Europe and the US: Comparing and contrasting two maturing energy storage markets

The interview highlighted some ‘mixed feelings’ in the European market around the status of energy storage development, with developers enthused by current revenues and investors more cautious about the future stability of those revenue streams.

At the same time, the US market faces its own near-term instability, like Europe, due to regulatory uncertainty, though the drivers and reasons are very different.

In both regions, the immediate market response appears to be a growing trend for long-term contracting and a retreat from pure merchant business models, while grid connection queues are a pain point on both sides of the Atlantic.

Where the analysts see a big difference is in policy: the European Union (EU) is committed to increasing its share of variable renewable energy (VRE), whereas the US administration clearly is not. But beneath the surface, both markets have fundamental drivers that make rapid deployment of energy storage a necessity, Darmani and Weiss tell us.

In part two of this interview piece, we will look at the specific drivers of regulatory uncertainty that could put a damper on market growth, as well as the policy and fundamentals that give analysts more reason for optimism.

Mixed feelings around revenues in Europe, policy uncertainty in the US

“My headline observation is that the European market has a bit of a mixed feeling right now about storage,” Darmani says.

Darmani says many investors and banks ask where revenues are heading in the continent, with, for example, some people being “uneasy” about falling revenues in the UK market of late.

On the “other side of the market,” Darmani says, developers are saying that merchant business models work and that they don’t need to get contracted revenue or receive subsidies.

“You see developers finding their feet on the ground. They really see that they can find enough interested parties in the project they are developing, but at the same time, you see that banks are asking: ‘If the revenues are not working out, what are my options now?”

In a conversation almost exactly a year earlier, at Energy Storage Summit 2025, also hosted in London by our publisher Solar Media (part of Informa Markets), the EMEA analyst predicted tolling agreements would become much more prevalent in Europe than they had been to that point.

Since then, the growth was “quite a bit, in terms of total contracted capacity in tolls or power purchase agreements (PPAs).”

“What also surprised us was the innovation that went into these contracts, how many different types we saw being signed: physical, virtual, floor, cap, all the things that you can mention.”

“Everybody knows energy storage has developed and is here to stay and has a role to play, but then they [stakeholders] are trying to also hedge against the changes happening in the market that make it risky for them.”

Whereas in the US, Allison Weiss says, it’s been “a very interesting year,” with all of the policy changes that took place or were implemented since early 2025.

While there is uncertainty about the numbers Wood Mackenzie and other market research firms will find when it comes to adding up global installations, with major policy changes not only in the US but also in China—the world’s chief exporter of batteries and battery energy storage system (BESS) equipment—throwing a few curveballs.

“Overall, we’re still predicting a higher build-out in the US than we were a year previously, even with some of the changes, just because storage did keep the main investment tax credit (ITC).” Weiss says.

However, changes to ITC eligibility rules around material assistance from foreign entity of concern (FEOC) countries, namely China, mean supply chain management changes are required on US projects.

“We think that’s going to have some impacts on the timing of projects in the near term, but over the next 10 years, [it will be] very feasible to secure cheap enough storage, either through growing domestic supply in the United States or very competitive Chinese systems still coming in with the overbuild on supply from that side,” Weiss says.

On the revenue side, Weiss says the US has “already, basically, seen the end of merchant-only projects in the United States.”

“To a large extent Texas was really driving that market but had a trajectory downward, sort of similar to Great Britain, in some ways, where we’ve seen the saturation of the ancillary markets, but then also an underlying volatility in the energy revenue year-to-year.”

Due to relatively mild weather, “2024 and 2025 were down years for volatility” in Texas’s energy-only ERCOT market. While there are definitely fundamentals where there’s the need for energy storage going forward in ERCOT, and Wood Mackenzie expects to see high volatility years again, they may be spread out and unpredictable.”

“That makes some investors very nervous, and so we’re seeing people really react to that differently, depending on risk tolerance of wanting to stay in the market to capture that future upside, or pull out and go somewhere safer, or only stay with long-term tolling contracts in place.”

I say, ‘virtual toll,’ you say ‘revenue swap’

There are some parallels between the two markets, Weiss and Darmani say, in the adoption of tolling agreements and other contracted revenue structures, but the US has moved much more quickly towards them.

Weiss says that although Europe has lagged a bit in this adoption, perhaps because the UK market retained merchant project value a little longer than Texas did, Europe is embracing tolls quickly.

“In the US, we have prevalence outside of Texas, [that] everything is going to have a capacity contract, and often in California, the other largest market in the country, we see a Top-Bottom 4 Hours (TB4) contract structure on top of that as well, providing some stability there. In Texas, those could be long-term offtake contracts with people serving load, or there are also trades in the forward market that can help hedge positions in the very volatile real-time market,” Weiss says.

Thinking back through recent history, Darmani says that there is a sense that Europe is following the US’s lead in this trend. As the EMEA analyst wrote Wood Mackenzie’s first battery storage contracting report three years ago, Weiss explained the concept of a virtual toll covering a Top-Bottom (TB) spread.

This virtual toll structure is becoming more common in Europe but is often referred to as a ‘revenue swap.’

“I wrote in that report that the revenue swap could be the dominant [contracting] type in Europe, because if it’s working in the US, it could also work in Europe. Now we are seeing revenue swaps to be one of the favourites,” Darmani says.

Looking back on my own history of writing about the clean energy industries, one of the first things I picked up was to look at the US not as one unified solar PV market, but a patchwork of states, transmission regions and wholesale markets.

At the same time, Europe comprises many countries, including 27 Member States of the European Union, but there is much broader electricity grid synchronisation, interconnection, and shared power market participation than in the US.

A node to volatility

Another big difference is the nodal pricing models of US electricity markets, which give developers and investors a clearer idea of which specific locations within the utility grid are more valuable for connecting energy storage facilities.

“The nodal relationship to your hub is key for understanding any project’s economics,” Weiss says of the US developer landscape.

Nonetheless, whichever market you’re in, many of the fundamental market drivers are the same, Weiss says, with the integration of increasing amounts of renewables driving volatility in electricity prices, which energy storage assets can capture.

Along the way, market opportunities for batteries tend to open up through balancing products like frequency-regulating ancillary services, but as Weiss points out, these markets are much shallower than the depth of energy volatility, hence the saturation seen in ancillary-first markets like PJM in the US, and Germany and the UK in Europe.

“In the US, you really need to consider the nodal prices and how it might vary from the hub, and what basis risk that might put you at and volatility basis risk. Versus in Europe, where you’re really concerned about how grid fees might evolve through time.”

Keep your eyes open for Part 2 of this interview with Wood Mackenzie analysts Allison Weiss and Anna Darmani. You can read more of our coverage from, and relating to, the Energy Storage Summit 2026, here.

Energy Storage Summit USA will be held from 24-25 March 2026, in Dallas, TX. It features keynote speeches and panel discussions on topics like FEOC challenges, power demand forecasting, and managing the BESS supply chain. ESN Premium subscribers can get an exclusive discount on ticket prices. For complete information, visit the Energy Storage Summit USA website.