The conflict in the Middle East reignited volatility in energy markets and boosted storage revenues in March, but also raised renewed questions about the long-term sustainability of the business. A four-hour battery storage operation would have captured €19.3/kW , 17% more than in February, driven by wider spreads in the day-ahead market and a rise in gas prices linked to geopolitical tensions, according to data recorded by Aurora Energy Research .
However, the monthly improvement is accompanied by a note of caution: revenues are 38% lower than in March 2025 , mainly due to a drop of over 50% in capacity prices in the aFRR market. For Javier Pamos Serrano , Iberia Product Manager at Aurora Energy Research, the current context presents opportunities for BESS, although far from a scenario comparable to the 2022 energy crisis.
“ There are times when prices are higher, and buying cheap energy to sell during those peak periods is more attractive for energy storage ,” Pamos told Energía Estratégica. He added that ancillary services, historically dominated by thermal power plants, also tend to capture higher prices in these situations.
However, he downplays the magnitude of the current shock compared to recent events. Although gas prices have risen due to the conflict, they are around 45 or 50 euros , far from the levels exceeding 200 euros per MWh seen during the war between Russia and Ukraine in 2022, thus limiting a more disruptive impact on storage revenues.
But the executive introduces a relevant nuance: the impact of the conflict was partially mitigated by fundamental aspects of the electricity system itself. A slight drop in wind power generation and a greater share of gas pushed spreads higher, although strong renewable and hydroelectric generation prevented sharper movements and "mitigated the impact of the war."
Looking ahead to the coming months, Pamos anticipated moderately increasing volatility, though contained by the system's fundamentals. He explained that the high water availability accumulated at the beginning of the year, with reservoirs full after a period of heavy rains, acts as a buffer against greater price shocks.
“ Instead of jumping from renewable generation to thermal generation, which is going from zero price to prices of one hundred and something, there is a cushion of hydroelectric generation that can mitigate the impact of the war to some extent ,” he argued.
That factor, added to the renewable expansion, reinforces a conclusion that the executive himself defines as counterintuitive: the conflict raised spreads and revenues for BESS, but the energy transition itself is also cushioning that shock.
In parallel, another factor influencing the energy storage equation is the evolution of technological costs. After the sharp declines recorded between 2023 and 2024 due to oversupply and a slowdown in the electric vehicle market, battery prices are showing a stabilization trend.
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“ We’ve noticed a steady decline in prices, but not enough to revolutionize the battery business case ,” the executive explained. In his view, the cost reduction is gradually improving the competitiveness of projects, although it hasn’t yet, on its own, changed the bankability of the business. Meanwhile, the market is also monitoring the potential impact of China’s reduction in VAT refunds for battery exports, from 9% to 6% .
Spain looks for signs of mature markets
Although Spain does not yet have a deployment of operational BESS systems, interest in storage is accelerating and already totals more than 2.5 GW in the pipeline , so the signals coming from mature markets such as California and the United Kingdom are closely followed by developers and investors.
Precisely in these markets, where storage already faces higher levels of competition, signs are beginning to appear regarding the sustainability of revenues, especially due to the risk of cannibalization in auxiliary services as battery penetration grows.
“ Battery revenues are high, but these ancillary services are expected to cannibalize each other quickly ,” warned the Aurora Energy Research representative.
Part of the market response is beginning to involve more sophisticated sales strategies and long-term contracts. The executive emphasized that even with lower revenues, the optimization strategy can generate substantial gaps.
“ There can be a difference of up to 10 times in terms of revenue between one trader and another ,” he asserted. Meanwhile, developers are exploring tolling agreements to support financing and provide certainty for projects, while Spain is also closely monitoring how capacity markets are evolving.
At that point, Pamos introduced a warning: Although California built a good part of its pipeline supported by mechanisms such as Resource Adequacy , it considers it unlikely that this dynamic will be replicated in the Spanish market.
“ Let’s not expect capacity market prices as high as those in California that could attract so much investment in batteries ,” he said.