In 2025, we will witness continued market evolution in how battery energy storage systems generate revenue, largely influenced by national policies and grid requirements.
In the UK, revenues generated from BESS will continue to climb – albeit from a low base – and will still be dominated by energy trading. Changes to the regulations will make it easier to generate balancing mechanism revenue from BESS, as well as the impact of the incoming cap and floor mechanism currently being designed by OFGEM, and other new revenue streams like Quick Reserve.
Commercially, there may be an increase in the use of tolling agreements in place of fully merchant profit share contracts like those currently in use by most batteries; this also seems to be a key trend in French BESS aggregation fees as that market grows.
In France, the frequency market has been very valuable due to aFFR (automatic frequency restoration reserve) pricing. This will decline as the market saturates, as it has in the UK and other markets. It will be interesting to watch the French energy trading market develop – the country is bringing a lot of wind and solar onto the grid, plus there are challenges around interconnectors, unplanned downtime on nuclear facilities and growing load, with significant and growing periods of negative pricing apparent. This will all provide new opportunities for BESS.
Meanwhile, BESS deployment is exploding in Germany and revenues are high. The macro drivers are reducing the nation’s historic reliance on imported gas by developing more generation from wind and PV. To support frequency and balancing, they are paying well to bring more BESS onto their system.
Asset sizes appear to be growing in the UK, and this trend may be reflected across Europe. However, it will be interesting to see how locational value and concentration risk are balanced against decreasing per-MW costs for large assets – and how many of the UK’s very large queued projects survive queue reform!
