A battery project, like a power plant, has to pay for itself. How it does that - which party earns what, and who carries the risk when electricity prices move - is set by its revenue contract. Across Europe, BESS contracts cluster into three archetypes: fully merchant, floored merchant, and tolling. They differ in who bears market risk, volume risk and operational risk - and therefore in what a project looks like to a lender. Through 2024–2025 the bankability hierarchy has become clearer; the mix of deals actually signed has shifted with it.
Fully merchant
In a merchant structure, the project owner (or its optimiser) takes all risks. Revenue is whatever the asset captures in day-ahead, intraday and balancing markets, net of imbalance costs. Upside is the highest of any structure - spreads are volatile and a well-run asset in a deep-spread market can over-earn materially. Downside is correspondingly high, and because there is no floor, projects are harder to finance with bank debt.
Germany's standalone BESS market is archetypal merchant: volatile, high-upside at peak arbitrage, but exposed to grid fees, construction taxes and planning friction that compress returns. Spain is merchant-first today for a different reason - tolling liquidity is still thin and most of the early 2025–2026 cohort is being built with equity plus partial project finance against a modelled merchant stack.
Floor
A floor contract blends merchant with a minimum guaranteed revenue per MW or per MWh from an off-taker. If the market pays better than the floor, the owner captures the upside (sometimes shared with the off-taker); if it pays worse, the off-taker pays the difference. In exchange, the off-taker typically receives a share of the upside above a strike.
Floors emerged as the compromise structure that made UK projects financeable through the recent price-volatility cycle. The UK is now Europe's most mature BESS market, with typical transactions at around 70% leverage and unlevered IRRs around 12% against a weighted average cost of capital in the ~5% range, according to 2025 financing surveys. Floors do not eliminate market risk; they cap the downside at a level the lender can underwrite.
Tolling
In a tolling structure, an off-taker (typically an optimiser, utility or trading house) pays the owner a fixed fee per MW and/or per MWh for the use of the asset, and takes the dispatch decisions and the market risk. The owner becomes much closer to an infrastructure investor - revenue is a contracted annuity for a period of years, with limited exposure to spread volatility.
Tolling has been the fastest-growing revenue structure in European BESS. Standalone tolling deal counts in Europe rose from 3 in 2024 to 15 in 2025, with roughly 6 of those 15 in Germany. European buyers contracted close to 24 GWh of BESS under flexibility purchase agreements across 2025. Many banks now require at least 50% of project revenues to be secured through a bankable toll before they will lend at infrastructure terms.
Ranked by bankability
From a lender's perspective the order is simple: toll > floor > merchant. Toll gives contracted cashflows against a known counterparty; floor gives a downside-capped envelope with upside participation; merchant gives full exposure to spread. Lender LTV and debt-service coverage requirements follow the same ordering.
That said, the highest equity IRRs in Europe 2023–2025 came from disciplined merchant operation in the UK and Germany, not from tolling. Tolling trades away upside for stability. Which trade makes sense depends on the investor's cost of capital, the stage of the market, and how much of the asset's expected life is front-loaded into the merchant window before competing capacity drives spreads down.
Why early Spanish projects are merchant-first
Three reasons. The market is young, so there are few repeat optimiser counterparties willing to offer five- or ten-year tolls at prices an owner will accept. The structural spread (curtailment, negative prices, sparse evening flexibility) is unusually wide for a Western European market today, so the expected merchant capture is high. And the price-discovery work has simply not happened yet - until a pipeline of Spanish tolls clears, nobody knows what an on-market Iberian toll rate looks like. Expect the first wave of Spanish tolls and floors to land through 2026–2027, with pricing anchored to observed merchant capture in 2025 and 2026.