch signal at exactly the moment your site’s demand is peaking, and the developer’s system responds to the grid rather than protecting your demand threshold, you could find that your electricity costs are not reduced as expected — or are even higher than they would have been without the BESS.
(c) Your ESA should clearly state that managing your peak demand takes priority over grid programme participation at all times. It should also address what happens to your guaranteed saving if a grid dispatch event causes the system to miss a peak-shaving window at your site — and who bears the cost if the BESS needs to recharge from your electricity supply after responding to a grid call.
(d) If your developer participates in demand response programmes, ask to see how these issues are handled in the ESA before you sign.
7. If the Developer Needs to Raise Financing
(a) Many BESS developers do not fund installations entirely from their own resources. They raise project financing — typically from a bank or specialist lender — secured against the BESS equipment and the revenue stream it generates. Your ESA is the primary revenue contract, and lenders will scrutinise it carefully.
(b) What this means for you is that your ESA may need to include certain provisions that you would not find in a straightforward services contract. Lenders will typically require the right to step in and take over the developer’s obligations if the developer defaults — which means a bank could effectively become your counterparty under the agreement. They will also require the right to assign the ESA as security, and will ask you to sign a separate direct agreement acknowledging their interests.
(c) None of these requirements are inherently unreasonable, and they are standard features of project-financed transactions. But you should be aware of them before signing, because they affect who you are ultimately dealing with if the developer runs into difficulty. In particular, the obligation to sign a direct agreement with the lender is one that should be clearly set out in your ESA — including when it must be signed and on what terms.
(d) If your developer is raising project finance, it is worth asking at an early stage whether this is the case, so that these requirements can be understood and addressed before the ESA is finalised.
8. How Your Savings Are Calculated — and Why the Detail Matters
(a) The payment mechanic in an EaaS agreement — the formula that determines how your guaranteed saving is calculated and verified — is often set out in a technical schedule at the back of the contract. It is easy to treat this as boilerplate. It is not.
(b) The calculation depends on a series of defined terms: your actual peak demand, your baseline demand (what your demand would have been without the BESS), and the difference between them. How each of these is measured, using which metering instruments, and over what time intervals, directly determines the saving figure that is used to calculate what you receive.
(c) Inconsistencies in these definitions — for example, where some terms are measured over half-hourly intervals and others over monthly averages — can produce a calculated saving that does not reflect what either party expected. Similarly, where a site has multiple meters (which is common in a BESS installation), the contract should specify which meter governs each calculation and what happens if the meters disagree.
(d) Before signing, you should ask your adviser to review the measurement and verification methodology alongside the payment provisions in the main body of the ESA, and confirm that the two are consistent. This is a technical exercise, but the commercial stakes are significant — because the measurement methodology is ultimately what determines how much you receive.
9. Questions to Ask Before You Sign
The following questions are intended as a practical starting point when reviewing an EaaS agreement. They do not replace legal advice, but they will help you engage more effectively with your advisers and with the developer.
(a) What exactly am I guaranteed? — Is my saving described as a fixed amount or a floor? Does the contract clearly reflect the commercial understanding between me and the developer?
(b) What are my obligations? — Am I required to apply to reduce my contracted capacity? When is this triggered, and what happens if I do not comply?
(c) What happens if the system fails permanently? — Does the contract address total system failure? What compensation am I entitled to, and how is “permanent failure” defined?
(d) Does the developer participate in grid programmes? — If so, does my ESA confirm that managing my peak demand takes priority? Who bears the cost if a grid dispatch event affects my savings?
(e) Is the developer raising project finance? — If so, what additional obligations will I be asked to take on? Will I need to sign a direct agreement with a lender, and on what terms?
(f) How is my saving calculated? — Do I understand the measurement methodology? Are the definitions in the main contract consistent with the technical schedules?
(g) What happens at the end of the agreement? — Who owns the equipment? Is there a reinstatement obligation, and who pays for it?
10. Closing Remarks
(a) An EaaS arrangement can be a genuinely attractive proposition for a business owner — lower electricity costs, no upfront capital, and a developer who takes on the operational risk. But the contract that governs the arrangement is a long-term commitment, and its terms will determine your rights and obligations for the duration.
(b) The issues set out in this article are not hypothetical. They arise in practice, and they are considerably easier to address before an agreement is signed than after the BESS is installed and the commercial relationship is underway. Taking the time to understand what you are agreeing to — with the support of an adviser who is familiar with this type of transaction — is time well spent.
(c) If you are considering an EaaS agreement or have been presented with one for review, we would be glad to assist. Our experience advising on BESS transactions in Singapore means we can help you understand the commercial and legal implications of what is being proposed, and ensure that the agreement reflects your interests.
This article is intended for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice in respect of their specific circumstances.
© 2026 Clarence & Co LLC. All rights reserved.
