Introduction to BESS
Battery Energy Storage Systems (BESS) are advanced technologies designed to store energy generated from various sources, such as solar and wind, for later use. They operate by charging during periods of surplus electricity generation and discharging during periods of high demand or low generation.
Energy storage is vital for integrating renewable energy, ensuring the reliability of power supply, and reducing greenhouse gas emissions. BESS stands out for its affordability, driven by technological advances and economies of scale. Its modular design offers scalability and flexibility, balancing grid supply, stabilizing the system, and enabling consistent energy delivery regardless of weather conditions.
The Role of BESS in Germany’s Energy Transition
As the global leader in energy transition, Germany’s commitment to achieving a carbon-neutral economy by 2045 necessitates innovative solutions to integrate renewable energy into its power grid.
Additionally, Germany’s significant growth in renewable energy, which will cover 55% of power consumption by 2024, underscores the nation’s commitment to achieving an ambitious 80% renewable energy share by 2030.
Germany’s Energiewende Strategy has driven exponential growth in renewable energy capacity, especially wind and solar, with plans to double onshore wind capacity to 115 GW, expand offshore wind to 30 GW, and boost solar capacity to 215 GW by 2030.
However, these energy sources are inherently variable, creating challenges for grid stability and energy reliability. This is why integration of BESS is critical in this mission by providing Renewable Integration, Energy Storage, Grid Stability, and Peak Load Management.
BESS offer a reliable, efficient and flexible means to optimize energy systems, increasing the efficiency of electricity markets and contributing to smoother and more predictable electricity prices.
By ensuring energy resilience, reliability, and sustainability, BESS aligns with Germany’s vision for a carbon-neutral future and sets a benchmark for the global energy transition.
Enabling Germany’s Energy Transition requires an economically sustainable model to attract private capital. The following sections shall provide an overview of various technologies, use cases, revenue strategies, and how the necessary CapEx for BESS can be funded.
BESS is used Across the Entire Energy Landscape
Energy Storage Applications
Exploring BESS Solutions in the Market
Based on Battery Technologies
- Lithium-ion: Lithium iron phosphate (LFP) and nickel manganese cobalt oxide (NMC) are lithium chemistries, offering high energy density, lightweight design, rapid charging, and long lifespan.
- Lead Acid Batteries: Lead-acid batteries, common in automotive and UPS applications, are affordable, recyclable, and temperature-tolerant but have lower energy density, efficiency, and a shorter lifespan.
- Flow Batteries: Flow batteries, like vanadium redox, store energy in liquid electrolytes, offering long lifespans, quick response, low fire risk, and suitability for extended durations of up to 8 hours.
- Sodium-ion: Sodium-ion batteries are a promising alternative to lithium-ion and are gaining traction. They offer cost advantages (up to 20% cheaper than LFP), improved safety, and greater sustainability.
With a 72.3% market share, lithium-ion batteries dominate grid-scale BESS applications and are set to remain the top choice for future needs.
Based on the Location of the BESS
Based on Voltage and Power of BESS
BESS Capacity across Germany and Projected Growth
By mid-2024, Germany’s total BESS capacity reached 16 GWh, which included:
- 13 GWh residential
- 1.1 GWh commercial
- 1.8 GWh large-scale systems
Germany led the European BESS market in 2023, with a 34% share, followed by Italy at 22% and the UK at 15%.
Germany added 6.1 GWh of installations in 2023, and for 2024, new installations are projected to grow by 17%, reaching approximately 7.1 GWh.
Additionally, Germany led Europe in residential energy storage, installing 555,000 units (5.0 GWh) in 2023: a 166% YoY growth—accounting for 52.6% of Europe’s new installations.
In 2024, Germany’s four major transmission operators registered 161 GW of storage projects, excluding distribution system operator requests, which manage electricity delivery from substations to consumers.
Total German Installed BESS Capacity (in GWh)
Germany’s BESS Installations Types (as of 2023)
Total Grid-Scale BESS Capacity and Forecast (in GWh)
Bundesverband Solarwirschaft (BSW) forecasts an additional ~7 GWh of grid-scale BESS capacity by 2026. Supported by strong EU policies, Germany will rank third in grid-scale energy storage additions (8.81 GWh) by 2031, per Wood Mackenzie.
BESS Revenue Models
German BESS revenues fell below 100 €/kW/yr in Q1’2024 due to mild winter and weak gas prices. By Q3, revenues recovered above 150 €/kW/yr, supported by market volatility and automatic Frequency Restoration Reserve (aFRR) fees, boosting investor interest in acquiring & developing BESS projects.
Based on how BESS sells its services to the market, revenue streams can be broadly divided into the following 2 types:
Role of Optimisers in Ensuring Peak BESS Efficiency and Maximizing BESS Revenues
BESS optimisers help enhance the operation and profitability of BESS. The primary goal of its services is to enhance the economic performance of the system by using advanced AI and data analytics to determine the best operational strategy in real-time.
For merchant strategies, they optimize profit through e.g., arbitrage. For contracted strategies, they ensure optimal performance to meet grid stability and ancillary service requirements under fixed agreements.
In particular, smaller BESS operators might outsource the optimisation of revenue strategies and price arbitrage, while bigger operators should have the means to build the necessary capabilities in-house.
Selective European BESS Optimiser
Development Expenditures (DevEx) and Capital Expenditures (CapEx) in Germany
While CapEx are expected to decrease over time, though not necessarily at a similar speed as seen for solar PV modules, DevEx are assumed to stay more or less constant, given that these are mainly driven by land-costs, license and permission fees and cost of qualified human resources.
Capex cost for a battery system includes the following components:
- Electrical Infrastructure
- Generation Equipment & Infrastructure
- Grid Connection costs
- Installation & Indirect costs
- Owner’s costs
- Site cost
- Above mentioned costs are assumed to be for a 2-hr 60MW (120MWh) Energy Storage System, which uses Lithium-ion Battery Technology.
- The relationship between CapEx per kW and CapEx per kWh highlights that a longer duration (the time it takes to discharge a battery) reduces CapEx per kWh but increases CapEx per kW.
Based on the grid-scale capacity additions each year (2022-2031) across Germany, we have predicted the below total financing requirements:
BESS Financing in Germany
Total DevEx Financing YTD and Forecast (EUR m)
Total CapEx Financing YTD and Forecast (EUR m)
Given the growth predicted by BSW for grid-scale BESS capacity over the next years (see page 5), developers of BESS are expected to display significant financing needs both for financing their development activities as well as the construction of approved locations.
In subsequent years this financing pressure should ease, though we do expect that projects and financing needs will spill over into the following years, providing for smoother but still significant financing volumes p.a.
Based on the assumption that DevEx will predominantly be financed by equity, and applying an LtC of 70% for CapEx as often seen for solar PV, we have predicted the below capital requirements both in equity and debt.
Equity & Debt Mix for the Financing Required (EUR m)
Overview of Various Types of Potential Investors Driving Growth in Germany’s BESS Market
Grid-scale BESS battery investments offer strong returns, with internal rates of return (IRRs) typically ranging from 8% to 12%, driven by ancillary services and energy trading.
Due to the relative infancy of BESS compared to solar PV and wind, the saturation of some institutional investors with these mature asset classes, and the yet volatile revenue profile of BESS, equity investors are not as numerous as for traditional renewable energy projects, both on the corporate equity and project equity side.
For debt, German banks are expanding into BESS financing with both floor-protected and merchant-based debt facilities. This is helped by BESS developers getting benefits from rising demand and evolving offtake contracts, offering strong 5-to-10-year terms.
Below is an overview of the main investor groups, their investment motivations and risk appetite.
Private Equity Funds
- Provides capital for high-risk opportunities, such as early-stage developments, aiming for substantial returns by accepting development risks and leveraging expertise to maximize growth potential.
- Firms support investments with technical expertise and management resources, acquiring assets early in development to create value and capitalize on growth opportunities, delivering significant returns despite inherent risks. Examples include:
Infrastructure Funds (Equity & Debt)
- Equity investors share motivations akin to private equity funds, seeking substantial returns by taking on higher risks, such as early-stage developments or growth opportunities
- Debt investors often accept higher risks than traditional banks or asset managers, such as construction or merchant revenue risks, in exchange for elevated interest and enhanced return potential. Examples include:
Banks/Asset Managers
- These types of financial investors typically participate in a senior position within the capital structure, focusing on projects at advanced stages of development, such as construction or operational phases.
- These investors offer longer-term financing solutions with substantial debt volumes, enabling projects to meet their capital needs during later development stages. Examples include:
Corporation
- Strategic equity investors seek to acquire a pipeline of projects to expand and diversify their portfolios and supplement their product offerings through the value chain.
- They also aim to acquire in-depth development and operational expertise within the asset class, further enhancing their ability to manage, optimize, and scale renewable energy solutions. Examples include:
An Overview of the selected BESS Transactions in 2024
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