The rise of bankable BESS projects in Europe

LCOS – The true parameter of profitability

As investors shift their focus from capital expenditure (CAPEX) to levelized cost of storage (LCOS)—the cost per MWh stored and discharged over a project’s lifespan – LCOS has become a key indicator of long-term cost efficiency and bankability.

Key drivers of LCOS include:

• Battery degradation
• Grid fees and connection costs
• Route-to-market (RtM) and operation and maintenance (O&M) fees

At ABO Energy, we use advanced modeling and performance guarantees to stabilize LCOS over 15–20 years, ensuring cost predictability that aligns with investor expectations.

Tolling takes center stage

Tolling agreements are gaining traction for good reason: they offer a predictable revenue stream, shift market risk from the asset owner to the utility or trader, and make projects more attractive to institutional lenders. Though complex and time-intensive to negotiate, often taking several months to a year, these agreements are quietly becoming the preferred model for BESS projects over 100 MW.

In Germany, Nofar Energy secured €86.5 million for a 104.5 MW/209 MWh storage project through a seven-year tolling agreement. Meanwhile, in the UK, Gresham House and Octopus Energy signed a 568 MW/920 MWh, two-year tolling deal, solidifying the appeal of fixed-price structures for both developers and investors.

SoC, SoH & ROI: The true metrics of BESS success

At the same time, BESS optimization has entered its golden age. With shrinking arbitrage margins and growing volatility in wholesale energy markets, knowing your State of Charge (SoC) and State of Health (SoH) is essential.

In this context, tolling agreements can reduce some operational burdens (e.g., daily market decisions and performance risks), but they don’t necessarily remove all the complexity or responsibility from the asset owner. Specifically, performance risks (ensuring the system operates reliably within warranty parameters), SoC/SoH monitoring, warranty compliance and degradation control (especially if the agreement includes performance guarantees or penalties)

Revenue stacking is now mandatory

Gone are the days of single-revenue-stream projects. Today’s market demands a strategic mix of revenue streams: frequency response, balancing mechanisms, day-ahead and intraday trading, and grid stability services are just the beginning. Co-located solar or wind assets, combined with power purchase agreements (PPAs) or tolling agreements, offer further diversification.

“Algotraders”, i.e. revenue optimization providers, are rapidly expanding, driven by opportunities arising from negative electricity prices. For developers and investors alike, choosing the right optimizer with proven tools, data capabilities, and market access can make the difference between margin and loss.

Hedging to attract capital

With the growing risk of CfD-style contracts pushing negative pricing burdens to developers, hedging mechanisms have become essential. Battery storage offers a solution by enabling power shifting, helping developers avoid negative market prices and improve internal rate of return (IRR). Tolling, capacity market contracts, revenue floors, and hybrid merchant structures are all increasingly used to make projects more bankable.

Interestingly, while co-located projects aren’t yet valued higher than standalone assets, they are becoming more attractive due to lower development costs. However, current financial models still treat them as independent assets. Bridging the technical and contractual gap could unlock new efficiencies, especially if future frameworks support hybrid valuation.

What investors want in 2024

From our discussions with top-tier investors across Europe, the checklist for fundable BESS projects has become clear:

• Projects ≥ 50 MW / 100 MWh – to leverage economies of scale
• Ready-to-build or near-commercial operation date (COD) – to shorten deployment timelines
• Strong tolling or optimization partners – ensuring revenue stability
• Grid connection secured with responsive design – minimizing curtailment risks
• Sophisticated financial modeling – with clear IRR, LCOS, and payback assumptions

IRR remains king. Projects targeting IRRs of 10%+ with diversified revenue stacks— including automatic Frequency Restoration Reserve (aFRR), arbitrage, and capacity market contracts— are favoured by investors. Any project with an IRR below 8% is likely to face increased scrutiny, especially in the absence of clear policy guidance. However, IRR alone isn’t enough.

Grid access as a competitive edge

Grid connection has evolved from a technical detail into a critical business case parameter and potential bottleneck. As more developers race to secure limited feed-in capacity, grid friendliness is no longer a nice-to-have; it’s a strategic necessity.

Bayernwerk Netz’s recent “feed-in socket” pilot illustrates this shift. By proactively creating 40 MW of feed-in capacity at a new substation near Niederviehbach, Bayernwerk and LVN are pre-allocating access through a structured, two-phase application process. The first phase offers a limited early-bird window for innovative projects, followed by a general “first come, first served” phase. Construction is set to begin in early 2025, with commissioning scheduled for Q4.

This model highlights how grid access is becoming both a competitive race and a gatekeeper of project bankability. At ABO Energy, we’re addressing this challenge by using internal grid simulations to identify fast-access, low-risk nodes—ensuring our projects are not only technically viable but also grid-aligned from day one.

Preparedness wins

Energy storage is one of Europe’s fastest-growing asset classes. In today’s market, funding follows preparedness.

In 2025 and beyond, only projects that combine financial credibility, operational agility, grid-aligned design, and derisked structures will secure investor confidence and move to execution.

At ABO Energy, we don’t just develop battery storage—we develop investable projects that are built with precision: financially robust, technically optimized, and grid-ready for the future.

About the author:

Anoucheh Bellefleur is Team Lead for Storage Market and Strategy at ABO Energy, where she leads an international team focused on identifying business models and go-to-market strategies for standalone battery storage and hybrid renewable energy projects through in-depth analysis and optimization modeling. Before joining ABO Energy, Anoucheh spent a decade in project management and senior energy consulting roles. She also contributes to policy analysis publications and is a regular speaker on renewable energy developments in Europe. Anoucheh holds a Master’s degree from the London School of Economics (LSE) and Sciences Po Paris.