Battery storage monetization – Tolling Agreements and Flexibility Purchase Agreements

The ongoing expansion of renewable energies, particularly of photovoltaic (PV) and wind power plants, is creating increasing dynamism in the electricity markets. Volatile and, at times, negative electricity prices present new challenges, while simultaneously increasing the value of flexibility and opening up additional economic potential for the deployment and monetization of battery storage systems.

This is where Tolling Agreements and Flexibility Purchase Agreements come into play. These contractual models can help to economically leverage the flexibility of battery storage systems and enable predictable revenues in a volatile, dynamic, and increasingly complex energy market. This can strengthen the financial viability of battery storage projects, increase their attractiveness to investors, and thereby accelerate the expansion of battery storage systems.

What is a Tolling Agreement?

A Tolling Agreement is a contract in which the owner of a battery storage system grants a third party (e.g., a marketer) the right to operate the battery storage system in a market-optimized manner to the agreed extent.

In return, the owner of the battery storage system generally receives a fixed remuneration (“fixed price”). This remuneration enables predictable projects with stable revenue streams and significantly strengthens the project’s financing and investment security.

The third party (e.g., a marketer) controls the charging and discharging processes of the battery storage system with the aim of maximizing its expected revenue potential and thus generating the highest possible revenue. However, the owner or operator generally remains responsible for the technical operability, availability, and maintenance of the battery storage system.

What is a Flexibility Purchase Agreement?

A Flexibility Purchase Agreement (FPA) is a contract for the commercial monetization of flexibility under which the owner of a battery storage system grants a third party (e.g., marketer) the right to utilize that flexibility in a market-optimized manner. Structurally, FPAs are modelled on Power Purchase agreements (PPAs). Unlike PPAs, however, they do not pertain to the purchase or sale of electricity, but rather to the tradable flexibility of the battery energy storage system; in contrast to PPAs, flexibility is thus marketed instead of electricity. Depending on the design, physical or virtual or financial FPA models can be chosen, comparable to those of classic PPAs. In this context, a physical FPA comprises the direct optimized control of a specific battery storage system, while a virtual FPA generally grants the right to market a specific amount of MWh.

In contrast to a Tolling Agreement, a market- or revenue-dependent remuneration structure (“merchant price”) is the primary focus here. As a result, revenues can be more closely aligned with market price fluctuations and utilized more economically through flexible, price-dependent marketing.

Here too, the charging and discharging processes of the battery storage system are generally controlled by the third party (e.g., a marketer), so that existing revenue potentials can be used efficiently and exploited in the best possible economic manner, while the responsibility for the technical operability, availability, and maintenance of the battery storage system remains with the owner or operator.

What risks and regulatory aspects should be considered?

The owner or operator generally bears the asset risk and must ensure that the battery storage system is available for the agreed use. If the battery storage system is unavailable or only partially available, contractually foreseen remuneration adjustments or compensation claims by the marketer can be triggered.

In contrast, the marketer generally bears the marketing and market risk. This includes, in particular, electricity price and forecasting risks. The actual revenues from marketing may therefore differ from the originally expected returns. The marketer can bear these risks themselves or limit them through appropriate trading and hedging strategies. The pricing formula should also be structured in such a way that it appropriately reflects the volatile electricity and exchange prices.

Partially still unclear or incomplete regulatory requirements present a possible challenge for the structuring and conclusion of Tolling Agreements and FPAs. This includes, among other things, the detailed specification of “system service” as defined in section 128(3) of the Electricity Act (ElWG), which will come into effect in the future, through a still outstanding ordinance by E-Control that may influence the regulatory framework for battery storage. Against this backdrop, “change-in-law” clauses should be considered to account for future regulatory developments.

Conclusion

Tolling Agreements and Flexibility Purchase Agreements are key contractual models for the monetization of battery storage systems in the context of volatile electricity markets. They allow for different approaches, ranging from predictable revenue structures to market-oriented flexibility monetization. Ultimately, the allocation of risk and the consideration of future regulatory developments will depend on the specific design of the Tolling Agreement or FPA.

 

23. June 2026

 

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