Backup power for Europe – part 6: Dutch BESS capacity grows despite regulatory hurdles

As highlighted in part 1 of this series, intermittent renewable energy sources play a significant role in the Dutch electricity mix, and their share in the generation mix is expected to further increase. In 2024, solar and wind energy accounted for 45% of the Dutch annual electricity production. According to the Netherlands Environmental Assessment Agency (PBL) this share will increase to 65% by 2030 (in Dutch). Table 1 presents the installed renewable capacity in 2024 versus the 2030 capacity goals outlined in the Dutch National Energy and Climate Plan (NECP). To reach these goals, wind generation capacity should roughly increase by 11.5GW, while solar PV generation should grow by 4GW. To put this increase into perspective: The Dutch peak electricity demand is around 19GW.

However, the 2030 renewable energy targets might not be realized. Low – and even negative – daytime electricity prices, feed-in tariffs, and the announced phase-out of the net metering scheme have resulted in a decline in demand for solar PV. Meanwhile, planned offshore wind projects are facing reduced investor appetite due to a range of factors, including increased project development costs, grid connection issues, and an unattractive auction scheme for offshore wind tenders that is currently under review. PBL therefore expects that the Netherlands will not be on track to meet its 2030 climate targets and advises that additional policy measures should be taken. Yet, in the recent spring memorandum negotiations (in Dutch) of the Dutch government, budget was reallocated away from the Ministry of Climate Policy and Green Growth. Shortly after these negotiations, the government announced its resignation, further increasing the uncertainty about whether the Netherlands will reach its climate goals.

Still, even at the current level of renewable penetration, there is clear growth potential for BESS.
During windy and/or sunny periods, an overcapacity of wind and solar generation drives electricity prices down – sometimes even into negative territory – and can lead to curtailment. Interconnection with other countries offers some flexibility, but that capacity is limited, and neighboring markets like Belgium and Germany often experience similar weather patterns.

BESS projects can provide additional flexibility to the grid by storing excess renewable energy and making it available when demand is high. By leveraging the spread between low or negative prices during periods of excess renewable production and high prices during peak demand, BESS operators can generate revenue from arbitrage opportunities.

A small but growing BESS market

Currently, the Dutch energy storage market is much smaller than that of some other European countries (see figure 1). Because pumped hydro storage is not an option due to the Netherlands’ flat geography, BESS is currently the most suitable choice to increase energy storage capacity in the short term. To date, around 250MW of BESS has been installed in the Netherlands, while 840MW is permitted or under construction and another 690MW has been announced. Meanwhile, the scale of announced projects is on the rise. The pipeline features projects such as Dutch energy storage developer Lion Storage’s Project Mufasa (364MW/1,457MWh) and Giga Storage’s Leopard (300MW/1,200MWh) (see figure 2). In contrast, the UK has added 5GW of BESS capacity over the last five years.

TenneT assumes (in Dutch) that standalone BESS capacity in the Netherlands will reach 5GW by 2030, in addition to 1GW of colocated batteries. Considering that the total capacity of projects online and in the pipeline is around 1800MW, that project scales are increasing, and that projects can be developed within two to four years, we deem this expectation plausible. However, whether the Dutch BESS capacity will continue to grow at this pace will depend on the confidence investors and financiers have in revenue potential and grid fees, as well as on whether BESS projects are prioritized in the grid connection queue.

Today, Dutch BESS projects can rely on multiple revenue streams from various markets and services (see figure 3). Projects can generate revenue by trading on the wholesale electricity markets and by offering balancing and grid services to TenneT.

Price spreads on the day-ahead market offer arbitrage opportunities

Over the past two years, day-ahead price spreads[1] in the Netherlands have been relatively high (see figure 4) . Especially during the summer months, day-ahead spreads in the Netherlands – as well as in Germany – have been significantly higher than in the other countries featured in this series. In May 2025, the monthly average price spread reached its highest level since 2023. The large price spreads are the result of very cheap solar-powered electricity during the day and expensive gas-powered electricity during evening peaks.

[1] Price spread is defined as the monthly average of the daily difference between the most expensive and the cheapest hour of the day.

Passive imbalance trading becomes less attractive

The imbalance market is not a real market but a financial settlement mechanism for Balance Responsible Parties (BRPs) that deviate from their own E-program (the forecast of electricity offtake and supply in a BRP's portfolio per quarter-hour). Deviations can occur unintentionally, e.g., due to more or less wind than expected, but may also be deliberate, when a BRP expects to profit from deviating. How much a BRP can earn or lose depends on the imbalance price at that moment and on the so-called regulation state. [2] RaboResearch’s report on the Dutch electricity sector provides more information on the Dutch imbalance market and how it works.

Tables 2 and 3 below show that, so far this year so far, imbalance prices have become less attractive compared to last year. This is particularly notable given that day-ahead prices have increased compared to 2024. At the same time, imbalance prices have gotten a lot more volatile, as indicated by the standard deviations.

[2] Regulation states:
1: Balancing energy is activated in an upward direction due to a system surplus.
-1: System surplus. Balancing energy is activated in a downward direction due to a system deficit.
2: Balancing energy is activated in both upward and downward directions.
0: No balancing energy is activated.

Next to declining imbalance prices, trading on this market has become more risky due to the increasing occurrence of regulation state 2. Generally, BRPs only find out in hindsight that what appeared to be regulation states -1 or 1 actually turned out to be a regulation state 2 situation. As can be seen from tables 1 and 2, the earning potential of BRPs is far lower when regulation state 2 occurs. Thus, the more frequently regulation state 2 occurs, the lower the overall earnings potential of the passive imbalance market. Figure 5 shows that TenneT has to activate aFRR capacity more often (there are fewer quarters with regulation state 0). It also shows that there is an increase in the number of 15-minute imbalance settlement periods (ISPs) in which TenneT has to activate both upward and downward aFRR capacity, corresponding to regulation state 2, which is associated with much less attractive imbalance prices.

Dutch balancing services offer relatively stable revenues, but saturation is a threat

In contrast to, for example, the UK – where prices for balancing services have dropped significantly due to market cannibalization – Dutch balancing services still offer relatively stable returns, although prices are starting to decline. Dutch BESS projects mainly participate in two balancing services: Frequency Containment Reserve (FCR) and automatic Frequency Restoration Reserve (aFRR). The Dutch TSO, TenneT, uses these services as the primary and secondary restoration services, respectively, as explained in RaboResearch’s report on the Dutch electricity sector. The tertiary restoration service, manual Frequency Restoration Reserve (mFRR), sees limited BESS participation, as mFRR assets must be able to supply the contracted restoration power over a 24- hour period. When BESS are colocated with combined heat and power systems, for instance in Dutch greenhouses – this requirement can be met. The expected shift from 24-hour to 4-hour bidding blocks would make mFRR a more feasible option for BESS.

Figure 6 shows that the price of contracted FCR capacity has gradually declined since 2020. This market is relatively small and thus quickly saturated.

The graph below shows that aFRR capacity prices are dropping even faster than those of FCR capacity, especially for downward aFRR capacity. RaboResearch believes this trend is partly due to the growing number of wind turbines participating in the aFRR market, next to increasing BESS involvement. It should be noted, however, that 2025 aFRR contracted capacity and price data were only available up to March 2025, and prices are typically higher during the summer months. The full-year average for 2025 is therefore expected to be somewhat higher, but prices in the first few months are below the monthly averages of previous years. In addition, price volatility is dropping.

Figure 8 shows that in the first six months of 2025, nearly equal amounts of upward and downward aFRR capacity have been activated on average since 2019. This suggests that 2025 is on track to surpass the record year of 2022 in terms of activated aFRR capacity. A key difference, however, lies in the corresponding prices, which are significantly lower than in 2022. This further indicates that while the demand for aFRR energy is increasing, the number of assets offering this service is also growing, leading to downward pressure on prices.

BESS can play a critical role in grid services

Power grid congestion is a major issue in the Netherlands, and batteries – when used correctly – can support transmission services. As the increasing demand for grid capacity continues to outpace grid expansion, BESS projects participating in congestion management (in Dutch) can offer much needed flexibility to the Dutch grid, either by offering redispatch or by entering into capacity limiting contracts.

Besides their role in congestion management, TenneT is also exploring how batteries can contribute to other grid services, such as reactive power, synthetic inertia, and black start capability. The latter would require updates to the grid code, as this service is currently limited to fossil-based generation.

Despite the high penetration of renewables, attractive electricity market conditions, and virtually no competing storage capacity, the growth of Dutch BESS capacity is lagging behind that of other European countries. In this section, we discuss the key challenges hindering the Dutch BESS market and highlight the opportunities to overcome them.

Lack of capacity markets limits stable revenue options

As shown in part 1 of this series, the Netherlands is the only one without a capacity market in place or in the process of implementing one. Recently, the Dutch Ministry of Climate Policy and Green Growth, together with the Netherlands Authority for Consumers and Markets (ACM), launched a debate on introducing a capacity market (in Dutch) to secure electricity supply as risks rise beyond 2030. This followed a warning from TenneT that the risk of power outages will increase. Even if a capacity market is deemed necessary, it would take several years to design and role out, with implementation unlikely before the beginning of the 2030s.

The absence of a capacity market makes it more challenging for BESS owners to secure financing. One emerging trend to mitigate merchant risk is the use of profit-sharing models, in which a counterparty – such as a large utility – optimizes BESS operations and in return shares the resulting profits with the asset owner. The counterparty’s expertise in trading on the power markets can boost investor confidence in such merchant BESS projects. Tolling agreements, where a developer leases the asset to a counterparty at a fixed price for a predetermined period, could be another tool to reduce project risk. However, this type of arrangement, is not (yet) common in the Netherlands.

High grid fees and connection queues slow Dutch BESS development

Grid fees pose a hurdle for Dutch BESS projects, as the ACM classifies these projects as consumers. Since variable transport fees – making up the bulk of grid fees – are charged to consumers, and Dutch grid tariffs are notoriously high, this classification has a major impact on the Dutch BESS business case. Currently, there is no sign that the ACM will revise the status of BESS. On the contrary, the ACM is considering extending variable transport fees to generators, which would further increase grid costs for BESS projects.

Another issue is the high level of congestion on the Dutch power grid. In most areas, there is no available grid capacity for new contracts – neither for electricity offtake nor for infeed. Grid operators have abandoned the “first come, first served” principle and are now allowed to prioritize projects of critical public interest, including those that help alleviate power grid congestion. This increases the chances of BESS projects to secure a grid connection, albeit through an alternative transportation contract (in Dutch). However, the ACM would need to redesign (in Dutch) the corresponding grid code by January 1, 2026; otherwise, it will have to revert to the first come first, served approach.

Alternative transportation rights and time-of-use grid tariffs support the BESS business case

Dutch grid operators have developed alternative transportation rights for customers that do not need to use their entire contracted transportation capacity at all times. Among the various types, the most relevant for BESS is ATR85 (alternative transport rights 85). This right is offered exclusively by TenneT and guarantees access to contracted transportation capacity for 85% of the hours in a year. During the remaining 15%, their contracted capacity is not guaranteed, although it may still be available. If the contracted capacity is going to be limited, TenneT must notify customers by 8.30 am the day before. Alternative transportation rights use the residual capacity of the electricity grid and help reduce peak load, thereby using the existing electricity infrastructure more efficiently. The downside of alternative transportation rights like ATR85 is the lack of certainty about when producers and consumers can use their electricity connection. The upside lower grid fees.

At the beginning of 2025, TenneT also introduced so-called time-of-use (ToU) grid fees, making part of the grid fees (the variable transportation costs) dependant on the time of day, with higher costs during peak hours and lower during off-peak hours. When combined with ATR85, ToU grid fees can reduce transportation costs by up to 65%, which can significantly improve the economics of BESS projects. However, grid fees are expected to rise substantially over the next years due to large investments in grid expansion. In 2025, TenneT was able to offer 9GW of ATR85 capacity. While this may sound like a lot, some regions in the Netherlands are already experiencing queues for access to this product.

In a recent communication (in Dutch), the ACM announced that it will investigate whether and how batteries can be remunerated for providing grid flexibility. The ACM expects to publish its findings in a report scheduled for release in Q4 2025.

Colocation strategies help defer grid fees

The high grid fees and long grid connection queues strengthen the business case for BESS colocated with solar or wind generation. Colocated batteries share the same grid connection as the generation asset and are therefore placed “behind the meter.” This will typically reduce the grid fees for the BESS, as it draws less – or even no – electricity from the grid. In addition, colocation can benefit the generation asset by reducing curtailment and managing profile risk. TenneT expects colocated battery capacity to reach 1GW by 2030.

The previous Dutch government (the Rutte IV cabinet) aimed to make colocated batteries mandatory for solar PV farms. To accommodate this, the current government has allocated EUR 17m per year in subsidies (in Dutch) for pilot projects. However, the total budget for the pilot has been reduced by 40% since its announcement in 2023. Furthermore, the funding has been expanded to include alternative energy storage technologies as well as to demand response initiatives.

The Dutch electricity markets offer attractive revenue potential for BESS projects, driven by the volatility of the day-ahead market. Because the Dutch electricity system relies on a mix of cheap renewables and expensive gas-fired plants, we expect this revenue potential to remain strong. Prices for ancillary services have been relatively stable, but cannibalization risks are increasing.

However, the regulatory environment is a major hurdle for Dutch BESS developers. The most significant challenge are the notoriously high grid costs, which are expected to rise further. In contrast, Germany’s grid-fee exemption is accelerating BESS deployment there. Another key issue is securing grid capacity on the highly congested Dutch power grid.

Despite these hurdles, the attractiveness of the Dutch market is reflected by the 1.8GW of projects in the pipeline and the growing size of individual projects. Flexibility needs in the Netherlands are high, as underpinned by the increasing price spreads on the Dutch wholesale markets and TenneT’s assumption for 5GW of BESS capacity by 2030. Furthermore, new opportunities arise as grid operators and the ACM continue to look for new ways to address grid congestion, including the potential introduction of capacity auctions in the future.