What is driving and shaping European battery energy storage system (BESS) project financing and M&A this year?
M&A in the UK has returned recently, with 4.2GWh transacting in just the past few weeks, after a quiet period due to an ongoing reform of its grid connection queue which created huge uncertainty in the market. That has now eased with more than half of projects due to connect before 2030 finally getting their firm connection dates, as reported by our sister site Solar Power Portal.
But broader European activity has also picked up substantially, based on announced project financing and acquisitions. There’s so much large-scale project news happening across the continent we’ve increasingly had to round up 10-12 newsworthy stories into one piece, see all recent ones here.
One of the most notable was Allianz GI’s acquisition of a 50% stake in TotalEnergies’ 11-project Germany portfolio developed by Kyon Energy, which some sources have said marks a real inflection point in institutional investor interest in the sector in Europe.
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Sumit Joshi, director at consultancy Baringa, agreed that the UK is a particular case of grid connections reform driving M&A, but said that across the European market more broadly there is a more fundamental market shift happening.
“Some of the recent pick up in M&A activity is due to more certainty around grid connections, but I would also say investors are moving towards portfolio shaping rather than any market stress type conditions,” Joshi told Energy-Storage.news.
Pick-up in European M&A activity
Just based on publicly available information, Q1 2026 saw 50 large-scale BESS transactions, up materially compared to late 2025, he said.
But investors are becoming more focused on risk mitigation and revenue certainty. Combined with greater interest in the industry, this is resulting in more projects coming to market, Joshi added:
- early‑stage project developers are recycling capital
- some infrastructure funds are rebalancing toward lower‑risk / contracted cashflows
- exit opportunities are being driven by strong demand from infrastructure funds, pension funds and strategic investors
“Some assets can be perceived to be “struggling to sell” when in reality it could be more of price discovery in a resetting market – with broader energy market volatility, including recent Middle East developments – prompting investors to stress‑test revenue assumptions more rigorously,” Joshi said.
“Overall, this looks more like a market maturing and repricing risk than a signal of market distress.”
Returns falling
However, returns in the sector are also generally falling as markets mature and more projects come online, which changes the equation for investment.
“We are also seeing some softening in achievable returns, but it’s highly market specific and more pronounced in merchant-heavy markets,” Joshi said.
“Across Europe, we’re seeing IRRs normalise rather than collapse. Many early BESS business cases were built in a period of exceptional volatility and relatively unconstrained ancillary service revenues. As markets mature and investors apply more conservative assumptions, returns are moving closer to the cost of capital – particularly in more merchant-exposed markets.”
“There is also a broader reset from 2022 – 23 conditions, driven by the higher cost of capital, more conservative revenue assumptions and an increasing focus on downside protection”
He noted that more broadly in renewables, transaction volumes and capacity softened through 2024, reflecting higher financing costs and more challenging project economics.
“Investors are also shifting toward more selective, structured transactions – prioritising quality over speed of execution,” he added.
He sees a move towards co-locating BESS with solar and increased scrutiny on merchant exposure as drivers behind three evolutions in how investors conduct and price M&A:
- longer diligence processes
- more conservative credit and revenue assumptions
- occasional re-trading where revenue expectations are revised
The subject of M&A in BESS was discussed by a panel of investors at the Energy Storage Summit 2026 in London in February: watch the full video recording here.
