BackBy Guillaume Rivron, Managing Partner at Marguerite
What’s the single biggest shift you expect in the battery storage market in Europe this year?
Europe’s Battery Energy Storage Systems (BESS) market grew by 45% year-on-year, reaching 16 GW of installed capacity by end-2025, driven mainly by utility-scale projects (Wood Mackenzie). This “dash for BESS” reflects lower capex, attractive remuneration, and rising flexibility needs as renewable penetration increases. Several players previously sceptical of the sector have now entered the market.
At the same time, Transmission System Operators have launched auctions supporting longer-duration storage (e.g. up to 8 hours in Italy and the UK), whereas the market previously focused on 1-hour systems. These trends are likely to persist for several years.
Looking ahead, 2026 could mark another shift if regulations address the key issues discussed below. In particular, hybridisation (co-locating BESS with renewables) could unlock value and make many currently challenged “renewables-only” projects viable. In parallel, as European flexibility markets become more harmonised (e.g. the PICASSO project), competition to capture different BESS value pools will intensify.
How do battery projects make money today, and how is that changing?
Historically, BESS revenues were dominated by ancillary services. The market is now shifting toward arbitrage and merchant trading. Investors can therefore tailor business models to their risk appetite, ranging from fully merchant exposure to long-term contracted revenues via auctions (e.g. recent MACSE in Italy) or tolling agreements.
In markets such as Germany, fully merchant BESS can still deliver very attractive returns, but cannibalisation risks are rising. The most resilient strategy is likely a balanced one, combining layered contracts with selective merchant exposure across a portfolio.
In addition, new flexibility products are emerging, including inertia services and capacity markets, further expanding the addressable revenue stack.
Which regulatory or policy decisions will have the biggest impact on battery deployment in 2026?
What would you change if you could “fix one thing”?
The treatment of negative electricity prices is the central unresolved issue, as the number of negative-price hours continues to rise.
In France, for example, some renewable support schemes still provide incentives during negative-price periods, limiting overall system optimisation. This needs to be addressed carefully to preserve investment incentives while improving system efficiency. BESS have a critical role in mitigating negative prices caused by non-dispatchable generation.
Allowing BESS to withdraw electricity from the grid without penalty would unlock the full potential of hybridisation with solar or wind, which remains economically challenging in several markets. This could also accelerate behind-the-meter demand-side models, which are still nascent but promising.
Grid constraints remain a major bottleneck. Years of underinvestment, compounded by rapid renewable deployment, have left transmission and distribution networks under strain.
Finally, from a sovereignty perspective, Europe may need to accept continued reliance on Asia for battery cells, while strengthening European capabilities in system integration and the broader BESS ecosystem, where several players could emerge as global leaders with the right support.
What kinds of batteries are being built now, and why?
For standalone BESS, the first trend is scale: “the bigger the better,” as developers race to capture value before oversupply erodes returns.
A second defining factor is duration, which varies by country but is clearly increasing. Two-to-four-hour systems (and beyond) are becoming the norm, reflecting batteries’ growing role in load shifting, grid resilience, and supply security. This points to a second trend: “the longer the better.”
Finally, safety and performance have improved materially, with newer battery generations offering better integration, lower fire risk, longer lifetimes, more guaranteed cycles, and enhanced synthetic inertia.
What are the main risks or misconceptions around BESS?
The main risk is standardising BESS designs across countries without adapting to local regulations and revenue structures. A key misconception is that BESS alone can fully replace dispatchable thermal generation. Batteries are a powerful enabler, but must be accompanied by grid reinforcement (including interconnectors), market integration, and policy reform to deliver a resilient European power system.
What lessons did you learn from your investments in ZE Energy or Nexun when it comes to BESS?
Through ZE Energy, a pioneer independent flexibility platform, we learned the importance of combining hybrid and standalone BESS, which address different system needs, and of adopting market-specific strategies across Europe. We also learned that BESS is not a plug-and-play business: there is a meaningful learning curve, often underestimated by new entrants, before projects can be scaled efficiently.
With Nexun, a multi-market BESS and renewables development platform, we gained experience navigating local grid processes and stakeholder engagement, optimising siting decisions and shortening time to ready-to-build.
Key takeaway
The next phase of BESS growth in Europe will be defined by the shift from ancillary services revenue models toward merchant, arbitrage, and hybrid models, underpinned by clearer regulation and accelerated grid investment. Now established as an asset class in its own right, BESS offers diverse risk-return profiles for investors who can master development and procurement, adapt to national market designs, and move selectively and quickly to capture the best opportunities.