Behind-the-meter batteries may super-charge grid amid net-zero efforts

The electricity system is under pressure, amid the transition to net-zero. According to PMP Strategy, behind-the-meter battery projects could make or break the shift in the coming years.

A report from the consulting firm suggests that “something structural is shifting in European electricity markets”, and it is happening faster than many expected. At the heart of the process are two driving forces.

On the supply side, solar and wind now account for a growing share of the generation mix, and unlike nuclear or gas, PMP Strategy says “they cannot be dispatched on demand”. The predictable baseload floor that nuclear once provided could well erode, squeezed by ageing plants and a political climate that often makes large-scale nuclear expansion a slow or contested process.

Meanwhile, for the demand side, electrification is picking up pace. Electric vehicles, heat pumps, and industrial process upgrades are all introducing sharper, less predictable load profiles. And as C&I consumers move away from fixed-price contracts towards spot-indexed or “block + spot” supply arrangements, often guided by energy brokers, the experts contend that their exposure to price volatility is rising.

Amid this, the wholesale price structure looks nothing like it did a decade ago. Midday prices regularly collapse under the weight of solar generation, while evening peaks, still set by gas-fired plants covering residual demand, remain elevated. In Europe, the number of hours with negative spot prices has increased seventeen-fold over five years – but for a battery producers, this widening spread is an opportunity.

In a report published on the consultancy’s website, PMP Strategy notes that this isn’t necessarily an easy opportunity to seize. The first generation of large-scale battery projects – utility-scale, front-of-the-meter – ran into a problem that has become all too familiar: grid connection queues stretching years into the future. In many European countries, a project awarded today may not be connected until the late 2020s – a delay which “erodes returns significantly”.

But now, a new, distinct model is on the rise. The behind-the-meter (BTM) model sidesteps delays by installing the battery directly on a customer’s site, and routing it through the site’s existing grid connection. In this case, there is no new connection to apply for, as the infrastructure is already there. Development timelines shrink, and the economics improve accordingly.

Those economics are not only connected to an avoided connection cost, though. A BTM battery is a dual-revenue asset, offering opportunities for fresh income. It can reduce the customer’s electricity bill directly, through PV self-consumption optimisation, off-peak/peak tariff arbitrage, and peak-shaving to bring down contracted power capacity. And at the same time, it is wired to wholesale and ancillary services markets, which can generate “revenues that are entirely independent of what the customer pays for their electricity.”

Stacking these two income streams is what sets the BTM business case apart from its FTM counterpart. However, currently the BTM storage market in Europe is still young – and the pool of BTM flexibility assets is still small, even while demand for flexibility rises. PMP believes that this “will not last indefinitely”. As more BTM assets come online, spreads will compress and ancillary service payments will normalise.

This will be supported by regulatory reform – which the researchers say is moving “slowly but directionally, towards better recognition and remuneration of BTM flexibility”. As a result, the behind-the-meter battery is moving from niche product, to something which will soon be considered essential infrastructure – addressing the growing need of the electricity system, and delivering measurable cost savings, while boosting market revenues in the long-term.

PMP experts Laura Papet-Arnal, associate partner; Philippe Angoustures, partner; and Ronan Pilard, manager, concluded, “The current environment – wide spreads, strong ancillary services revenue, limited BTM competition – makes this an unusually favourable moment for early movers. That window will not stay this wide forever. But even as the market matures and revenue levels normalise, the structural case for BTM storage remains intact, built on fundamentals that electrification and grid transformation will only reinforce.”