Large-Scale Battery Storage: Between Boom and Uncertainty

Large-scale battery storage systems are currently experiencing a dynamic market ramp-up. Falling costs and increasingly volatile electricity prices are driving investments and project developments. Various estimates show that the revenue potential of battery storage in the current market environment significantly exceeds its costs. This is also reflected in the high volume of grid connection requests, which exceed the currently installed capacity many times over. The Institute of Energy Economics (EWI) has examined market, technology, and regulatory developments for large-scale battery storage in a new analysis.

Technically, battery storage systems are highly versatile. In addition to market-oriented dispatch and frequency containment, they are increasingly enabling non-frequency-related system services. At the same time, their role remains focused on short-term flexibility due to limited energy capacity. The key to efficient utilization and monetization is cross-market optimization: revenue expectations are formed across different markets, and trading is flexibly adjusted to the most attractive options available.

Arbitrage Revenues Expected to Be More Stable Than Frequency Containment

On the market side, there is a clear shift in revenue potential from frequency containment toward spot markets. Both internal and external analyses indicate that, in the future, revenues from arbitrage trading on spot markets could provide a relatively stable revenue path over the coming years.

However, risks exist beyond general market trends, particularly the so-called cannibalization effect: while revenues from battery storage are currently well above annual costs, price spreads and margins could decrease as battery deployment increases. This is an effect that has already been observed empirically in markets like California.

In contrast, revenue prospects in the balancing energy markets are under greater pressure. With the demand for balancing power remaining largely constant, the rapid expansion of battery storage is leading to quick market saturation, as supply increasingly exceeds demand. Consequently, declining revenues are expected, particularly for primary and secondary control reserves.

Regulation Offers Both Opportunities and Risks

The regulatory environment for large-scale battery storage remains challenging. Initial hurdles in the previously uncoordinated grid connection process have been addressed through the “maturity level procedure” (Reifegradverfahren). Nevertheless, uncertainties regarding grid fees, specifically in the context of the planned AgNes reform, mean that future revenues will be harder to predict. Flexible grid connection contracts also impact the economic viability of projects through operational restrictions.

At the same time, new revenue potentials are emerging. Capacity markets, the increasing market-based procurement of non-frequency-related system services, and potential dynamic grid fees could open up additional income streams. However, their specific design and economic significance remain subject to considerable uncertainty.