Flexibility as a foundation: why BESS protects us against geopolitical and fossil risks

Expert blog by Guus Bronkhorst –

Geopolitical tensions are leading to higher and more volatile energy prices. This is also changing the business case for battery energy storage systems (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 view on this development and what it means for the bankability of BESS projects.

The energy market has been shaken up again in recent months. The TTF gas price [1] is rising, oil prices are increasing, and the uncertainty in the energy markets has shown how vulnerable energy infrastructure in the Netherlands is. It is precisely this volatility that underscores the importance of the energy transition: system operators, companies, and investors are being forced to think about flexibility in sustainability and the systems to be chosen. Batteries (Battery Energy Storage Systems, or BESS), and renewable energy generation 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 means that Price hikes on the electricity market, as gas is usually the marginal electricity producer. This is because gas has higher marginal costs than renewable energy and fills the gaps in renewable production when necessary (also known as Merit Order Even if gas comprises only a small part of the energy mix, it therefore still largely determines the energy price. As long as gas remains the marginal supplier, any geopolitical shock will affect the Dutch electricity price, even if renewable production is dominant. At the same time, in the moments energy prices are low, due to the cheap hours in the middle of the day with a lot of solar radiation, which often even leads to negative prices.

A higher gas price also makes back-up capacity more expensive. As a result, fees on capacity and balancing markets such as FCR, aFRR and mFRR increase [2]. Battery systems benefit from this because they:

• Respond quickly;
• Cheaper than fossil fuel flexibility options;
• To have no fuel dependency;
• To provide efficient balancing services.

The value of spreads on the day-ahead market and the revenue 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 rather a tool that can reduce that instability with further roll-out in the future.

At the same time, there is a downside: higher flexibility premiums are currently partly paid for by renewable generation. This happens through lower capture rates (solar projects, for example, currently receive only approx. 50% of the price a gas power 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 fall automatically. BESS makes itself valuable in this system by:

• Indirectly reducing dependence on fossil fuels
• Lowering system costs in the long term
• Preventing the shutdown of sustainable assets

The broader context

The energy transition will then no longer be about sustainability alone, but because the economy is shifting towards it. The oil, gas, and diesel chain is complex, expensive, and geopolitically vulnerable. Think about extracting oil in a country with which you have no good relations, refining it in that country, shipping it by tanker, transporting it by road, and then putting it into your combustion engine via a petrol station. Electricity, on the other hand, is relatively simple, scalable, and technologically superior, with local generation, possible storage, and then direct consumption from the grid as its 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 trilogy”Solar energy, wind, and batteries already form the core of a reliable energy mix. Smart BESS software enhances this: the battery is no longer just storage, but a flexible asset that smooths peaks, reduces diesel, oil, and gas use, and provides grid stability.

The common thread is clear: flexibility will be the lynchpin of the energy system. At StartGreen, we are therefore looking at battery storage as a crucial link to finance in the energy transition. 

Are you working on an energy project or sustainability task and want to know how these developments will affect your business case? We would be happy to help you think 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 in-depth sector expertise. We warmly invite you to contact us or to submit a funding application.

Title Transfer Facility, Dutch TTF Natural Gas Futures Prices

[2] FCR = Frequency Containment Reserve; aFRR = automatic Frequency Restoration Reserve; mFRR = manual Frequency Restoration Reserve