Flexibility is King: The Evolving Value Proposition of Batteries in Europe

Batteries love complexity. They derive value in wholesale electricity markets by flexibly adjusting their operational behavior in response to rapidly-evolving price signals. These signals, which reflect real-time conditions on the grid, provide the economic incentives necessary for transmission system operators (TSOs) to maintain balance, ensuring that electricity demand is safely and reliably met with appropriate supply. The more complex, uncertain, or volatile these price signals become, the greater the opportunity for battery energy storage systems (BESS) to deliver value—and be compensated accordingly.

Amid Europe’s accelerating renewable energy transition, this complexity is exploding. The shift to 15-minute pricing in the Single Day-Ahead Coupling (SDAC) market, the collapse of mid-day prices due to solar overproduction, and the increasing intermittency of available generation resources have reshaped how energy is valued and traded. These changes, alongside new ancillary service markets and emerging financial products, all signal that complexity is here to stay. And for batteries, that’s a good thing.

In this article—the third in cQuant’s Portfolio Precision series—we explore how BESS operators can leverage the inherent flexibility of their batteries to unlock value in the markets of today and maintain adaptability for the markets of tomorrow. We build on the themes of more granular market structures and the impact of shifting hourly price shapes, discussed in detail in the first two articles in the series, and we explain how batteries can adapt their operational strategies to thrive amid uncertainty while preserving long-term performance.

Batteries do not generate electricity—they shift it in time. This simple fact is fundamental to their valuation. Their worth is not intrinsic but derived entirely from how they operate: charging when electricity is cheap and abundant, and discharging when it is expensive and scarce.

Because this value is tied to time-varying electricity prices, and those prices can shift rapidly and unpredictably, there is no simple formula for determining a battery’s value. Instead, valuation requires simulation-based modeling that reflects:

• Realistic forecasts of power and ancillary prices at the hourly or sub-hourly level,
• Accurate representation of battery operational constraints, e.g., rate of charge/discharge, number of allowed cycles per day, etc., and
• Optimization techniques that can determine the profit-maximizing strategy relative to the above.

Models used for BESS valuation vary—ranging from linear programming to mixed-integer or dynamic programming—but they all aim to estimate how a battery should behave to maximize profitability given specific market conditions, participation rules, and other non-economic constraints (e.g., load matching, carbon minimization, etc.). Ultimately, the battery’s expected future profit identified by the model provides a valuation for the asset.

BESS operators can choose from a variety of strategies depending on market dynamics, asset configuration, and financial goals. Here are some of the most common approaches:

1. Energy Arbitrage

This is the most direct and well-known BESS strategy. It involves charging the battery during low-priced periods—often when renewable generation is high—and discharging during high-priced periods, such as post-solar evening peaks.

• The economic value of arbitrage increases with price volatility and shape asymmetry—both of which are rising due to the “Duck Curve” in Europe.
• Extremely low or even negative prices are becoming more common during mid-day solar peaks, widening the spread that batteries can exploit through charge/discharge cycles.
• Successful arbitrage depends on short-term price forecasting and optimized bid/offer strategies to capture the value embedded in these intra-day swings.
• Valuation for arbitrage strategies must consider long-term price shape evolution, especially as solar penetration continues to grow, and requires an analytical framework that can optimally allocate charge/discharge cycles as price shapes evolve.

2. Ancillary Services

Batteries are uniquely capable of providing fast-responding ancillary services that support grid reliability and frequency stability. Common European ancillary services products include Frequency Containment Reserve (FCR), Automatic Frequency Restoration Reserve (aFRR), and Manual Frequency Restoration Reserve (mFRR), though availability varies by country. These ancillary services provide operational alternatives to energy arbitrage, but participation comes with its own set of challenges.

• Importantly, a battery may be committed to but not called upon to deliver an ancillary service. This introduces probabilistic modeling challenges to accurately reflect the probability of a service call and the resulting impact on battery state of charge. Detailed analytics are required to formulate an optimal offer strategy that simultaneously ensures performance is achievable and all operating constraints are respected.
• Offer strategies must account for seasonality, weekday effects, and hourly variation in prices to maximize profitability while ensuring sufficient state of charge to perform if and when called upon.
• Ancillary services markets are still developing in Europe and may experience saturation effects or price suppression as more capacity enters.

3. Combined Arbitrage + Ancillary Services

Some of the most sophisticated operators blend both strategies, adjusting the battery’s usage dynamically depending on where the value is greatest. This allows the BESS to access the advantages of both individual strategies but also creates complexity in offer structures and state of charge management that require close attention.

• The resulting “layered revenue” model allows for day-over-day flexibility, increasing total returns and resilience to price shifts.
• Requires advanced analytics to ensure compliance with market rules, battery warranty provisions, and regulatory requirements while coordinating asset behavior across multiple markets simultaneously.

4. Hybrid and Co-Located Renewable + BESS

Co-siting batteries with renewable assets like wind or solar can unlock additional value. In a hybrid configuration, the renewable generator and BESS share the same meter, grid connection, and potentially even other hardware and electronics. In this configuration, the hybrid asset offers into the market as a single entity, scheduling the net combined output of the renewable and BESS components. This somewhat limits operational flexibility but saves on hardware and interconnection costs by combining these for both assets. By contrast, in a co-located configuration, the renewable generator and battery have separate meters and interconnection points. As such, they can participate in the market independently, providing greater flexibility, but at a greater up-front cost.

In either case, siting a battery near a renewable project site can have synergistic benefits.

• A battery naturally hedges solar volatility, allowing a portion of the energy from the renewable generator to be stored and placed on the grid during the most valuable hours.
• A hybrid or co-located system can enable participation in shaped or firmed PPAs, moving beyond traditional “as-produced” agreements. In this case, the battery provides the flexibility needed to shift some of the intermittent renewable generation to hours where it aligns with a volumetric obligation under the PPA. Such contracts are becoming more common as off-takers recognize the risk inherent to as-produced agreements. We will discuss this particular use case for a co-sited renewable + battery system in the upcoming fourth and final article in cQuant’s Portfolio Precision series.
• Sizing the BESS correctly requires local grid modeling and scenario analysis to optimize investment value over the asset’s operational lifetime. Over-sizing either component relative to the other can result in unused capacity and significantly reduced project economics, so care must be taken to ensure decisions are informed by strong analytical approaches up-front.

5. Battery-Focused Financial Hedges

Regardless of the operational strategy employed by the physical BESS asset, the owner/operator may desire to mitigate risk in future cash flows. A number of financial derivatives can be employed to protect battery cash flows over the long-term, albeit generally at the expense of upside. These are typically heavily structured contracts intended to reflect the operation of a specific resource or a specific pricing location, and their valuation requires similar analytical methods as they physical asset counterparts. When combined with BESS assets within the same portfolio, these financial derivatives can provide significant margin stabilization, raising certainty in future cash flows to support capital allocation decision-making and credit considerations.

Some of the more common derivatives include:

• Top-bottom swaps – These contracts exchange the lowest priced hours for the highest priced hours in each day. They are generally contracted for blocks of two or four hours, mimicking the energy arbitrage behavior of a battery of the same duration. As such, while they come at a premium, top-bottom swaps can provide the financial benefit of a BESS energy arbitrage strategy without the complexity of offering a physical resource into the wholesale electricity markets. They can also provide an effective hedge against a physical BESS asset within the same portfolio.
• Tolling agreements – These agreements are essentially “rental payments” in exchange for operational control of a battery and access to its corresponding market-derived cash flows. They can be excellent ways for asset owners to de-risk their investments over the long-term or for purchasers to gain the use of a battery without having to deal with owning a physical asset.

Revenue put options – These agreements help to ensure cash flow stability by paying off in scenarios where market conditions result in low battery revenues. Periods of low volatility, compressed hourly price shapes, and/or low ancillary services prices can reduce BESS margins. Revenue put options can be good hedges against such eventualities, although they generally come at a hefty premium.

One of the most attractive features of BESS is the ability to pivot strategies over time. A battery that prioritizes ancillary services today may switch to arbitrage tomorrow if price spreads widen. The operational strategy that performs best this year may look very different five years from now.

New markets will emerge, new surprises will unfold, and new constraints will surface. To keep pace, BESS operators must continually revalue their assets against current and future price curves—and that requires analytics built for flexibility.

At cQuant, we specialize in helping asset owners, off-takers, utilities, and trading teams make data-driven, forward-looking decisions in energy markets. Our SaaS analytics platform, combined with Zema Global’s industry-leading data infrastructure, delivers:

• Low-latency data acquisition and seamless data governance,
• High-resolution forecasting and simulation of prices and intermittent generation,
• BESS-specific optimization across multiple strategies and constraints,
• Scenario modeling to compare alternate strategies across market conditions,
• Portfolio integration to understand the added value of a battery’s inclusion within a broader portfolio of generation, load, financial contracts, and other energy assets.

Together, cQuant and Zema Global provide a complete decisioning infrastructure for BESS operators looking to lead—not lag—Europe’s rapidly transforming energy markets.

BESS is more than a technology—it’s a toolkit for navigating uncertainty. Batteries offer the flexibility that modern power markets demand, and the right analytics platform is what allows that flexibility to be monetized.

Whether you’re pursuing arbitrage, participating in ancillary markets, firming renewable generation with hybrid strategies, or hedging future risk, your ability to succeed depends on how well you understand, model, and adapt to the evolving dynamics.

With cQuant and Zema Global, you’re not just reacting to change. You’re anticipating it. Let’s ride the next wave of transformation—together.

*Ready to turn battery flexibility into revenue? From arbitrage to ancillary services, cQuant helps you capture every opportunity in today’s complex energy markets. Don’t just keep up with change—get ahead of it. Talk to our experts today.