Volume 2: Merchant Risk and Platform Value: Batteries Move to the Core of the Energy Transition

These nascent approaches and larger market trends are elevating batteries from tactical investments to the core of the energy transition investible universe. From 2020-24, total investment in European energy storage grew by more than 12.5x. In comparison, total investment in European wind and solar projects grew by 1.4x over the same period. Projections indicate that Europe’s battery energy storage capacity is set to increase fourfold by 2029. This massive expansion will be driven by regulatory support, technological advances and rising demand for grid stability. The market is shifting toward large-scale, integrated platforms that offer operational efficiencies, scalability and reliable revenue streams, reflecting investor priorities and the ongoing maturation of the sector.

Source(s): Bloomberg New Energy Finance European Energy Storage Investment, 2025

Lincoln International’s team of energy transition experts leverage their sector knowledge and transaction experience to help clients navigate this dynamic landscape. In this piece, our energy experts explore the major themes shaping battery storage investability in 2026 and beyond, alongside actionable insights to harness growth tailwinds for sustained returns.

[Citations: European Energy Storage Investment BNEF, 2025, European Market Outlook for Battery Storage 2025-2029, Solar Power Europe]

Macro Drivers & Policy Tailwinds

Ambitious Net-Zero Targets

The EU 27 and the UK are striving to reach climate neutrality by the middle of this century. The EU has committed to cutting 2030 emissions by at least 55% compared to 1990 and achieving net zero by 2050.  The UK has gone further, pledging a 68% cut by 2030 and 81% by 2035 before reaching net zero in 2050. Germany has advanced its deadline to 2045, with steep interim reductions, while France and Italy follow the EU’s 2030 and 2050 milestones, with Italy aiming for rapid renewables growth despite its gas dependence.

Across Europe, the electricity generation sector is decarbonizing quickly, but rapid renewables deployment combined with limited load shifting infrastructure has meant some demand can only be met by conventional, fully dispatchable energy generation. The rise of AI has meant that the power required by data centers, which have a relatively flat intraday demand profile, is expected to rise from 96 TWh (2024) to 236 TWh across Europe by 2035. This 24 / 7 power demand cannot be met by intermittent renewables generation, creating further need for battery storage. The overarching trend is that while targets are ambitious and, in most cases, legally binding, implementation gaps remain significant, and the next decade will be decisive in accelerating infrastructure, investment and social support to keep net-zero pathways credible.

At the same time, several countries are commissioning or planning new gas-fired plants to back up renewables and ensure supply security, with Germany, the UK, Italy and parts of Central and Eastern Europe leading on new projects. Besides gas, a strategic set of nuclear projects are moving forward, notably France’s planned EPR2 fleet, the UK’s Hinkley Point C and Sizewell C and Hungary’s Paks II. However, several of these projects (including Sizewell C and EPR2) are not expected to reach commercial operation until the mid-2030s. Besides gas, a strategic set of nuclear projects are moving forward; however, several of these projects are not expected to reach commercial operation until the mid-2030s.

Overall, the coming decade will see Europe’s conventional generation shrink in carbon intensity: coal will largely disappear, gas will act as the transitional backstop and nuclear power will provide a long-term low-carbon baseload in the European jurisdictions where it is politically supported and financed. However, this additional nuclear capacity will not provide the necessary stability to the grid that traditional thermal plants and gas peakers do: stability will come in the form of batteries.

[Citations: European Commission Climate Targets, 2025, Progress in Reducing Emissions Report to UK Parliament, 2025, Bundesregierung, Intergenerational Contract for the Climate, 2021, French National Climate Plan Update, June 2024, Carbon Removal in Italy – National Policy Overview, 2025, Newmark Data Center Site Selection Dynamics in Europe, 2025, European Utility Scale BESS Installed Capacity, BNEF, 2025]

Incentivizing BESS developers

Europe’s renewable energy infrastructure faces what have now become well-known transmission and distribution bottlenecks due to aging grid systems. While generating nearly half of the EU’s electricity from renewables in 2024 was a remarkable achievement, grid constraints now threaten to limit progress and destabilize systems. Legacy power transmission and grid management systems were designed for steady, dispatchable generation close to demand centers, not intermittent generation from remote areas.

In April 2025, Spain experienced one of the most extensive blackouts in European history, with power supply dropping from 27 GW to near-critical levels in a matter of seconds. Two simultaneous disconnections of power plants triggered a rapid frequency drop, leading to a cascading failure across the grid. Although automatic protections were in place and initially activated as designed, the magnitude of the drop surpassed their capacity, causing a systemic failure. The sharp decline overwhelmed the system’s ability to maintain its standard frequency, causing an automatic shutdown of power stations. A critical factor exacerbating the situation was the insufficiency of primary reserve capacity.

In Spain, primary reserve services—essential for stabilizing the grid during sudden disturbances—are provided by conventional generators. The system was designed for a grid dominated by gas plants, which naturally provide inertia and frequency support. As renewables push these units out of the merit order, their stabilizing role has diminished. Moreover, Spain’s BESS capacity stands at a modest 60 MW, significantly behind countries such as the UK and Italy. This incident was a stark reminder that conventional generation assets cannot always be relied upon for grid balancing in a world of high renewables penetration. Transmission systems across Europe will require rapid voltage control and frequency response from battery storage if the continued buildout of renewable generation assets is to successfully continue.

Germany experienced 457 negative pricing hours in 2024 (+52% compared to 2023). In April 2024, Spain saw its first ever negative pricing, ultimately experiencing 247 hours of negative pricing across 2024. These trends have been magnified in 2025 and are expected to worsen across Europe over the coming years. Battery storage offers a solution to these negative pricing hours problems in these markets.

Current market reforms

Recent regulatory reforms in Europe have created sector-wide tailwinds, improving the bankability and inevitability of energy storage assets. Transmission system operators (TSOs) and distribution system operators (DSOs) are incorporating energy storage into long-term plans for acquisitions and revenue forecasting. Storage-inclusive tenders and capacity auctions are incentivizing the adoption of battery systems to align with renewable energy objectives. Consequently, grid operators and regulators across Europe are designing market incentives and programs to make storage attractive for private capital.

The UK offers both availability-based tenders (capacity reserved and paid) and energy payments. France’s multi-year capacity payments and tender awards give price certainty for BESS developers and the financial sponsors that back them. Germany’s frequency-based payments are attractive to batteries because of their predictable revenue; FCR pays for availability (capacity reserved regardless of energy dispatched), and aFRR mixes availability and energy balancing.

This combination of regulatory clarity, growing system demands and a range of investment opportunities across a broad spectrum of contracting structures makes BESS an increasingly attractive asset class for financial sponsors across Europe. Grid fee relief and capacity market reforms are transforming project bankability by aligning incentives with the operational value that batteries provide to local grids. BESS developers are now participating in ancillary service markets purpose-built for storage while leveraging structured incentives to align projects with regional energy objectives.

For financial sponsors looking for alternatives to greenfield wind and solar, battery storage complements other strategies, such as repowering older renewables assets. By providing an alternative cash flow and contracting profile to standalone wind and solar PV, as well as providing natural hedge against the increasingly common negative power prices, battery storage is a powerful tool for sponsors in the European market.

Conclusion & Outlook

As Europe accelerates toward net-zero target dates, improving overall grid reliability is crucial. Battery storage is emerging not merely as a complementary technology but as a cornerstone of the overall energy transition. Regulatory reforms, market maturation and private capital engagement are transforming BESS from a nascent opportunity into a scalable, investable asset class.

Ultimately, battery storage represents a dual opportunity: a reliable source of revenue in an evolving energy market and a critical enabler of Europe’s broader climate and energy goals, offering investors a front-row seat in shaping the continent’s clean energy future.

Lincoln is proud to serve as an active advisor for companies and sponsors navigating the exciting energy transition, and our team has completed more than 60 energy transition, power and infrastructure transactions in the last three years—including 24 in 2025 alone. Lincoln International’s deep sector knowledge and global reach enable energy clients to achieve their business positioning goals while receiving optimal transaction outcomes. As energy systems evolve toward volatility and decentralization, storage is no longer a complementary asset — it is becoming foundational.

To read Volume 1 of this series, where Lincoln’s experts outline the factors fueling development and opening opportunities for investors in battery energy storage, please click here.

Volume 1: From FTM to BTM: The Evolving Investment Case for Battery Storage

Factors Fueling BESS Development

Several key trends are driving the accelerated growth of the BESS market:

• Decentralized Renewables and Supply Volatility: The proliferation of variable renewable energy sources, such as solar and wind power, leads to increased supply volatility. This, combined with a shift in generation from large, centralized transmission grids to localized distribution networks and “behind-the-meter” (BTM) installations, creates complex local balancing challenges.
• Electrification of Everything: The ongoing “electrification of everything”—from electric vehicles and heating systems to industrial processes—is significantly increasing demand variability. This exacerbates existing balancing challenges and can lead to lower supply utilization, thereby reducing overall grid efficiency.
• Grid Congestion and Aging Infrastructure: Investments in expanding and upgrading electricity grids have not kept pace with the rapid growth of renewables. This, coupled with aging existing infrastructure, results in increasing grid congestion and a growing need for modernization and replacement.

BESS plays a crucial role in this evolving energy ecosystem. These systems are vital for stabilizing the grid by smoothing out the intermittent nature of renewables, managing peak demand and preventing transmission bottlenecks.

Figure 1: Power generation is shifting to distribution and behind-the-meter

Source(s): New Energy Outlook Grids 2024 – BloombergNEF
Note(s): 1) In BloombergNEF’s Net Zero Scenario

Market Segmentation: Front-of-the-Meter (FTM) and Behind-the-Meter (BTM)

BESS solutions are deployed across a wide array of applications, broadly categorized into two main segments:

• Front-of-the-Meter (FTM): These are typically large-scale installations connected directly to the utility grid. They are primarily utilized by grid operators for services such as frequency regulation, grid stability, wholesale energy market participation and capacity firming for renewable projects. Utility-scale deployments fall into this category.
• Behind-the-Meter (BTM): These systems are installed on the customer’s side of the electricity meter and serve residential and commercial & industrial (C&I) facilities. BTM applications focus on optimizing on-site energy consumption, reducing electricity bills through load shifting and peak shaving, providing backup power and maximizing the self-consumption of on-site renewable generation, such as solar PV.

Figure 2: BESS segment overview

Rapid Growth in the European BESS Sector

The European BESS market is experiencing a period of rapid expansion. Projections indicate that Europe’s battery energy storage capacity is set to increase fourfold by 2029. This impressive growth is underpinned by a combination of factors specific to different application segments:

• FTM Growth Drivers: For utility-scale applications, key growth enablers include managing wholesale market price volatility, enhancing the cost-competitiveness of renewable energy sources (particularly when paired with solar PV), and the increasing demand for grid-scale energy flexibility.
• BTM Growth Drivers: The commercial & industrial (C&I) and residential BTM segments are propelled by declining battery technology costs, the congestion limiting grid connections, high retail electricity prices and increasingly supportive regulatory and policy frameworks.

Figure 3: European BESS market outlook (cumulative GWh deployed)

Source: European Market Outlook for Battery Storage 2025-2029, SolarPower Europe

Attractive Investment Case for Private Equity and Value-Add Infrastructure

FTM BESS remains a highly attractive segment particularly for the core plus infrastructure space. Having said so, Lincoln sees attractive investment opportunities emerging in the BTM BESS segment with the potential to deliver superior returns.

• Compelling Economic Proposition for Customers: BTM BESS solutions offer a robust value proposition that can be easily marketed by highlighting the system’s ROI through price arbitrage.
• Enhanced Value Beyond Price Arbitrage: While residential customers primarily focus on electricity bill savings through price arbitrage and solar PV self-consumption, B2B customers in the C&I segment can unlock additional significant value. This includes achieving earlier grid connection through lower capacity requirements and securing reliable backup power to ensure critical business operations maintain uptime in case of power outages.
• Customization and Proprietary Technology: BTM BESS providers typically specialize in smaller-scale installations, often integrated with proprietary battery management software (BMS) and energy management systems (EMS). This level of customization and technological integration insulates these providers from direct competition from battery cell OEMs.
• Attractive and Evolving Revenue Models: A significant trend in the C&I segment is the shift from a pure system sales model to “BESS-as-a-service” offerings. This transition unlocks recurring revenue streams for investors. Crucially, these revenues models eliminate the substantial upfront capital expenditure for customers, making energy storage solutions accessible to a broader market, including small and medium-sized enterprises (SMEs).
• Platform for System Integration and Microgrids: BESS installations serve as an ideal foundation for expanding energy service offerings. These systems can be readily “upsold” with complementary technologies such as solar PV, electric vehicle charging infrastructure. Furthermore, for C&I customers, a BESS can act as the central nervous system for a fully integrated microgrid solution, encompassing various hardware components and advanced energy management software, creating a comprehensive and resilient energy ecosystem for the customer.

In summary, the BESS market represents a high-growth, dynamic sector for private equity investors with a compelling combination of strong customer value, recurring revenue potential, and opportunities for synergistic growth within the broader energy transition.

Conclusion & Outlook

Lincoln is proud to serve as an active advisor for companies and sponsors navigating the exciting energy transition, and our team has completed more than 60 energy transition, power and infrastructure transactions in the last three years—including 24 in 2025 alone. Lincoln International’s deep sector knowledge and global reach enable energy clients to achieve their business positioning goals while receiving optimal transaction outcomes. As energy systems evolve toward volatility and decentralization, storage is no longer a complementary asset — it is becoming foundational.