04.07.2025 / 08:30

Battery energy storage systems (BESS) as a key flexibility provider

Energy Markets

Europe’s urgent need for flexibility – will BESS be a major technology in the future for providing flexibility?

The transition to renewable energy is crucial for addressing climate change and enhancing energy independence. The EU’s 2023 Renewable Energy Directive targets a share of 42,5% of energy comsumption in the EU from renewable energy sources by 2030 and climate neutrality by 2050. The EU has significantly increased the share of energy produced from renewables over the last decades, which currently stands at 37% for power generation. Germany mirrors this trend, with wind and solar capacity growing as coal and nuclear decline. As depicted below, Germany aims to triple wind and quadruple solar capacity by 2040.

However, renewable energy generation is challenging, due to its dependence on weather conditions, while fossil fuel plants remain more controllable. The rise of renewables increases volatility in power generation and demands flexible options to balance supply and demand. A theoretical undersupply currently requires backup from costlier sources like gas. In addition, theoretical oversupply from renewable generators leads to curtailment and frequent negative electricity prices.

Greater flexibility in the entire power system is required to accommodate high fluctuations from renewable generation. A 2023 EU report2 projects short-term flexibility needs to grow sharply, as shown in the table below.

Source: Joint Research Centre, Flexibility Requirements and the Role of Storage in Future European Power Systems | JRC Publications Repository

Various technologies are under consideration to provide this flexibility, including demand side management, Battery Energy Storage Systems (BESS), EV batteries, and hydrogen. Demand side management faces challenges, including the need for aggregation, complex market access rules, and insufficient consumer engagement due to missing incentives and lacking expertise. Although hydrogen is promising, it offers limited efficiency and is costly for building electrolysers and converting the existing gas network. For EV batteries to play a crucial role, conflicting objectives with grid needs must be addressed first, such as restricted availability of EVs due to vehicle operation, limited battery capacity, and the necessity to maintain a minimum charge level for vehicle use.

Forecast for yearly net installed capacity for renewables in Germany.

Source: Historical Installed Capacity - Fraunhofer Institute, Installed Power | Energy-Charts; Projected Installed Capacity up to 2035 – BMWK, Overview of the Eastern Package | BMWK; Projected Installed Capacity beyond 2035 – BMWK and Netzentwicklungsplan Strom, Scenario Framework for NDP 2037/2045 | Netzentwicklungsplan Strom

Software solutions along the BESS value chain.

In contrast, BESS currently represent the best option to provide badly needed flexibility from all options discussed in this article. This is due to cost efficiency, fast technological improvements for BESS, and regulatory changes. Greater battery efficiency with improved storage duration and lower investment costs have made BESS a profitable business case without governmental subsidiaries. Regarding the regulatory framework, it is expected that European countries will further ease the development and connection of BESS to the power grid.

Major use cases for BESS in the energy market include:

  • Stand-alone, front-of-the-meter BESS: These storage capabilities ensure grid stability by engaging in short-term power trading and arbitrage across different energy markets, with the potential to generate significant profits.
  • Co-located BESS with renewable energy: This involves smoothing renewable energy production volatility; for example, compensating for production fluctuations from wind or solar plants.
  • Behind-the-meter BESS: These batteries are usually installed at prosumer sites for purposes, such as peak shaving, or as part of aggregated flexibility brought to the market.

When optimizing BESS profitability, it is essential to consider technical factors, such as cycle limits, warranties, and battery lifespan. There is an important trade-off between maximizing profits and ensuring battery longevity. Another obstacle for BESS optimization is the profitability due to reduction of price volatility. If there is a high degree of participation of other storages and specific subsidies and fees, such as EEG in Germany, BESS as an investment case can become less attractive due to increasing BESS competition.

European markets vary in terms of market access rules. For front-of-the-meter installations, whether stand-alone or co-located with renewable energy, participation in wholesale and ancillary services markets is possible. However, demand-side flexibility and behind-the-meter aggregation vary significantly across countries. For example, in France and the UK, demand-side flexibility aggregators can participate in multiple markets, while in Germany, the situation is more complex. The BESS value chain is comprehensive and spans from technical BESS component management and BESS optimization to market participation. Typically, multiple companies are involved in a single battery project; from investment to operations and market access. These players all require software solutions and a robust architecture to manage their parts of the process. The integration of those software components is challenging on a technical basis, requiring a holistic architecture design across systems and interfaces. A wide variety of software vendors exist along the battery value chain. Currently, no single solution covers all stages. Instead, there are specialized vendors offering solutions for different steps in the process (summarized in the figure above). For more detailed insights into this topic, we recommend the white paper, “Battery Energy Storage Systems (BESS) as a Key Flexibility Provider”, a collaboration between FORRS and Comtech Advisory. It can be downloaded from our website.

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