Deep Dive, by Guus Bronkhorst –
Geopolitical tensions lead to higher and more volatile energy prices. This also changes the business case for battery energy storage (BESS). Systems that offer flexibility — and can balance supply and demand — are becoming increasingly valuable within the energy system. In this expert blog, Guus Bronkhorst shares his vision on this development and what it means for the bankability of BESS projects.
In recent months, the energy market was shaken up once again. The TTF gas price [1] is rising, oil prices are rising, and uncertainty in the energy markets has shown how vulnerable energy infrastructure in the Netherlands is. This very volatility emphasizes the importance of the energy transition: grid operators, companies, and investors are forced to think about flexibility in sustainability and the systems to be chosen. Batteries (Battery Energy Storage Systems, or BESS) and renewable production with smart, flexible software are becoming increasingly crucial.
Geopolitical tensions show the vulnerability of fossil fuels and the value of flexibility
An example of a geopolitical shock is the war in Iran, where oil and gas prices rise sharply. A rising gas price in the Netherlands causes peak prices on the electricity market to rise, as gas is usually the marginal electricity producer. Gas has higher marginal costs than renewable energy and fills the gaps in renewable production when necessary (also known as the Merit Order). Even if gas only accounts for a small part of the energy mix, it still largely determines the energy price. As long as gas remains the marginal supplier, every geopolitical shock affects the Dutch electricity price, even when renewable production is dominant. At the same time, energy prices remain low during off-peak moments, due to the cheap hours in the middle of the day with high solar radiation, which often even leads to negative prices.
A higher gas price also makes backup capacity more expensive. As a result, fees on capacity and balancing markets such as FCR, aFRR, and mFRR [2] increase. Battery systems benefit from this because they:
- Can react quickly;
- Are cheaper than fossil flexibility options;
- Have no fuel dependency;
- And can efficiently provide balancing services.
The value of spreads on the day-ahead market and the revenues from grid balancing services are therefore rising because the current system is vulnerable. BESS is thus not only a technology that benefits from instability, but also a tool that can reduce that instability as it is further rolled out in the future.
At the same time, there is a downside: higher flexibility fees are currently partly paid for by renewable generation. This happens through lower capture rates (for example, solar projects currently only receive approx. 50% of the price a gas plant receives) and curtailment/negative hours. However, as soon as there is sufficient flexibility in the system, the imbalance will decrease and these costs will drop automatically. BESS makes itself valuable in this system by:
- Indirectly reducing fossil dependency
- Lowering system costs in the long term
- Preventing the curtailment of renewable assets
The bigger context
The energy transition is then no longer happening solely for sustainability reasons, but because the economy is shifting toward it. The oil, gas, and diesel chain is complex, expensive, and geopolitically vulnerable. Consider extracting oil from the ground in a country with which there are no good relations, refining it in that country, shipping it via a tanker, transporting it by road, and then putting it into your internal combustion engine via a gas station. Electricity, on the other hand, is relatively simple, scalable, and technologically superior, with local generation, potential storage, and then direct consumption from the grid as a basis.
Battery technology is developing rapidly: longer lifespan, lower degradation, decreasing CAPEX. The global cost curve for Solar and BESS has been falling more steeply for years than anyone predicted in the past. The “holy trinity”: solar energy, wind, and batteries already form the heart of a reliable energy mix. Smart BESS software reinforces this: the battery is no longer just storage, but a flexible asset that shaves peaks, reduces diesel, oil, and gas use, and provides grid stability.
The common thread is clear: flexibility is becoming the pivot of the energy system. At StartGreen, we therefore view battery storage as a crucial link to finance in the energy transition.
Are you working on an energy project or sustainability challenge and want to know how these developments affect your business case? We would be happy to think along with you about the financing and structure of your project. For developers looking to finance their BESS project, StartGreen offers both debt and equity solutions, combined with deep sector expertise. We cordially invite you to contact us or submit a financing request.
[1] TTF = Title Transfer Facility, Dutch TTF Natural Gas Futures Pricing
[2] FCR = Frequency Containment Reserve; aFRR = automatic Frequency Restoration Reserve; 3. mFRR = manual Frequency Restoration Reserve
