Interest in battery and flexibility soars in European energy markets

As the challenges of managing intermittent renewable energy continue to grow, European energy market participants are viewing battery energy storage systems (Bess) and flexibility as one of the biggest priorities of 2026. 

In interviews carried out by Energy Risk at energy trade fair E-World in February, utilities, traders, software developers and consultancies all said they expected batteries to be a major focus for them this year (see video, above). 

“What we are seeing now… due to renewables and stress on the grid, [is that] flexibility is becoming more and more important [and that] battery and Bess is becoming a very important topic of discussion,” said Domenico Franceschino, head of origination for West and Eastern Europe and member of the management board of Axpo Solutions in an interview with Energy Risk. 

With wind and solar generation in the European Union reaching 30% of total generation in 2025 – a steep rise from 20% five years previously – renewables generation came in above fossil fuel output, at 29%, for the first time on record, according to Ember. In 2025, wind and solar generated more power than all fossil sources in 14 of the 27 EU countries.

As a result of the increasing need to deal with intermittency and grid instability, interest in Bess is soaring. Over the past five years, global Bess installations have increased over 20-fold in capacity, and the Bess market is now projected to grow by around 21% annually to 2030, with utility-scale capacity potentially increasing more than 15-fold between 2023 and 2030, according to the International Energy Agency. At the same time, Bess development costs have fallen, with average global prices in 2025 falling to one-third of levels seen in 2020. 

Large energy market participants, such as Axpo and ENGIE, are now rolling out Bess as well as flexibility contracts designed to help battery developers and operators manage risks around financing, optimisation and the changing load shape of the power market. 

Flexibility purchase agreements (FPAs) can be physical contracts that involve operating the battery in a way that generates revenue using cutting-edge forecasting tools, or financial contracts that offer, for example, a fixed spread between the top and bottom hours of the market. In between these two structures is the virtual FPA where physical power could be traded at a hub. 

What we are seeing now… due to renewables and stress on the grid, [is that] flexibility is becoming more and more important [and that] battery and Bess is becoming a very important topic of discussion

Domenico Franceschino, Axpo Solutions

Axpo’s battery portfolio in Europe includes projects in Sweden, Poland, Germany, France, and Italy, with its most recent being a long-term deal with R Power where Axpo will manage and optimise one of the biggest battery systems in Poland. The agreement covers up to the end of 2037 and construction of the 150 megawatts (MW)/300 megawatt hours Bess is under way. 

ENGIE also has big ambitions for its Bess portfolio, aiming to have 10 gigawatts (GW) of installed battery capacity globally by 2030. As well as building and operating batteries, ENGIE originates and offtakes batteries for clients. It offers various types of FPAs and in Germany the ambition is to have 2GW of flexibility by 2030, said Martin Daronnat, head of flexibility and structured origination at ENGIE SEM (Supply and Energy Management) in Germany.

The firm does this not only to support and risk manage its upstream and downstream portfolio exposures, but also to deliver on its 24/7 green ambitions, he explained. “By 2030 we have the aim of scaling up the amount of corporate power purchase agreements (PPAs) under a 24/7 scheme,” he said. Under the 24/7 carbon-free energy scheme, a firm’s electricity consumption is matched with carbon-free generation on a granular basis, as opposed to traditional annual matching where a company buys renewable energy certificates to cover its yearly usage. 

Additionally, the tenor and size of ENGIE’s battery deals is increasing. In February 2026, for example, the firm announced a long-term, fixed-price virtual FPA with Return Energy. The deal is for 100 MW of Bess in Germany to begin in 2027 and is the largest vFPA toll to date in Europe.

Risk management 

In terms of structuring FPAs, there are a lot of similarities to PPAs, but FPAs are significantly more complex, especially physical ones that involve technical issues around connecting and operating a physical battery and securing revenues from it, said Daronnat. 

“Like PPAs, there is a lot of market risk to represent in an FPA – price risk, shape risk, balancing risk. Those are intertwined with the physical risks coming from the steering of the assets, which requires superior structuring capabilities. Then, for the fixed price FPAs, credit risk management is crucial, especially the replacement risk part of credit risk,” he said. 

Risk managers also have to be aware of regulatory risk, as well as accounting risk, which remains a very prominent topic for FPAs, he added. 

Other firms are also looking at products that can facilitate risk management around batteries, with the European Energy Exchange (EEX) planning to launch a contract later this year. 

“Batteries have a very different monetisation strategy to other assets, in that operators can plan their charge and discharge cycles around when they predict prices to be highest and lowest throughout the day,” noted Viviana Ciancibello, senior business developer, power derivatives at EEX. This is in contrast to renewable assets that can only feed into the grid under certain conditions. “We’re looking at how a contract structure could replicate [a battery profile] and how we can provide a tool to manage the risk in the long term via derivatives,” she said, adding that they hope to provide more news on it later in the year.

Another issue that EEX is looking at is the change in load shape that is occurring in markets where there is a lot of renewables generation, in particular solar. “There’s a broad consensus that the current base and peak products – especially peak products – are no longer fit for purpose,” Ciancibello said. “We’re working on an initiative around this as well. It could be, for example, a solar block or solar peak product that covers certain hours – and certain shapes – in the day. We’re conscious that these shapes exist in the over-the-counter market, so we’re keen to see which ones are mostly likely to succeed as an exchange-based product and we’re evaluating that at the moment.”