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Storing renewable energy in large batteries to help balance the energy market is technically feasible at large scale across the UK and EU, but it needs to overcome financial challenges affecting its long-term business viability, finds a new study by UCL researchers.

The giant batteries, which are called Battery Energy Storage Systems (BESS), are an emerging part of the global energy market. The largest of these batteries can store enough energy to power thousands of homes for several hours.

They can be crucial for stabilizing electrical grids, storing excess renewable energy and providing power during peak demand or outages and support the transition away from fossil fuels by storing and helping to evenly portion out energy generated by renewable energy generators like wind and solar.

In a new series of reports, researchers at the UCL Center for Net Zero Market Design analyzed the financial and economic viability of these batteries.

The reports, commissioned by the European Investment Bank (EIB), found that to support investment in BESS, government agencies and financial institutions need to focus on the strategic and environmental benefits of electricity storage as well as purely their financial value and develop new metrics to reflect that. They are calling on those organizations to move away from appraising the batteries solely in terms of their financial returns based mostly on historical revenue performance. This is because energy markets and policies are rapidly changing, and past performance is no longer a good indicator of future viability.

The researchers also called on those organizations to consider factors such as the multiple different services offered by batteries; the varying price of fossil fuels; to carefully monitor and model how the energy market is changing; tailor financial approaches to reflect country-specific energy scenarios and regulations; and consistently update appraisals as new technologies, market mechanisms and regulatory reforms emerge.

Co-author Professor Michael Grubb (UCL Bartlett School of Environment, Energy & Resources) said, “The burgeoning renewable energy market in Europe is a tremendous opportunity to accomplish European Net Zero goals. Battery Energy Storage Systems are vital to updating the system—making the best use of renewables, while enhancing system security. However, getting the financing right is key—both public and private investors need far more sophisticated ways to assess the economic and financial benefits of batteries to ensure we can deliver this critical component of the energy transition.”

Lead author Research Fellow Claudia Brown (UCL Bartlett School of Environment, Energy & Resources) added, “Developing battery storage at scale across Europe is essential if we are to decarbonize the electricity system at pace.

“With a rapidly evolving technology like this, combined with a dynamic market and so many different regulatory regions, the creation of a robust business case can be challenging. However, our research shows that with the proper planning, careful monitoring, and investing in regions with favorable regulatory and market environments, large utility-scale battery storage can be financially viable and will help us achieve the EU’s Net Zero goals.”

Presently, the EU only has about 25 gigawatts of total battery storage, of which the majority is dispersed among individual homes, with only 5 gigawatts of utility-scale battery storage across the bloc. To remain on track to reach the EU’s Net Zero goals, an estimated 130 gigawatts of additional storage will need to be added by 2030.

However, in many countries, expanding utility-scale BESS investment is proving difficult. Though the initial construction and development costs are well understood, the long-term financial returns are uncertain and depend on future market conditions affected by numerous sometimes-uncertain policy and regulatory decisions. This risks discouraging investment in them.

In order to strengthen the financial case for BESS projects, the researchers highlighted three different key revenue streams that can contribute to their financial viability:

• Ancillary Services include providing power that has been stored in a battery to correct unforeseen temporary changes in power production. They have historically dominated the revenues for many battery storage projects, as much as 67%. The report cautions that overreliance on these services is risky as the market can get saturated quickly, leading to price collapse, and are unlikely to be the major long-term revenue source.
• Energy Arbitrage is when a company buys energy at a low wholesale price and sells it later when the market price is higher. This kind of storage service has grown from 9% to 23% of European BESS revenue between 2020 and 2024 and is expected to become the dominant revenue stream in the future. It is most valuable in markets like Germany and the Netherlands which see big swings in the markets because of a significant reliance on expensive fossil fuels to fill in when cheaper renewables can’t meet demand.
• Capacity Markets are contracts that are issued to energy providers to provide power when called upon. These provide some stable revenue for energy storage systems, especially when a company is first looking to invest in such energy systems. Capacity markets are so far only available in six European markets, but under consideration in eight more. Their importance may decline over time, particularly for batteries with only a few hours of storage. Co-lead author Katrina Salmon (UCL Bartlett School of Environment, Energy & Resources) said, “Existing methods aren’t sufficient to fully appraise the viability and impact of utility-scale battery storage systems. Banks and other potential investors need to understand this as an emerging technology designed to cause a major structural transition in energy markets with important social implications, and they can’t default to the status quo.”

Citation: Battery storage for renewables feasible, but faces financial challenges (2025, September 23) retrieved 23 September 2025 from https://techxplore.com/news/2025-09-battery-storage-renewables-feasible-financial.html

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