Tolling vs. merchant: how European BESS deals are actually getting financed.

Two years ago the argument was whether merchant battery revenue was financeable at all. That argument is over. Both structures now get funded in Europe — at visibly different leverage, tenor and price. The work has moved to sizing the gap.

What changed, in numbers

2025 was the year European battery storage financing stopped being a niche. Modo Energy counted 82 deals across 13 countries, €8.6bn of disclosed transaction value and €6.1bn of disclosed debt — against €1.4bn of debt in 2024. Deal count more than tripled from 25. Project finance made up half of all transactions; standalone BESS rose from 63% to 88% of deal count.

Within that, the structural shift is sharper than the headline growth. Standalone tolling agreements went from 3 in 2024 to 15 in 2025 — 19 including project financings with tolling counterparties. Six of the fifteen were German.

The pace has not slowed. Q1 2026 alone saw €3.1bn of disclosed project finance debt across 12 transactions — half of 2025's full-year total in a single quarter — across 53 deals and 11 GW.

What a toll actually buys

A tolling agreement transfers the trading decision — and the revenue volatility that comes with it — to an offtaker, who pays a fixed availability fee for the right to dispatch the asset. The owner keeps the asset and, usually, capacity market payments. The offtaker keeps the upside.

What that buys, in financing terms, is not subtle. A German case study circulated in 2026 sets out the shape for a two-hour battery:

Structure	Equity required	Target IRR
Fully merchant	€550/kW	15%
60% gearing, no toll	€250/kW	20%
70% gearing, 5-year toll	€150/kW	~16%

Read the middle row carefully, because it is the one that gets misread. Un-tolled, moderately geared, the modelled equity return is the highest of the three. A toll is not a way to make more money. It is a way to need less equity and to make the return less dependent on being right about power prices for fifteen years.

That trade is why the question "tolling or merchant?" is really a question about who your equity is. An infrastructure fund with a 10-12% target and a liability profile to match will take the tolled structure every time. A specialist fund raised on 18%+ will not thank you for capping it.

What lenders are actually asking for

The UK rule of thumb has been that roughly 50% of projected cash flows under contract — via floors or tolls — is the level at which large-scale senior debt becomes straightforward. Market commentary through 2025-26 describes that requirement as softening as operating track record accumulates, with some projects now clearing at materially higher merchant exposure.

Germany has gone further. Lenders there are now described as actively financing merchant BESS without a capacity contract — using mini-perm structures, tighter DSCRs and heavy scrutiny of the revenue curve rather than refusing the risk outright. The typical high-gearing shape described by NORD/LB at BBDF 2026 is a 12-month merchant phase followed by roughly 80% tolling for five to seven years.

Notably, at least one active lender identifies regulatory uncertainty — the risk of retroactive grid fees — as a larger concern than merchant revenue risk itself. If you are financing in Germany, that reorders which section of your information memorandum matters most.

The lenders doing the work

By deal count across 2025, NordLB and Santander led with nine transactions each, followed by NatWest, ABN AMRO and Rabobank at five each. That concentration matters for sequencing a raise: the pool of banks with a battery credit paper already written is smaller than the pool that says it covers the sector.

At the top end, the clubs are large. Thorpe Marsh (Fidra Energy, 1.4 GW / 3.1 GWh, Doncaster) closed around £595m of debt from a 13-bank club alongside roughly £445m of equity from EIG and the UK National Wealth Fund — about £1bn in total, with approximately 80% of capacity pre-sold to EDF, Octopus Energy and Statkraft and a 15-year Capacity Market contract from October 2028. In Belgium, Green Turtle (InfraVia / Giga Storage, 700 MW / 2,800 MWh) reached financial close on 9 July 2026 with €450m of debt from a ten-bank consortium — described by Santander CIB Benelux as the largest euro-denominated battery storage financing to date.

Toll design is not standardised — and the differences are large

Two Drax deals signed three weeks apart in early 2026 make the point better than any framework:

• Drax / Fidra Energy — 250 MW / 500 MWh, Nottinghamshire, 10-year, CPI-indexed (January 2026)
• Drax / Zenobē — 200 MW / 800 MWh, Coalburn, Scotland, 15-year, fixed, no indexation, with FID required within six months (February 2026)

Same offtaker, same quarter, materially different risk allocation. A fifteen-year fixed fee with no indexation is a very different instrument from a ten-year CPI-linked one, and the two will not be valued the same by a credit committee or a rating analyst. "We have a toll" is not a description of a project.

The structures in circulation

• Full toll — fixed availability fee, offtaker takes all trading upside. Shell Energy Europe's 7-year toll on Bramley (100 MW / 330 MWh) was reported as the UK's first single-asset BESS tolling agreement.
• Revenue floor — owner retains merchant upside above a guaranteed minimum. Statkraft's 412 MW floor with Gresham House (July 2025) is the reference deal. Across 789 MW of floor agreements Gresham House disclosed a £35m annual minimum, implying roughly £44,000/MW/year of contracted floor.
• Revenue swap — Nephila Climate's 377 MW arrangement with Gresham House, described as the first publicly announced structure of its kind in Great Britain, imported from the more mature Australian market.
• Flexibility Purchase Agreements — nearly 12 GW / 23 GWh contracted across Europe in 2025, roughly triple 2024. Utilities accounted for 77% of contracted volume.

Why the answer is different in each market

Revenue structure in Europe is not converging. It is diverging by market, because the underlying revenue mechanisms differ:

Market	Dominant structure	Why
United Kingdom	Revenue floors	Deep merchant markets and a Balancing Mechanism worth participating in — owners want to keep upside. The T-4 for 2029/30 cleared at £27.10/kW/yr in March 2026, less than half the prior three rounds, weakening the Capacity Market leg.
Germany	Tolling	Six of Europe's fifteen standalone tolls in 2025. Grid fee and regulatory uncertainty pushes risk toward the counterparty best able to price it.
Italy	Auction contracts	The first MACSE auction (October 2025) procured ~10 GWh on 15-year contracts, roughly 4x oversubscribed, at a weighted average €12,959/MWh-year. A second round targeting 16 GWh is set for November 2026.
Spain	PPAs and long tolls	Engie's 10-year toll with Return (55 MW / 220 MWh) and Grenergy's 12-year toll on 680 MWh of co-located storage point to unusually long tenors.
Poland	Capacity market, deteriorating	The BESS de-rating factor collapsed from 95% (2023) to 60% (2024) to 13.39% (2025). Roughly 13 MW of contractable capacity per 100 MW built — the contracted leg is thinning fast.

The volatility a toll is insuring against

It is worth being concrete about what merchant exposure has actually meant in the one market with a public monthly benchmark. Modo Energy's GB index, in £/MW/year:

• January 2024 — £36.6k, the lowest on record at the time
• December 2024 — £83.7k, a two-year high
• September 2025 — £70k · November 2025 — £59k
• December 2025 — £48k, an eighteen-month low
• January 2026 — £52k, down 44% year-on-year and 25% below the 2025 average
• February 2026 — £41k

A range of more than 2x inside a single calendar year, and a clear downward trend through 2026 as capacity dilutes per-MW earnings. Set the Gresham House floor of roughly £44,000/MW/year against that series and the trade becomes legible: the floor sat above realised revenue for a majority of months in 2024, and above four of the six data points above.

No equivalent public monthly index exists for Germany, Italy, Spain, Poland, the Netherlands, Belgium or Ireland. If your business case for those markets cites a revenue benchmark, ask where the series comes from before an investment committee does.

What we tell clients

• Decide the equity first, then the structure. The revenue structure that maximises modelled IRR is not the one that maximises the number of investors who can hold the asset. Pick your investor class, then build the stack that clears it.
• Price the toll, do not just secure one. Tenor, indexation, capacity market treatment and who bears degradation are worth more than the headline fee. Two tolls at the same €/MW can differ by hundreds of basis points in what a lender will advance against them.
• A hybrid is the default, not the compromise. The structure most often financed in Germany is a short merchant phase then a partial multi-year toll — not 100% of either.
• Do not import US terms. The detailed DSCR and margin grids circulating online are ERCOT-derived. They will not survive contact with a European credit committee.