Battery energy storage systems (“BESS”) are becoming an increasingly important component of Germany’s energy transition. As renewable generation continues to expand, large-scale storage projects are expected to play a critical role in balancing the power system, managing grid congestion and enabling greater flexibility across the electricity market.
At the same time, the rapid growth of the BESS market raises a number of questions for developers, investors and lenders. Regulatory updates, grid connection constraints, EPC structures and the bankability of commercial models are all key factors shaping the development and financing of storage projects in Germany.
Watson Farley & Williams recently hosted the event ‘BESS Deep Dive’ to explore the practical challenges of developing and financing battery storage projects in Germany. The discussion focussed on how evolving regulatory frameworks, project structures and financing approaches are shaping the next phase of market growth.
Below are some of the key insights from this event.
Regulatory framework in transition and its significance for off-takes
Britta Wißmann, Partner, WFW Düsseldorf
The regulatory framework for BESS grid connections is undergoing a fundamental shift at current in response to the sharp increase in grid connection requests. At the centre of this reform is the newly introduced Maturity Assessment Procedure, which replaces the traditional first‑come‑first‑served approach with a maturity‑based prioritisation mechanism. Grid connection applications will only be considered where projects demonstrate an advanced level of development, particularly in relation to land control, technical design, financial capability and grid benefit. The structured three‑phase process improves transparency and system control for network operators but significantly shifts development risk into earlier project stages. As a result, regulatory project maturity becomes a critical prerequisite for any subsequent financing and offtake arrangements.
Key takeaways:
- grid access is a decisive gate rather than an administrative formality;
- more risk is front‑loaded into early development phases; and
- early‑stage project robustness is decisive for future offtake and bankability.
BESS Revenue Trends and Market Outlook
Cosima Sagmeister, Market Analyst, Modo Energy
Market analyst Cosima Sagmeister discussed BESS revenue trends and the market outlook, noting that Germany’s renewable generation mix is shifting fast, with solar and wind set to reach 70% of total output by 2035. That structural shift underpins a strong fundamental case for battery storage: CAPEX is forecast to fall 30%, and four-hour systems deliver 13.7% unlevered IRR in a base case and COD (Commercial Operation Date) in 2026. At the same time, regulatory headwinds threaten returns: grid fee uncertainty, the risk of retroactive exemption removal and flexible connection agreement restrictions are the biggest ones. Combined, they can make constrained projects uninvestable. The opportunity is real, but so is the regulatory risk, and the winners will be those who understand where it sits and price it properly.
Key takeaways:
- the fundamental investment case is strong: falling CAPEX and rising solar PV penetration support 13.7% base-case IRR for four-hour systems;
- revenue is going fully merchant: ancillary services collapse from half of revenues to 5% by 2030, making day-ahead and intraday trading capabilities a defining success factor; and
- regulatory risk makes or breaks the business case: combined FCA restrictions alone can reduce IRR by 5 percentage points. Grid fees and retroactive exemption risk create uncertainty that currently stalls investment decisions. Winners will be those who understand and price these risks correctly.
Strategies for construction and operation of BESS
Dr Christian Bauer, Partner, WFW Munich and Henrik Töpelt, Head of Energy, Drees & Sommer
In their joint presentation Henrik Töpelt and Christian Bauer outlined the essential considerations for delivering BESS projects successfully from both a technical and legal perspective. They discussed key structuring aspects that shape the foundation of a resilient project, highlighted the importance of selecting the appropriate contractual framework and examined decisive elements of effective project construction management. Drawing on lessons learned across different projects, they provided practical insights into what enables BESS to be built and operated reliably.
Key takeaways:
- the right project structure is fundamental for successful BESS delivery;
- selecting an appropriate contractual framework is crucial to managing risk; and
- effective construction management, informed by lessons learned, supports reliable project execution.
Route-to-Market: how to deal with restrictions and uncertainties
Fabian Lotz, Senior Originator, Centrica Energy
In his presentation, Fabian Lotz outlined how Route-to-Market (“RTM”) structures for BESS must adapt to increasing grid-related restrictions and regulatory uncertainties. Drawing on real-world constraints such as ramp-rate limits, ancillary service caps, curtailment and schedule freezes, he demonstrated how different commercial models are affected from both a bankability and revenue perspective. The presentation showed that even severely constrained assets can remain financeable when revenues are structured intelligently. By combining tolling, swaps and merchant exposure, project owners can manage downside risks whilst retaining meaningful upside, turning technical and regulatory limitations into manageable commercial variables.
Key takeaways:
- FCA-related restrictions materially influence which RTM structures are viable;
- hybrid commercial models help balance revenue certainty with exposure to merchant upside under constrained conditions; and
- even ‘bad FCA’ projects can work when RTM structures are tailored to technical realities and lender requirements.
Developer case study
Paul See, Commercial Manager BESS, MaxSolar
In his presentation, Paul See discussed how scarce grids and declining battery costs are creating a strong business case for grid‑supportive BESS. Under §11a EnWG, DSOs can tender third‑party batteries that are primarily operated to relieve local grid constraints, whilst allowing additional capacity to participate in power markets. MaxSolars Wutzldorf 5h-BESS project is Germany’s first such tender and shows that, despite revenue reductions from operating restrictions, fixed DSO payments and lower CAPEX enable attractive, financeable projects. As grid capacity becomes scarcer, more grid‑supportive tenders will follow.
Key takeaways:
- Wutzldorf as a pilot proves the grid supportive concept and paves the way for further tenders; and
- grid‑supportive operation can still deliver attractive returns.
Outlook
Battery storage is expected to play an increasingly important role in the evolution of Germany’s electricity system. As the market continues to mature, the successful development and financing of BESS projects will depend on how regulatory developments, grid access and commercial structures evolve in practice. Continued dialogue between developers, investors, lenders and regulators will therefore be essential to unlocking the next phase of growth in the German storage market.
