Wood Mackenzie: European BESS deployment expected to grow in 2025

The research shows European BESS deployment growing at a 9% compound annual growth rate over the 10-year outlook. At the turn of this decade, early-stage UK project developers looked for investment opportunities in Australia and North America's CAISO and ERCOT markets due to lack of opportunities in the region.

Considerable BESS volumes are now being deployed across Europe – 11 GW as of 2024, at a 9% CAGR over the 10-year outlook with 35 GW expected in 2034. Within this expanding European landscape, Germany emerges as the rising star across all segments (utility, C&I, residential). The country leads European deployment with over 3.5 GW expected in 2025, doubling to 7 GW by 2034. However, the German market faces revenue decline over the coming decade despite strong current fundamentals. Increasing competition cannibalises price volatility that storage assets depend upon.

Wood Mackenzie's analysis reveals that Germany's connection requests have ballooned. At the beginning of the year there was around 300 GW of connection requests for BESS across Germany and this has risen to over 500 GW. This points to major grid connection challenges ahead. The utility scale BESS segment represents 35% of Germany's storage outlook, totalling 18 GW of BESS demand over the 10-year period. An additional 8 GW comes from commercial and industrial applications.

As Europe's largest power system, Germany faces a capacity crunch with significant implications for grid operators and investors. Nuclear generation has been entirely phased out. A further 29 GW of coal capacity is expected to largely come offline by 2030. Much needed new gas build is struggling to take off, with a capacity market on the horizon. This creates challenges for national grid energy shifting, ancillary services, and security of supply requirements that residential BESS cannot adequately address at GWh scale.

Wood Mackenzie's analysis shows that whilst current market conditions appear lucrative, revenue streams face pressure. BESS assets compete for volatility at peak price margins. Frequency market revenues, highly sought after in Germany, represent shallow revenue pools typically well below 1% of system peak demand in GW terms. They quickly saturate as BESS deployments approach and overtake this market need.

Wood Mackenzie's research-integrated fundamentals models forecast base case power and ancillaries’ prices, then ingest real-time historical data up to the most recent outturns. Machine learning trains each revenue stream against Wood Mackenzie research-backed deterministic power and ancillary price curves, resulting in fundamentals prices that incorporate up-to-date trading behaviour. The stochastic approach provides users with a base case backed by full probability ranges on potential operating performance outcomes.

The analysis shows that potential volatility and value reduce over time. Several key drivers explain this trend Ancillary service revenues become a smaller portion of the revenue stack due to an inherently spikey nature and increased competition in these markets for volatility revenues Assets compete for margins at peak and trough periods, which flattens prices and ultimately erodes fluctuations. Even day-ahead and intraday prices face pressure from large revenue pools. The sheer scale of BESS market growth will cannibalise prices, creating negative long-term impacts on business cases.

“The German BESS market sits at a critical juncture where strong fundamentals meet increasing competitive pressures that will cannibalise price fluctuations over time,” said Rory McCarthy, VP, Head of Power and Renewables Consulting EMEA at Wood Mackenzie. “Our hybrid modelling approach provides market players with P1 to P99 revenue ranges essential for robust project valuation. The availability of revenue and complexity in commercialising projects to reach final investment decision should not be underestimated. The key question becomes: what optimisation strategies can deliver revenues above the mean to achieve target returns in an increasingly competitive landscape?”

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