Battery storage and its impact on German power prices: a game changer?

Battery energy storage systems (BESS) are playing an increasingly central role in price formation on the German electricity market. While the expansion of renewable energy keeps the power supply volatile, storage could help smooth out price fluctuations through strategic charging and discharging.

By the end of 2024, market participants had submitted a total of 650 connection requests for large-scale battery storage systems to Germany’s transmission system operators, with a combined capacity of around 226 gigawatts. But is this capacity sufficient to have a lasting impact on the Day-Ahead electricity price in Germany?

The impact of large-scale battery storage on prices in the German Day-Ahead market

The expansion of battery storage is becoming increasingly important for stabilising the German electricity market. Particularly in the Day-Ahead market, where electricity is traded for delivery the following day, battery storage can be used to influence prices in a targeted manner. This is because energy can be stored during periods of low prices and fed back into the grid when demand is high.

A key advantage of battery storage is its ability to absorb surplus electricity from renewable sources – especially solar and wind – and release it during periods of high demand. This helps to dampen price spikes and reduce the occurrence of low electricity prices. Additionally, larger storage capacities enable a more flexible response to short-term forecast errors in renewable energy generation.

However, the actual impact of battery storage depends on various factors – including available capacity, market incentives, and regulatory frameworks. Larger batteries with high cycle stability could reduce market volatility. Nevertheless, the question remains whether the current market mechanisms offer sufficiently strong investment incentives for widespread deployment.

It is still uncertain how much large-scale battery storage capacity will ultimately establish itself in the German electricity market. Nonetheless, their influence on electricity prices is of great significance to all market participants. Power plant operators, for example, could benefit from higher profile value of their generation assets if battery storage affects market price structures.

Energy suppliers and industrial customers, in turn, would benefit from reduced price volatility. Battery storage can mitigate price fluctuations in the electricity market, increase planning certainty, and reduce the risk of price spikes. For investors, battery storage opens up new business models and revenue streams, offering the potential to profit directly from market price fluctuations.

This article is based on the latest Q1-2025 update of European electricity price scenarios by Montel Analytics. It investigates the extent to which large-scale battery storage influences electricity prices in Germany. The analysts assumed that the storage systems were active exclusively in the Day-Ahead market and not in the Intraday or balancing energy markets.

Initially, around half of the large-scale storage capacity was assumed to be available for the Day-Ahead market – increasing to around 70% by the end of the observation period in 2060. A so-called “NoBESS sensitivity” was calculated, meaning large-scale battery storage was completely excluded from the electricity price modelling, while all other assumptions remained the same.

Battery storage used for prosuming was still included in this sensitivity analysis. In the standard scenario “Central”, however, large-scale battery storage was included in the modelling. To calculate the capture prices for solar and wind energy, average generation profiles for Germany were used.

The impact of large-scale battery storage on base, peak, and capture prices in the Day-Ahead market

The sensitivity analysis shows that both base and peak prices in the standard “Central” scenario are higher than in the “NoBESS” sensitivity scenario, where battery storage is not included.

Figure 1 illustrates the percentage deviation between the “Central” scenario and the “NoBESS” sensitivity. While the impact on base prices is relatively minor, the effect on peak prices is significantly more pronounced. Until 2040, the difference in base prices remains minimal, and even after 2040, base prices increase by only around 2% due to the inclusion of battery storage.

Peak prices, however, rise significantly more over the same period – by up to 7% during peak times. This means that both base and peak prices increase with the integration of battery storage into the Day-Ahead market. Without battery storage, prices would accordingly be lower.

In concrete terms, this means that both base and peak prices rise when battery storage is included in the modelling. Conversely, both prices would be lower if battery storage were not established in the market.

Capture prices – for both onshore wind and solar – also tend to increase due to battery storage in the Day-Ahead market. Figures 2 and 3 show the percentage change between the standard “Central” scenario and the “NoBESS” sensitivity. It becomes clear that the effect on solar capture prices is more pronounced than on onshore wind capture prices.

While capture prices for onshore wind rise by up to 5%, the increase for solar reaches as much as 19% during the observation period. In summary, the integration of battery storage also raises the capture prices for both solar and onshore wind.

The higher solar capture prices are due to the fact that solar power is mainly generated during midday hours. As Figure 1 already shows, battery storage especially increases electricity prices during peak hours, which strongly affects the capture prices for solar. Wind onshore generation, on the other hand, is more evenly distributed and extends into off-peak hours, so the impact of battery storage on wind capture prices – like base prices – is smaller.

Why do peak prices and solar capture prices increase more than base prices?

Battery storage systems absorb electricity when prices are low – for example, during periods of high solar or wind generation – and feed it back into the grid when prices are high, such as during times of high demand or low renewable generation. Low-price periods typically occur when there is particularly high renewable energy feed-in. In 2024, this was clearly observable in Germany, where high midday solar output frequently led to these “low-price events.”

During these hours, battery storage acts as additional or artificial demand by absorbing excess electricity and thereby increasing overall electricity demand. This, in turn, raises prices during those low-price periods.

Since many of these hours fall within peak timeframes, this causes peak prices to rise more sharply than base prices, and also increases solar capture prices. This trend is also evident in the number of zero and negative price hours per year. Figure 4 illustrates the percentage change in the number of such hours between the “Central” scenario and the “NoBESS” sensitivity. The integration of battery storage in the Day-Ahead market therefore reduces the frequency of zero and negative prices.

Conclusion

The analysis shows that integrating large-scale battery storage into the German Day-Ahead market leads to an increase in electricity prices – especially peak and capture prices. While base prices rise only slightly (by about 2% until 2040) due to the inclusion of battery storage, peak prices show a more pronounced increase of up to 7%. Capture prices also increase, with a more significant effect on solar power (up to 19%) than on onshore wind (up to 5%).

The main reason for these price increases lies in the arbitrage behaviour of battery storage systems. They charge when prices are low and discharge when prices are high. As a result, cheap “low-price events”, especially around midday, are diminished, which pushes up peak prices and solar capture prices. The more consistent generation profile of wind leads to a more moderate effect on wind capture prices.

The analysis clearly demonstrates that battery storage changes the price structure of the Day-Ahead market.