TBx contracts offer middle ground for European BESS projects

European battery storage developers are increasingly exploring new contract structures designed to improve project bankability while preserving exposure to merchant market revenues.

According to Swiss consultancy Pexapark, one of the most closely watched developments is the emergence of Top-to-Bottom (TBx) contracts, a financial instrument intended to sit between fully merchant business models and traditional tolling agreements.

Battery energy storage systems (BESS) generate revenue from multiple markets, including energy arbitrage, balancing services, reserves and intraday trading. While full merchant exposure offers the greatest upside potential, it can make projects difficult to finance because future revenue streams remain uncertain. Tolling agreements, by contrast, provide greater revenue certainty but typically require developers to hand operational control of the asset to a third party.

TBx contracts seek to bridge that gap. They are generally structured as financial swaps based on wholesale electricity price spreads, allowing battery owners to retain operational control while receiving partial protection against market volatility.

Under a typical arrangement, the battery owner receives a fixed payment and settles a variable component linked to observed market spreads. Many contracts reference indices based on the difference between the highest- and lowest-priced hours in the day-ahead market, such as the TB2 index, which measures the average spread between the two most expensive and two least expensive hours.

The principal challenge remains so-called basis risk. Because settlements are linked to a theoretical market index rather than the actual performance of the battery, revenues under the contract may diverge significantly from asset earnings. Equipment outages, degradation, operational constraints and energy losses can all prevent a battery from capturing the price spreads reflected in the index.

Pexapark said lenders and investors continue to assess how closely day-ahead market spreads correlate with total battery revenues before considering TBx structures fully bankable. Greater contractual standardization and the development of transparent benchmark indices are expected to play a key role in determining whether the model gains wider adoption across Europe.

The emergence of TBx contracts comes as battery storage activity accelerates across European power markets. Pexapark noted that two new two-year battery storage agreements were announced in June. In Germany, Eco Stor signed an agreement with Shell and Next Kraftwerke for a standalone storage project, while in France, Elements agreed a contract with Eclipse for a hybrid solar-plus-storage facility.

The consultancy also highlighted regulatory developments that increasingly reward system flexibility. In Germany, policymakers are debating reforms to network charges that would introduce capacity-based fees for generation, storage and electrolyzers from 2029, while preserving exemptions for existing battery projects. In Poland, growing volatility in balancing and reserve markets is improving the revenue outlook for flexible storage assets. In Italy, meanwhile, recent regulatory interventions have triggered price revisions and contract renegotiations in the power purchase agreement market.

From pv magazine España