The lowdown: Paired Battery Energy Storage Systems (BESS) are essential for improving solar asset economics by charging during low-price hours and discharging when demand is high. BESS provides access to multiple revenue streams including energy arbitrage, ancillary services, and capacity income. Hybrid PPAs (contracts pairing generation with storage) offer higher captured prices, mitigate volatility, and support next-generation sustainability goals like 24/7 carbon-free power.
Last week, I provided some perspective on how solar cannibalisation is pushing European energy markets into unchartered territory and forcing a rethink of PPA strategies. This blog explored where those strategies are going.
Batteries hold the key. By charging during hours of peak generation (when prices are low or negative) and discharging during hours of high prices and demand, batteries can vastly improve the economics of a solar asset.
Here, I’ll run through some of the most common revenue streams for Battery Energy Storage Systems (BESS). These can be utilised for standalone BESS assets, or as part of a multi-technology facility including solar, wind, or both. Indeed, many renewable energy site operators are co-locating BESS with existing assets to enhance their financial performance.
Energy Arbitrage
Energy arbitrage is simply the practice of strategically storing and discharging electricity in an economically advantageous way. This typically means charging an asset – either from the grid or a paired generating asset – when market prices are low, and discharging (selling) that energy when demand increases and prices rise. Like any tradable commodity, “buying low and selling high” provides a straightforward means to revenue.
However, not all markets allow co-located BESS (co-located here means sited alongside a generation asset) to charge from the grid, limiting the facility's ability to arbitrate effectively. That said, arbitrage remains the most popular way for standalone assets to secure profits, especially when paired with other revenue streams. The effectiveness of an arbitrage approach is higher in markets where cannibalisation is greater, like Spain. Naturally, as intraday price spreads widen, potential arbitrage revenues increase.
Looking ahead, arbitrage can be expected to contribute an increasingly significant share of a BESS operator’s revenue stack across most markets.
Ancillary Services
TSOs depend on ancillary services to ensure the grid's reliability, operability, flexibility, and balance (e.g. maintaining necessary voltage levels) by tendering contracts to a variety of facilities, including storage facilities. Providing ancillary services is another way storage facilities can secure income streams, although ancillary markets can be fairly shallow and easily saturated. Storage players that move early to provide ancillary services can benefit substantially; however, not all markets offer the same ancillary opportunities for BESS. As such, the revenue potential for ancillary services are specific to each asset and region, and regulations may prohibit storage from participating in some countries.
Capacity Income
Regulations are often crucial in opening up avenues of compensation for storage assets, as they can provide a means of securing fixed, policy-based revenues that limit investment risk and enhance revenue certainty. Capacity markets – a layer of the electricity market that helps ensure sufficient generation capacity at all hours of the year – have become more common across a growing number of European markets in recent years. BESS's role in capacity markets has become increasingly prominent as regulations accelerate the retirement of “firm” thermal generators, such as nuclear and coal. Growing concerns around resource adequacy have led to an expansion in capacity markets across several European countries, including Poland, Italy, the UK, Belgium, and Spain.
Facilities secure participation through capacity auctions, which provide fixed-payment contracts to projects that can ramp up and down fast to “fill the gaps” in generation when needed. Storage assets represent particularly flexible and dynamic players in capacity markets, and their value for grid reliability and maximising the efficient use of electricity is being increasingly recognised by governments and Transmission System Operators (TSOs). Because of this, capacity market participation – especially in countries with robust and well-calibrated compensation mechanisms – are a growing part of the overall revenue equation for storage players.
Hybrid PPAs: the BESS-t of both worlds?
Hybrid PPAs — contracts with facilities that combine solar or wind production with BESS — are gaining traction in Europe as a means of mitigating mounting market pressures.
Pairing renewable generation with BESS allows the storage asset to function like a time machine, storing power during periods of negative or low prices and releasing it later in the 24-hour cycle when market prices are more favourable. This arrangement, commonly called “Green BESS”, is particularly relevant for solar plant operators, who benefit from highly predictable daily generation profiles. Wind assets, which generate at varying levels of output throughout the 24-hour cycle, are less well suited to a Green BESS setup.
Green BESS can not only mitigate the adverse effects of negative prices, but also allow hybrid asset operators to leverage fluctuating power prices to their financial advantage — potentially benefiting PPA counterparties as well. When done right, it's a true win-win.
Moreover, hybrid PPAs can facilitate ideal production shapes tailored to an offtaker’s demand profile. As a growing number of buyers aim to procure clean energy at more specific time intervals, either to further next-generation sustainability goals (like 24/7 carbon-free energy) or move towards a PPA portfolio that can provide "clean-firm" power, the shaping that capabilities hybrid assets can provide bring advantages for these subsets of buyers.
Hybrid PPAs come in a variety of structures, which can be tailored according to counterparty priorities, regulatory constraints, and physical grid restrictions. Essentially, they fall into two categories – green or grey – depending on whether the battery asset is connected to the grid or just the renewable asset. This defines how they plug into the market.
BESS Configurations: Green vs. Grey
Hybrid PPAs can be structured around two different battery configurations, depending on how the BESS charges
Green Energy Storage
The battery is charged exclusively by the co-located renewable generation (e.g., solar). This ensures all stored energy is clean and traceable under current GO rules, but limits flexibility around generation profile and volume.
Flexible Energy Storage (sometimes called Grey BESS)
The battery can also charge from the grid, unlocking additional revenue through arbitrage and participation in multiple market mechanisms. This configuration supports more aggressive optimisation strategies but may raise questions about energy traceability, while regulators seek agreement on how to manage and accredit storage GOs.
LevelTen Energy is developing robust and dynamic analytics solutions for hybrid assets, enabling buyers to assess whether a hybrid procurement can capitalise on the upsides generated by growing revenue streams that European policymakers in some markets are unlocking.
The nature of the generation and storage matrix is evolving fast, and storage will continue to proliferate on Europe's grid in the coming years. PPA buyers who think holistically about the risk-mitigating and value-enhancing benefits of hybrid PPAs will be well-equipped to capture the upsides while also contributing to the critical storage capabilities Europe's grid needs.
LevelTen Energy is developing robust and dynamic analytics solutions for hybrid assets, enabling buyers to assess whether a hybrid procurement can capitalise on the upsides generated by growing revenue streams that European policymakers in some markets are unlocking.
The nature of the generation and storage matrix is evolving fast, and storage will continue to proliferate across Europe's grid in the coming years. PPA buyers who think holistically about the risk-mitigating and value-enhancing benefits of hybrid PPAs will be well equipped to capture these upsides, while also contributing to the critical storage capacity Europe's grid needs.
Battery storage allows for higher captured prices
Procuring from a hybrid facility can entail a higher price tag for buyers, since adding on storage inherently increases the CapEx of these facilities — cost increases that developers must pass on, at least in part, to buyers to achieve a bankable offtake agreement. However, even for Green BESS assets (those without a grid connection), improved captured prices translate to higher projected settlement values (PSV) across the tenor of the PPA. In most European markets, this uplift is often substantial enough to finance both the PV and BESS assets.
The image below shows the financial forecast for a real green BESS deal facilitated by LevelTen in 2025. The asset is a German solar facility with a 0.5 BESS/PV capacity ratio and a 10-year PPA.
While concrete numbers are redacted, the forecast reveals the significant value-adding potential of a two-hour, three-hour, and four-hour battery storage system on top of a standard pay-as-produced solar PPA. The vertical height of each band reflects the variability between perfect arbitrage and a fixed charging/discharging schedule.
This particular forecast shows a capture price that is up to thirty percent higher with BESS than with PV alone. Over the lifetime of a long-term PPA, the aggregate financial advantage of such an enhanced capture price profile can be quite significant.
Increased volatility means higher captured value from the battery
Crucially, the increase in capture price with such an arrangement grows more favourable as the volatility of the market increases.
In markets with wider spreads between high and low prices, standalone solar projects face lower forecasted capture prices, while the arbitrage value of the BESS asset significantly increases (due to lower prices during charging cycles and higher prices during discharge cycles). If price spreads narrow, the added value of the battery is reduced in line with any increase in value for the solar generator.
In this way, the battery element of a green BESS project acts as a hedge against wholesale price volatility, providing significant stability even during extreme market turbulence.
Green BESS provides enhanced hourly matching capabilities
Such Green BESS arrangements are of particular interest to offtakers pursuing enhanced alignment of their energy consumption with 24/7 renewable generation. Once hourly Guarantees of Origin (GOs) become widely available, they will reflect the delivery profile of the BESS — not just the underlying PV asset — offering a more accurate match between procurement and measurable impact.
In the case of Grey BESS or flexible storage, the picture is similar but with slightly lower capture prices over the lifetime of the contract. This is due to faster degradation of the battery asset (caused by more cycles), which is offset by the additional revenues unlocked by multimarket optimisation.
At LevelTen, we are seeing many buyers exploring the adoption of these integrated energy solutions into their PPAs, underscoring their value in a maturing renewable energy landscape.
The next blog in this series dives into specific hybrid structures that are gaining traction in European energy markets. To raise questions about the contents of this article or how hybrid PPAs can further your organisation's sustainability ambitions, connect with Andres via LinkedIn or reach out to info@leveltenenergy.com
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