The Balearic Islands reduce battery charging by 75%, but five barriers cool investor euphoria

The government has begun to clear up one of the biggest unknowns for batteries in island electrical systems: how to participate and generate revenue within the dispatch system. However, setting the price does not yet guarantee investment .

The proposed amendment to Royal Decree 738/2015 will allow certain facilities to purchase the energy needed for their load at a rate equivalent to 25% of its discharge price . This improves the economics of the arbitrage, but leaves out other risks that could delay or block projects.

“It is one of the most important regulatory reforms for the Balearic Islands in recent years and something that the regional government had been requesting for the last five years,” says Pep Malagrava, energy consultant and manager of energy communities.

Until now, the technical need for storage contrasted with the lack of an economic framework adapted to its characteristics.

“This modification recognizes that batteries are not an add-on, but an essential infrastructure for operating an electrical system with high renewable penetration,” he says in an interview with Energía Estratégica.

For the Balearic Islands, its incorporation would allow the absorption of renewable surpluses, displace fossil fuel generation and add flexibility without compromising security of supply.

“We have moved from a system designed for thermal power plants to one where storage is starting to play a major role, although there are still steps to be taken,” he argues.

The five barriers that are left out of the price

Malagrava identifies five pending fronts for the new regime to translate into installed capacity.

The first is the administrative process , whose deadlines may still alter the planned schedules and costs.

The second is access to and connection to the network , especially in certain areas of Mallorca where availability will determine the location of the projects.

The third will be to have sufficiently clear operating rules so that the batteries can take full advantage of their capabilities and participate efficiently in the system.

The fourth barrier is financing . Although technology costs continue to trend downward, they remain capital-intensive assets and require predictable revenue to secure bank loans.

The fifth challenge lies outside of electricity regulation: social acceptance .

“In the Balearic Islands, it is not enough for a project to be technically sound or economically viable. If the public does not perceive clear benefits and there is no early dialogue with the local community, it will be very difficult to develop the necessary infrastructure,” he warns.

“The energy transition does not depend solely on regulation; it also depends on social trust.”

The discount reduces risk, but does not guarantee investments

The possibility of acquiring electricity at a 75% discount compared to the discharge price creates a first reference point for projecting the revenue of an independent battery.

“It’s a positive sign because, for the first time, it offers a specific economic rationale for energy storage. Investors need certainty, and until now it was difficult to build a financial model for an independent battery in the Balearic Islands,” says Malagrava.

However, the incentive will not automatically trigger a wave of projects.

“The developers will continue to analyze regulatory stability, the cost of capital, access and connectivity, administrative timelines, and social acceptance,” he warns.

The challenge will be to turn an initial economic signal into a predictable framework throughout the asset's useful life.

The batteries will have to demonstrate how much fossil fuel they displace.

The new system will also link the remuneration of batteries associated with renewables to the thermal capacity gap of each system. This will incentivize their discharge when it is most useful for replacing conventional generation.

“The important thing is not simply installing a battery, but using it when it truly adds value to the system. If it allows for a reduction in the operation of diesel generators or combined cycle plants during peak hours, the economic and environmental benefits are much greater,” Malagrava points out.

This criterion may gain relevance as renewable capacity increases and more hours with surplus production appear.

“Hybridization can significantly reduce renewable energy curtailment, one of the main problems beginning to emerge in the Balearic Islands. It compensates for the service the system actually needs, not just the investment made,” he emphasizes.

The change in the benchmark for island renewables could also strengthen the predictability of projects. Instead of the direct impact of zero or negative prices in the mainland market, the proposal will use an annual moving average.

“Very low or negative prices can distort investment decisions in territories where renewables still need to continue growing,” he argues.

"It does not mean eliminating market signals, but adapting them to the specific characteristics of isolated electrical systems."

The investment will also be decided on the ground.

Although the reform is mainly aimed at facilities of a certain scale, Malagrava believes that regulatory recognition of storage may later open up opportunities for energy communities, collective self-consumption and industrial parks.

“The true potential of the Balearic Islands will lie in combining large batteries that provide services to the system with distributed storage associated with self-consumption and energy communities,” he projects.

This coexistence would allow some of the benefits to reach the consumer and strengthen the system's resilience. It will also require incorporating the territorial dimension from the outset, especially in a community where new energy developments compete for land and public support.

“Energy storage is no longer a technology of the future; it has become a structural component of the Balearic and Canary Islands electricity systems. This is very good news, but for real investment to materialize, three things are needed: regulatory stability, administrative efficiency, and public acceptance,” Malagrava concludes.

“The energy transition in the Balearic Islands will not be decided solely in offices. It will also be decided on the ground.”