Introduction
Europe is in the midst of a decarbonisation revolution. While gigawatts of renewable energy capacity are being deployed today, with even greater growth expected in the coming years, renewables alone cannot secure a resilient and future-ready power system. To meet ambitious climate targets, the adoption of battery storage is indispensable. By providing much needed clean short-term flexibility to complement intermittent renewables, batteries enable power systems to take the next step in decarbonisation. As a climate-friendly, cost-effective, and readily deployable solution, they are essential for stabilising the grid. Even though battery storage would not have been able to fully carry Europe through December’s Dunkelflaute (period with little sun or wind), getting more capacity onto the grid can at least prevent hours of extreme scarcity.
The rising integration of intermittent renewable sources like wind and solar, coupled with the lasting impact of the 2022 energy crisis, continues to fuel demand for dependable storage solutions year after year. Although the battery industry remains relatively young, it has matured beyond its nascent stage. The deployment of many gigawatts of battery capacity demonstrates its viability, yet the sector is still navigating a period of rapid growth, innovation, and transformation as it scales up.
The Battery Buildout in Europe
In recent years, Europe has experienced extraordinary progress in battery capacity expansion. Capacity grew from 4.8 GW in 2022 to 7.1 GW in 2023, and this year alone saw an additional 3.7 GW installed, bringing the total to 10.8 GW. Projections paint an even brighter picture: an estimated 51 GW of battery capacity is expected by 2030, driven by robust project economics. This represents a fivefold increase in just five to six years.
While we saw buildout of multiple megawatts of capacity in Germany, Sweden, and Italy, Great Britain is still leading the charge (pun intended). Great Britain is an absolute forerunner in the battery industry and increased its capacity from 3.2GW to 4.3GW in 2024, corresponding to 9% of demand in peak hours, solidifying its leadership position. The UK’s Capacity Market has been instrumental in ensuring stable, contracted, and long-term revenue streams for battery operators.
However, the look at the British Capacity Market also exposed this year’s challenges. Despite plans for 2.2 GW of new capacity in 2024 based on Capacity Market contracts, only 1.1 GW came online. Supply chain constraints, including labour shortages and rising costs of key components, hindered the completion of many projects.
Diverse Revenue Streams and Pricing Dynamics
Batteries must combine multiple revenue streams to be profitable. This is currently true for most European countries, especially the more established ones like Germany and Great Britain, and will eventually apply to every European country. The combination of revenue streams has both upsides and downsides. On the one hand, it makes BESS business models more resilient. On the other hand, it makes it much harder to comprehend the margins of a battery, both now and in the future. Adding to the complexity, when taking a pan-European view, these revenue streams have different names in most countries. For comparison, we have grouped them into four categories—Capacity Markets, Wholesale Markets, balancing services, and frequency response—and dive into each of these revenue streams and their development throughout the last year.
The British Capacity Market awarded the most contracts this year, totalling 5.6 GW. However, in Belgium, France, Italy, the I-SEM (Ireland), and Poland, batteries could benefit from Capacity Markets to secure long-term contracted revenues. While we see a trend of increasingly large amounts of capacity receiving contracts, the value of these contracts is shrinking because battery capacity is derated more severely than other firm technologies (regulators derate batteries capacity in these auctions depending on the batteries duration as the scarcity events that capacity market should prevent can last longer), especially as more capacity is added to the grid. These developments highlight a first-mover advantage for those able to enter the market this year or even in prior years.
Wholesale markets provided quite a surprise this year. Despite decreased gas prices compared to 2023, spreads (the highest minus the lowest price per day) on the Day-Ahead markets increased by 17%, rather than converging back to pre-commodity price crisis levels. However, the increase in spreads was not uniform across Europe. While average daily spreads in Southeastern Europe reached up to 185 €/MWh, they remained between 60 and 84 €/MWh in Southwestern Europe. As a result, batteries could not profit equally from the rise in spreads. Moreover, the drivers behind the spreads differed significantly between countries: in Southeastern Europe, high spreads were caused by ongoing heatwaves that led to higher power demand, while in Central Europe (Germany, Netherlands, Belgium, and Poland), high spreads were driven by high renewable penetration causing negative prices. The Day-Ahead market alone is not a sufficient revenue stream; it always needs to be combined with other revenue streams to make BESS economically viable. Furthermore, in most countries, it is not the only wholesale market in which batteries can trade. However, it serves as a good indicator of system volatility and shows that not only high renewable generation matters for battery profitability, but that high peak prices—also driven by high demand and more expensive technologies—are just as important. As volatility drives profitability of batteries in the long term, this is an unexpected but positive outcome for storage already on the grid and a positive investment signal for storage to be deployed.
A major concern in the industry is market saturation, which could make existing storage unprofitable. Ancillary services are prone to saturation, as these markets usually have a limited depth of only a few hundred megawatts, even in larger markets like Germany. This occurred in Great Britain at the beginning of the year, depressing overall battery revenues. Surprisingly, however, this was not the case in most other European countries, despite enough battery capacity already being on the grid. Prices for Primary Reserves remained stable or even slightly increased, even though more storage has come online. The reason for this is the previously mentioned high spreads on wholesale markets. When spreads are high, batteries face high opportunity costs if they bid their capacity into ancillary services, as it may be more profitable to trade wholesale. Since this is an ongoing optimisation, batteries only offer their capacity for ancillary services if they cannot make more profits through wholesale trading. Despite the pleasant surprise of markets not saturating, liberalisation and harmonisation of additional ancillary services continued this year, opening new revenue streams for batteries. Poland and France, for example, liberalised the procurement of secondary reserves, resulting in attractive prices that batteries could capture.
2024 has also been a true roller coaster for the Pan-European PICASSO platform, which aims to procure secondary reserve energy in a harmonised manner across countries. Shortly after joining, Italy suspended its membership. The PICASSO algorithm, combined with the exchange of secondary reserve energy with Austria—where prices had been much higher—led to skyrocketing prices. However, after this incident, the algorithm was improved, and recent developments suggest that it is now functioning better. Denmark, the Netherlands, Slovakia, and Belgium all joined in October or November without significant issues. This is an important signal for storage, as PICASSO provides a market design and a set of rules that make participation easier for batteries compared to most previous regimes.
Support Schemes and Subsidies
Although many countries now offer a viable business case for storage without subsidies, supportive policies continue to play a crucial role. Over 1.8 billion € in grants were confirmed in 2024 for grid-scale BESS projects across Europe. This funding complements 1.6 GW of capacity secured through auctions during the year, further boosting deployment.
Conclusion
As we look toward 2025, the battery energy storage market in Europe is set for significant growth. The diverse revenue streams available to battery operators, combined with supportive policies and a rising demand for renewable energy, create a favourable environment for investment and innovation. A close examination of how these revenue streams evolve offers a glimpse into the power system of the future. As the era of steady demand, stable supply, and flat prices comes to an end and the era of renewables and volatility begins, the current market mechanisms—whether already in place or recently liberalised—have proven capable of not only procuring the services needed to maintain reliable power but also signalling the need for more storage to be deployed. However, stakeholders must remain vigilant and adaptable to navigate potential challenges, including market saturation and regulatory delays. The analysis of different revenue streams has also highlighted that determining how to build a business case—and whether a given year was successful—remains a highly localised issue; there is no one-size-fits-all approach.
Authored by:
Eva Zimmermann – Senior Research Associate
