Introduction
Battery energy storage systems (BESS) have rapidly moved from niche technology to a cornerstone of the UK’s clean energy transition. These systems allow electricity to be stored at times of surplus supply and released during periods of peak demand, enabling a more resilient and flexible grid. The UK government has set a target of deploying between 23 and 27 GW of battery storage by 2030, compared with only 4.5 GW operational at the end of 2024. This ambition reflects the central role that batteries are expected to play in achieving the UK’s net zero commitments.
Defining “batteries”
When discussing batteries in the context of the energy transition, the focus is primarily on grid-scale lithium-ion storage. These systems account for over 90% of UK installations and are capable of providing a short-duration energy supply efficiently. While other long-duration technologies – such as pumped hydro, compressed air, flow batteries, and hydrogen – are developing, lithium-ion remains the dominant commercial solution.
Financing and investment trends
The financing environment for BESS projects is maturing. Investors are increasingly comfortable with the “revenue stack” model, which combines income from balancing services, wholesale trading, and longer-duration arbitrage. Bankability has improved to the point where “pure play” BESS projects can now attract financing in their own right, without requiring co-location with renewable generation.
However, challenges remain. Higher costs of capital, lengthy grid connection delays, and uncertain returns in crowded ancillary services markets have impacted investor confidence. Some developers have experienced lower-than-expected returns in recent years due to reduced price volatility and falling revenues from frequency response markets. These factors are leading to increased consolidation in the sector, as well-capitalised players acquire distressed projects and vertically integrate into power generation portfolios.
Trading opportunities
BESS projects are playing an increasingly active role in energy trading. Their ability to transition from standby to full power in under a second allows operators to respond dynamically to balancing market signals. Batteries also reduce curtailment by absorbing excess renewable generation, which can then be released when the sun is not shining or the wind is not blowing.
The trading opportunities for batteries are highly dependent on market volatility. While 2023 and 2024 saw depressed revenues due to lower wholesale price swings, recent increases in volatility and continuing growth in intermittent renewables are expected to restore trading opportunities.
Regulation
The UK regulatory framework has undergone significant reform in recent years. The Energy Act 2023 amended the Electricity Act 1989 to expressly classify storage as a subset of generation, providing long-awaited legal clarity for developers and investors. Planning has also been simplified, with most storage projects assessed locally rather than under the Nationally Significant Infrastructure Projects regime.
Despite this, regulatory challenges persist. Safety remains a live issue, with lithium-ion batteries carrying fire risks. Recent incidents have led to new government guidance and growing calls for fire services to become statutory consultees in planning applications.
Perhaps the most significant recent development is the introduction of a cap and floor regime for long-duration electricity storage (LDES), administered by Ofgem. This scheme, launched in April 2025, is designed to unlock large-scale investment by guaranteeing projects a minimum level of revenue (the floor) while capping excessive returns (the cap). Any upside revenues above the cap are shared with consumers, while downside protection ensures that projects can recover their investment costs. On 23 September 2025, Ofgem confirmed that 77 projects – including lithium-ion, flow battery, pumped hydro, and compressed air storage facilities – have progressed to the final assessment stage. Final approvals are expected in summer 2026. This marks the first major wave of long-duration storage investment support in the UK for 40 years, representing a steep change in how the regulator incentivises grid flexibility.
Outlook
The UK, alongside the United States and China, remains one of the top three most attractive markets for BESS investment. While grid connection delays and financing constraints continue to pose barriers, the direction of travel is clear: batteries are now central to ensuring system adequacy, integrating renewables, and enabling decarbonisation.
What businesses should consider now
Businesses investing in, financing, or trading in battery projects should ensure that they:
- Review the bankability of revenue models in light of evolving trading opportunities and regulatory reforms
- Engage early with grid connection processes to mitigate delays
- Monitor the implementation of the Energy Act 2023 and Ofgem’s licensing requirements
- Assess supply chain resilience, particularly given the UK’s reliance on imported lithium and other critical minerals
Conclusion
Batteries are no longer a peripheral technology. They are central to energy strategy, investment, and trading in the UK and beyond. With increasing regulatory clarity, growing investor familiarity, and government-backed targets for deployment, the opportunity is clear. However, the sector remains volatile, and success will depend on careful management of financing structures, trading strategies, and compliance obligations.
Client Alert 2025-254
