While battery energy storage systems (BESS) have become an established asset class in the European power market, financing requirements are evolving. Merchant business models were more readily accepted in less mature markets, but growing battery deployment is changing the risk profile. As more assets compete in the same markets, merchant revenues become less predictable, prompting many lenders to seek greater revenue certainty. This is mirrored in modern financing arrangements.
BESS business cases aren't built around one specific financial model. Depending on the asset owner's risk appetite and the maturity of the market, projects may be financed on a fully merchant basis or through guaranteed revenue mechanisms such as floor agreements and tolling agreements or hybrid structures that combine contracted and merchant revenues. Additionally, they can be supported by financial products like day-ahead (DA) swaps. Day-ahead swaps exchange the floating daily price spread (difference between the highest and lowest DA hourly price) for a fixed cash flow. Due to their predictability, day-ahead swaps can be an attractive option for asset owners seeking to stabilize revenues and improve bankability.
A bank’s willingness to provide financing for fully merchant projects typically depends on bankable forecasts and bankability track records. Projects with contracted revenues provide predictable cashflows, which many banks view favorably. Those making financing decisions for BESS projects need to know how much revenue the project can expect and where this revenue is coming from. The ideal revenue model always depends on possible or desired gearing levels; in other words, how much of the project can be financed with equity and how much must be financed with debt.
Every financing decision begins with the same question: What am I financing? Before evaluating financing structures, lenders must first understand the product they're financing. Batteries are a comparatively new asset class for many financial institutions. Limited familiarity with the technology and associated revenue models naturally results in greater caution on the bank's side and, in some cases, affects a project's ability to secure financing. Confidence in the financeability of BESS therefore starts with a clear understanding of how a battery generates value and where risks lie.
Unlike conventional energy infrastructure, a BESS doesn’t earn money by producing electricity. Instead, it creates value by storing energy when prices are low and discharging it when demand and prices are high. Rather than relying on a single source of income, batteries generate revenues across multiple electricity markets, strategically capturing value from wholesale price spreads while also supporting grid stability through the provision of ancillary and balancing services. Multiple revenue streams combine to form the overall revenue stack, and this diversification is a distinguishing strength of BESS projects. Their commercial performance isn’t tied to a single market or revenue stream. Batteries dynamically respond to short-term market signals, allocating capacity to the most attractive opportunities. If conditions deteriorate in one market, upside can still be captured in another. Similarly, weaker performance in one market can be offset by stronger performance in another. This flexibility creates a resilient and adaptable business case.
In a fully merchant setup, the battery is exposed to the complete downside risk and the complete upside potential. If the BESS performs well and market conditions are supportive, this revenue model captures the highest returns. However, there is no protection against loss if the asset’s performance is affected by unfavorable market conditions. The high risk profile of this strategy is reflected in the revenue share between the asset owner and optimizer. For lenders, fully merchant projects also carry the highest risk, as debt servicing depends on the project’s commercial performance rather than contracted cashflows. As a result, dependable revenue forecasts and proof of bankability from the optimizer are critical to the financing decision. A high-quality optimizer with proven results offers the greatest safety net for lenders financing merchant projects.
enspired is the only optimizer to publish an independently certified track record of BESS revenues. Portfolio performance gives insight into the real revenues of batteries with 1-hour and 2-hour durations achieved in the German market. This transparency enables enspired to provide assurance to banks and asset owners that projected revenues are grounded in demonstrated operational results rather than theoretical assumptions.
Additionally, BESS projects can combine several revenue models to strengthen their bankability. In hybrid revenue structures, the merchant revenue share is combined with a floor or tolling agreement to benefit from guaranteed revenue while retaining market exposure.
A battery tolling agreement is a contract between an asset owner (toller) and a toll provider (offtaker). It guarantees the asset owner a fixed payment through a predefined tolling fee, while transferring the market risk to the offtaker. In exchange, the offtaker receives the right to utilize the tolled BESS capacity as desired and place restrictions on the toller’s use. The offtaker typically engages an optimizer, usually under a profit-sharing arrangement, to maximize upside across all available markets.
In this financial model, the asset owner services debt through the fixed income from the fixed tolling fee. All upside revenue potential is forfeited in exchange for downside protection. The offtaker must pay the tolling fee in full, even if the asset underperforms commercially. Tolling agreements provide high income predictability and cash flow certainty, strengthening the business case and increasing lender confidence in the project’s bankability.
A useful analogy is a rented apartment, where the tenant pays rent to the landlord, who in turn uses that income to service the mortgage with the bank. In a BESS tolling setup, the battery is the apartment, the asset owner is the landlord, the toll provider is the tenant, and the bank remains the bank.
While optimizers typically aren’t directly involved in the tolling contract, they play an important role in the financing process. As an experienced optimizer, enspired has strong relationships across the entire BESS ecosystem (asset owners, toll providers, lenders, regulators, manufacturers, etc.) and can connect the right entities to establish a commercially robust and bankable project structure. By bringing together reliable partners with proven expertise and established track records, the optimizer facilitates the conditions needed for successful project financing and a robust business case.
A floor price guarantees the asset owner a minimum level of revenue through an agreement with a floor provider. This minimum revenue is typically contractually fixed, although some structures may allow for a variable floor. The asset owner retains upside potential while being protected against downside market risk, which is assumed by the floor provider, who guarantees the minimum payment even if revenues fall below the floor in exchange for upside participation. To maximize this upside, the floor provider and asset owner typically partner with an optimizer.
If generated revenues are below the contracted floor, the floor provider pays the difference to the asset owner. If generated revenues are above the floor, they are distributed between the asset owner, who receives the biggest share, the floor provider, who is entitled to a contractually fixed percentage, and the optimizer, whose fee is paid from the floor provider’s share. Floor agreements may include a cap, limiting the maximum upside the asset owner can earn. All floors are generally priced lower than tolls and capped floors higher than uncapped floors.
For banks, a floor structure provides an additional layer of risk mitigation, as companies providing floors offer their company’s balance sheets to bolster the project by ensuring payment obligations can be met even during periods of unfavorable market conditions. Lenders therefore benefit from greater repayment certainty, and the asset owner’s exposure to merchant risk decreases significantly.
Market saturation and regulatory challenges may prompt banks to take a more conservative approach to battery financing. Projects connected under flexible connection agreements (FCAs) can challenge lender certainty, as grid constraints may limit the battery’s ability to operate when profitable market opportunities arise. As a result, lenders may attach greater importance to guaranteed revenues when evaluating the bankability of a BESS project. Incorporating instruments such as floor and tolling agreements or financial products like day-ahead swaps into the revenue strategy helps build confidence with banks. At the same time, the renewable energy buildout will continue to require additional battery capacity to maintain system stability. And although natural market cycles may temporarily affect financing conditions, supporting bankable BESS projects remains essential to accelerating the energy transition.
An established optimizer with a proven track record is an important facilitator during project development and becomes the key driver of maximizing returns once the battery enters the market.