Europe’s rapid expansion of battery energy storage is helping lower electricity prices during peak demand, but continued reliance on coal and gas is allowing storage operators to profit from the fossil-fuel dependence the technology is intended to reduce.

Martin Vladimirov, geoeconomics programme director at the Center for the Study of Democracy, argues that government policies must change if battery storage is to accelerate the transition to cleaner energy rather than reinforce existing fossil-fuel markets.

Global battery storage capacity grew by 66% in 2025 to nearly 302 gigawatts (GW), according to figures cited in the Reuters report. Europe installed 36 gigawatt-hours (GWh) of battery storage during the year, bringing its cumulative capacity above 100 GWh. SolarPower Europe expects new installations to exceed 50 GWh in 2026.

Batteries reshape electricity markets

Battery energy storage systems absorb surplus electricity when demand is low and prices fall, then release it when demand increases and electricity becomes more expensive.

This helps address the so-called duck curve, a pattern in which abundant solar generation depresses electricity prices during daylight hours before prices rise in the evening as solar output declines and conventional power plants meet demand.

By storing excess solar and wind power for later use, batteries can reduce price fluctuations, limit renewable energy curtailment and reduce the need for fossil-fuel generation during expensive peak periods.

Bulgaria illustrates the financial opportunities. According to Vladimirov's analysis of data from the Bulgarian Independent Energy Exchange, battery operators can capture price differences exceeding €100 per megawatt-hour (MWh).

Consumers have also benefited. Bulgarian electricity prices have fallen by around 15% relative to neighbouring markets over the preceding six months, with battery storage helping increase electricity availability during expensive evening hours.

Government support sustains fossil-fuel dependence

Despite these benefits, European electricity markets remain heavily influenced by natural gas prices, while coal and gas plants continue supplying power when renewable generation falls.

Capacity mechanisms are one reason. These government-backed arrangements compensate power generators for maintaining electricity supply capacity, helping ensure grid reliability even when their plants would otherwise operate less profitably.

The European Union approved a 15-year, €35.2-billion capacity mechanism for Germany in September 2026. Italy, where gas accounts for approximately 38% of electricity generation, paid about €1.8 billion through its existing capacity mechanism in 2025, according to the report.

These arrangements expose a central contradiction in Europe's energy transition: battery operators can earn substantial returns from the price volatility created partly by continued dependence on fossil fuels, while public policies help maintain the conventional generation capacity that contributes to that dependence.

However, battery storage can still displace fossil-fuel generation. Its actual impact depends on when batteries charge, the electricity sources supplying them, and which generators their discharge replaces.

Longer-duration storage remains a challenge

Most battery systems provide only two to three hours of full-power output, limiting their ability to address prolonged periods of low renewable generation.

Long-duration energy storage technologies, including iron-air and redox-flow batteries, could provide electricity for 10 to more than 100 hours. However, their costs remain a barrier to widespread deployment.

A more diversified renewable energy mix could also improve reliability. Wind power can complement solar generation by producing electricity at night and, in some regions, during winter when solar output is lower.

Vladimirov argues that governments may need to develop new ways to compensate storage operators for maintaining reliable and affordable electricity supplies as the market opportunities created by fossil-fuel price volatility diminish.

The central policy challenge is to ensure that battery storage becomes a tool for reducing fossil-fuel dependence, rather than remaining profitable primarily because that dependence persists.