Battery storage in Europe by 2040: who will prevail, who will fall behind?

Battery storage in Europe by 2040: who will prevail, who will fall behind?

The transformation of the European energy system is progressing at high speed. At the centre of this transformation lies the question of how to ensure the integration of ever larger shares of renewable energy, particularly wind and solar. Battery storage plays a key role: it balances short-term fluctuations, stabilises the grids, and makes it possible to make energy available exactly when it is needed.

Our European power price scenarios clearly show: Europe is not developing homogeneously, but with clear front-runners and laggards.

Why is battery storage becoming so important?

Battery storage fulfils two central functions:

1. Short-term flexibility: balancing fluctuations between generation and consumption within seconds to hours.

2. System stability: supporting grid frequency and security of supply, especially in times with high shares of renewable energies, and helping in the long-term with the transition from thermal to renewable energy generation.

In the future, the role of battery storage will grow significantly, as electricity supply in many countries increasingly relies on wind and solar, technologies that are weather-dependent and therefore make battery storage necessary for system stability.

The Top 2 in continental Europe: Germany and Italy

Battery storage in Germany

Due to the massive expansion of photovoltaics and wind power, Germany is already one of the most volatile electricity markets in Europe. Grid stability therefore requires additional flexibility – battery storage is an obvious solution here. In addition: the German market is large and highly liquid, providing investors with planning security and attractive business models. The possibility of arbitrage trading in the various liquid markets also plays a key role here. Politically, the integration of flexibility is specifically promoted, and the new German government also sees battery storage as an important factor. In the past, co-location battery storage was supported through the "innovation tenders" in the German subsidy program, the Renewable Energy Act.

Battery storage in Italy

In recent years, Italy has massively invested in photovoltaics and will continue this course in the long term. Today, the country is already one of the sunniest regions in Europe, an ideal basis for solar power. But this also creates special challenges for the power system, making battery storage a central solution. PV generation leads to electricity surpluses during midday peaks and significant deficits in the evening and at night. Battery storage is the most efficient solution to shift the solar power generated at midday into the evening hours. More renewables increase price swings, creating a stronger incentive for storage. The price spreads between midday and evening hours increase the profitability of battery storage, as arbitrage (buying electricity cheaply, selling it at a higher price) becomes more attractive. Beside that, also the arbitrage on and between other markets are an interesting business case.

Italy also has clearly defined climate targets: by 2030, the share of renewable energy in gross final energy consumption is to increase significantly, and by 2050, Italy aims to be climate neutral. The government actively promotes storage technologies, both in the context of large projects (e.g., coupled with solar parks) and in the area of decentralised storage (e.g., in the residential sector). The Italian grid operator Terna has prioritised storage as strategic infrastructure to ensure grid stability and security of supply. Electricity often moves over long corridors (as in Germany), creating bottlenecks. Storage can mitigate these bottlenecks locally and thus reduce the need for new grid investments.

Which countries have lower battery storage dynamics

Hungary and the Czech Republic are closely integrated into the Central European power market. This means they benefit indirectly from the storage capacities of their neighbours without having to expand massively themselves. In addition, capacity expansion here is currently less focused on renewable energies such as wind and PV and more on controllable thermal capacities, which reduces the need for storage.

Austria and Switzerland are a special case. The high share of hydropower and dispatchable pumped storage, fulfils many of the functions that batteries have to take on elsewhere. This reduces the direct need for large battery storage investments, even though smaller projects for grid services will emerge.

In the long term, this leads to the fact that battery storage capacities in these countries will expand less in the future than in the already mentioned European countries.

Drivers and barriers of storage development

The development of battery storage in Europe is determined by a number of factors. Some countries are structurally “forced” to invest in storage, while others naturally have alternatives.

A key driver for battery storage expansion, as already described in the examples of Germany and Italy, is the high share of renewable energies (wind & solar). The more volatile the energy mix, the greater the need for short-term flexibility through battery storage.

In addition, the market size and liquidity of a country have a driving impact: large power markets provide sufficient trading volume and price fluctuations to enable arbitrage. In markets like Germany or the UK, clear business models for battery storage therefore emerge.

But clear political support and regulatory frameworks are also important to promote the expansion of battery storage. Clear climate targets, storage strategies, and support instruments create investment security, as is the case in the UK and Italy.

Grid bottlenecks and the decentralisation of power generation also lead to a higher need for storage. With more decentralised generation, the need to store energy locally increases. Especially in Germany and Italy – where renewable power often has to be transported over long distances to other regions through the transmission network, battery storage helps to reduce these grid bottlenecks.

Countries with alternative flexibility sources, such as hydropower, need fewer battery storage systems because pumped storage plants can fulfil the same function, often even more cost-effectively. Market size also plays a role: in smaller power markets with less trading, there are fewer incentives for storage investments.

In addition, some countries still lack a clear definition of how battery storage should be remunerated in the power market. Investors hesitate when revenue models are unclear or when regulatory changes are looming. Moreover, large projects are capital-intensive. Countries less attractive to investors risk falling behind.

Flexibility becomes a location factor

The European map of battery storage shows a clear pattern:

• Large, volatile markets with clear political targets attract investments and are developing into the European storage giants.

• Smaller markets or countries with alternative flexibility sources (such as hydropower) show comparatively lower demand for battery storage.

One thing is certain: battery storage is no longer “optional,” but a central building block for the future of the European power system. Those who invest in time will strengthen security of supply – and benefit from the opportunities of a new market.