Backup power for Europe - part 5: Revenue potential in the German BESS market

In part 1 of this series, we identified Germany as one of the most attractive markets for Battery Energy Storage Systems (BESS) in Europe. Germany scores highly across most of the key criteria. Renewables play a major role in the German electricity generation mix, grid investment plans are substantial, and grid flexibility is much needed. Additionally, the German electricity markets are highly liquid and volatile, and the regulatory environment offers numerous favorable policies for BESS. Nevertheless, the German BESS market is still in its infancy, and many uncertainties remain. In this article, we explore the latest developments in Germany’s BESS market and examine what needs to happen for Germany to become Europe’s most attractive BESS market.

The German electricity generation mix is undergoing a major shift – from one that is based on thermal generation from nuclear and coal to one increasingly based on renewable generation, supported by gas-fired plants. In its most recent National Energy Climate Plan (NECP), Germany set a target for 80% of electricity to come from renewable energy sources by 2030. To accomplish this, the country plans to more than double its renewable energy capacity (see table 1). At the same time, the government aims to phase out its hard coal and lignite generation by 2038, or possibly as early as 2030. To ensure security of supply, the government plans to tender additional gas-fired plants. While the initial goal was 10GW, the newly installed Ministry for Economic Affairs and Energy is now considering up to 20GW of new gas capacity. As shown in the historical and forecasted electricity generation mix, Germany is currently only halfway through its energy transition (see figure 1).

Source: BNetzA, German NECP, RaboResearch 2025

Accommodating the significant increase in renewables requires greater flexibility in the grid. Part of this flexibility can be provided by expanding interconnection capacity, but energy storage – particularly BESS – will also play an important role, as outlined in Germany’s Electricity Storage Strategy.

Germany’s BESS capacity is expanding rapidly. As of June 2025, the country ranks second in Europe, with over 1.5GW of grid-scale storage capacity distributed across 207 commissioned BESS projects. By the end of 2025, this figure is expected to reach 2.5GW – an increase of 1GW of capacity within six months.

Investor interest in German BESS projects continues to surge. This is evidenced by the vast number of grid connection applications submitted to German grid operators – projects representing more than 200GW of BESS capacity. This substantial queue reflects the strong appetite among investors to enter the German BESS market, further accelerated by the upcoming deadline for grid-fee exemptions, which applies to projects that come online before August 2029.

Although most of this proposed capacity is unlikely to reach final investment decision, the outlook for actual installations remains ambitious. If the current BESS deployment rate of 1GW of additional capacity every six months continues, Germany could exceed 12GW of installed grid-scale BESS capacity by 2030.

In terms of total installed battery capacity, Germany ranks first in Europe, thanks to an additional 10GW of residential batteries installed alongside rooftop solar PV systems.

High revenue potential in Germany’s electricity markets and ancillary services is drawing strong investor interest to the BESS market. These favorable conditions are a result of the solid market fundamentals, underpinned by Germany’s substantial rise of renewable energy sources.

Day-ahead price spreads are high thanks to wind, solar, and gas

The combination of a large share of renewables and gas turbines creates attractive energy arbitrage opportunities for BESS. These opportunities are especially prevalent during summer months, when daytime prices often drop very low or even turn negative due to surplus solar generation. In 2024, Germany recorded 457 hours of negative prices, up from 301 hours in 2023. Since the beginning of 2024, German day-ahead price spreads have typically been up to twice as high as those in countries like the UK, France, and Spain. With further increases in solar and wind capacity, alongside the use of gas-fired plants as dispatchable generation units, we expect these arbitrage opportunities to persist.

Germany has one of the most liquid and volatile intraday markets

A unique selling point of the German wholesale electricity market is the deep and volatile intraday market. Between 15% and 20% of electricity is traded on the intraday market – significantly higher than in countries like France, where the share is around 5%. The intraday market offers even more attractive energy arbitrage opportunities than the day-ahead market. Over the long term, energy arbitrage is expected to become the primary revenue source for BESS projects, as revenues from ancillary services decline with further BESS deployment – similar to trends observed in the UK. In this context, the depth and volatility of Germany’s intraday market provide long-term revenue potential for BESS investors.

German ancillary services offer relatively high prices and volumes

In addition to the energy arbitraging opportunities on the wholesale markets, Germany’s ancillary services offer some of the highest prices and volumes in Europe. Batteries can participate in the primary reserve – Frequency Containment Reserve (FCR) – and in the secondary reserve – automatic Frequency Restoration Reserve (aFRR). In FCR, participants are remunerated for their contracted capacity at their bid price. In aFRR, they are additionally remunerated for their energy supply or offtake when activated. As fossil fuel plants are phased out, demand for aFRR is rising and increasingly being met by BESS projects.

Unlike in the UK, Germany’s ancillary services are not (yet) dominated by BESS projects, which helps keep prices relatively high. However, as both BESS capacity and demand for FCR and aFRR are expected to increase, it remains uncertain whether and when an oversupply of BESS could lead to price cannibalization.

Inertia services offer a new revenue opportunity for BESS with grid-forming inverters

In 2026, a new revenue stream will become available when the German transmission system operators (TSOs) begin actively procuring inertia services. BESS projects with grid-forming inverters will be able to participate in auctions for these services, with contracts ranging from two to ten years. Pricing details for these services are expected to be published by January 2026.

Locking in revenues with tolling agreements

With no option to secure long-term contracted revenues through a capacity market, some BESS project developers opt for tolling agreements. These agreements grant a third party the right to operate the battery in exchange for a predetermined fixed fee. On the offtaker side, tolling agreements are attractive due to high revenue potential of German BESS projects. For BESS project developers and investors, tolling agreements help reduce market risk and improve bankability. These tolling agreements typically span five to ten years. The first such agreement in Germany involves a contract valued between EUR 85m and EUR 95m for the 104.5 MW/209MWh Stendal BESS project. This seven-year deal, starting in 2027, was secured with an undisclosed global energy corporation. In two other notable deals, BESS developer Terralayr has signed multi-asset tolling agreements with utilities Vattenfall and RWE.

While the market fundamentals for BESS in Germany are among the most attractive in Europe, the regulatory framework is less favorable compared to countries like Italy and the UK. BESS is still relatively new to the German electricity system, and stakeholders – including the government, regulator, system operators, and BESS developers – are still debating whether BESS should be treated primarily as revenue-generating assets or as a part of the grid infrastructure that helps relieve grid congestion and integrate intermittent renewables.

Future grid fee uncertainties

A central concept in this debate is the term “grid-friendliness”, which has become a focal point in regulatory discussions. Although the term lacks a universally accepted definition, it generally refers to the extent to which a BESS asset supports the grid – by alleviating congestion, providing ancillary services, and enabling the integration of variable renewable energy sources. However, the current regulatory framework does not yet fully recognize or reward these contributions.

Instead, BESS operators face structural disincentives, such as being classified both as generation and as load, which creates the risk of double grid fees. Currently, BESS projects that come online before August 2029 are exempt from paying grid fees, but it remains unclear what will happen after that date. As a result, developers and investors are calling for a new grid code tailored to BESS projects.

Germany’s federal network agency, Bundesnetzagentur (BNetzA), has acknowledged these concerns and is currently reviewing the grid fee structure with the aim of introducing a more storage-friendly regime. Proposals under discussion include time- and location-based tariffs, exemptions for grid-supportive behavior, and clearer definitions of what constitutes “grid-friendly” operation.

BKZ: Construction cost contribution fees

Another fee currently under debate is the BKZ (Baukostenzuschuss), or construction cost contribution, which can add up to 15% of a BESS project’s investment costs. While grid operators are allowed to charge these fees for BESS connection, the absence of a standardized national approach has led to significant regional disparities. In some areas, particularly in northern Germany, operators offer discounts of up to 80%, whereas in others, developers bear the full cost burden.

From the perspective of grid operators, the BKZ is intended to incentivize energy storage development in regions where it is most needed. However, many BESS developers view the fee as discriminatory. In December 2023, the Higher Regional Court of Düsseldorf ruled that calculating the BKZ using a performance-based pricing model constituted unjustified unequal treatment(in German). BNetzA has appealed this decision, and the case is now under review by the Federal Court of Justice (BGH), with a ruling expected on July 15, 2025.

Permitting and grid connection procedures

Permitting processes and grid connection procedures can cause significant delays – particularly for projects aiming to come online before the current 2029 grid fee exemption deadline. One of the main challenges is the lack of harmonization across Germany’s federal states. While some states, like Bavaria, have streamlined permitting for BESS, others still treat storage as a novel asset class, requiring lengthy and often unclear approval processes. Moreover, BESS is not yet classified as a “privileged” infrastructure under Section 35 of the Federal Building Code (BauGB), which limits the ability to site projects in rural areas where land is typically more available and affordable. This regulatory fragmentation adds complexity and risk to project development.

Flexible grid connection agreements

On the positive side, recent regulatory reforms have introduced more flexible grid connection options, allowing for cable pooling and overbuilding. This means that multiple assets – such as solar PV and BESS – can share a single grid connection point, even if their combined installed capacity exceeds the grid connection limit, as long as feed-in is properly controlled. This reform opens up new possibilities for co-located projects and more efficient use of grid infrastructure. However, implementation still largely depends on the practices of individual grid operators, and developers report varying levels of openness and clarity in how these new rules are applied.

Capacity market

Germany is in the process of designing a capacity market to ensure security of supply during the phase-out of coal-fired power plants. The government aims to introduce a capacity market by 2028.

A German capacity market could further improve the bankability of BESS projects by providing contracted revenue streams. In countries like the UK and Italy, capacity markets have already proven valuable in supporting BESS financing by offering long-term, predictable income that complements merchant revenues.

However, BESS developers are concerned that the capacity market may not be technology-neutral and could favor gas turbines. This would place BESS projects at a disadvantage, forcing them to compete in electricity markets and ancillary services against subsidized gas-fired power plants.

The exact design of the German capacity market remains undecided. Key elements, such as whether auctions will be centralized or decentralized, how storage assets will be derated, and what contract durations will be offered, are still under discussion.

Innovation auctions for co-located batteries

Germany’s innovation tenders have become a key tool for promoting the co-location of renewable generation and battery storage. These auctions, launched by BNetzA are designed to support hybrid projects that combine at least two types of technologies. So far, all winning bids have been for solar-plus-storage projects. While some wind-plus-storage projects have participated, none have secured contracts to date. In the most recent auction in October 2024, 587MW of solar-plus-storage capacity was awarded. The tenders have consistently been oversubscribed, signaling strong market interest and growing maturity in hybrid project development.

However, despite supporting the development of co-located projects, developers argue that the current auction design still limits the full economic potential of storage. For instance, co-located storage systems are not yet allowed to charge from the grid, which restricts their ability to participate in wholesale markets and provide broader grid services. Looking ahead, the innovation tenders are expected to continue through 2028, with a target of awarding up to 4GWh of storage capacity.

When planning a BESS project in Germany, developers must already factor in regional differences. As previously discussed, the BKZ (construction cost contribution) can vary widely depending on the location. In addition, depending on the project’s location, developers must coordinate with one of Germany’s four TSOs or – if connecting to the distribution grid – with one of over 800 distribution system operators (DSOs), each with its own procedures and requirements.

Location will become an even more relevant parameter if Germany splits its national electricity market into multiple bidding zones. Such a division would have an impact on price levels, volatility, and market depth in each zone, factors that directly affect the revenue potential of BESS projects.

In a recent report, the European Network of Transmission System Operators (ENTSO-E) recommended dividing Germany into five zones to reduce energy costs and enhance cross-border electricity trade. Other options are also under discussion, such as a north-south split. Figure 3a and 3b illustrates both of these proposed market splits.

Although no formal timeline has been announced, the implementation of multiple bidding zones is not expected before 2027. Nevertheless, BESS developers should begin factoring in the potential impacts of a split on their revenue potentials.

The effect of a bidding zone split on the BESS business case

Assessing the implications of a potential bidding zone split on the business case for BESS projects requires careful attention to detail, as many factors come into play. First, the four different TSOs –see figure 3a for their territories – as well as the local DSOs, may differ in their stance toward BESS deployment. Regarding possible market dynamics in the new zones, differences in cross-border interconnection (see figure 3b) and in solar and wind capacity (see figures 4a and 4b) will result in varying conditions across zones.

The installed solar and wind capacity will influence price volatility in each region. From that perspective, BESS developers may prefer areas with high wind and solar capacity. However, they must also consider the effects of cross-border electricity trade, both between German zones and across international borders. Zones that share interconnectors with countries like Norway, Austria, and Switzerland – where price volatility is low due to large hydro capacities – may experience reduced volatility as a result of cross-border trade. Furthermore, the three planned HVDC power lines – SuedLink, SuedOstLink and A-Nord Corridor – which will connect northern and southern Germany, are expected to reduce zonal price volatility differences.

Germany is currently one of the hottest markets in Europe for BESS. Its volatile and deep electricity markets offer strong revenue potential – particularly for projects that come online before 2029, which are exempted from grid fees. Additionally, there is a relatively high number of potential offtakers for tolling agreements, which can help accelerate the financing process. The pipeline is robust with an expected installed capacity of up to 12GW by 2030 and more than 200GW of projects requesting grid access.

Despite these favorable conditions, significant uncertainty remains regarding the long-term outlook for the German BESS market. Key concerns include the introduction of grid fees after 2029, the BKZ fee, the development of the capacity market, the introduction of new bidding zones, and the possibility of cannibalization as more projects come online. These factors contribute to an uncertain future for BESS investment conditions in Germany.

About this series

BESS are becoming a key component of the European electricity system, providing much-needed flexibility by storing surplus renewable energy and supplying it during peak demand. However, market conditions for BESS projects vary across countries and continuously change with the progression of the energy transition. As a result, evaluating a BESS business case is far from straightforward and requires a holistic assessment.

This article is the fifth edition in our series on backup power for Europe. In part 1, we summarized the market attractiveness across the UK, Italy, Spain, the Netherlands, Germany, and France. Part 2 focused on the UK, part 3 on Italy, and part 4 explored the Spanish BESS landscape.