The advance of batteries in southern Europe is no longer just seen as a growth opportunity. It is also beginning to be viewed as a market where competition will put pressure on revenues and force investors to design increasingly precise projects to protect their profitability.
That was one of the central messages of Matteo Coriglioni, Head of Italy of Aurora Energy Research , during his presentation “Keepin' it Flexible: Value Strategies for Storage and Hybrid Assets Investments” , held within the framework of the Aurora Energy Transition Summit Madrid 2026 .
“With more batteries in the system, margins will be increasingly subject to cannibalization,” Coriglioni warned.
The executive explained that renewables have historically scaled up faster than storage, but that by 2030 batteries will need to accelerate their deployment to provide the flexibility required by electrical systems with greater solar and wind penetration.
“As renewable penetration increases, batteries become essential to provide the flexibility that electrical systems need,” he noted.
However, that systemic need alone does not guarantee attractive returns.
According to Aurora, annual net revenues from four-hour batteries could fall by 2031 in several European markets: 35% in Northern Italy , 41% in Sicily , 15% in Spain , 19% in Portugal , 21% in Greece and 40% in Romania , taking 2027 as a base of 100.
In that context, Coriglioni put forward a premise that ran throughout his presentation: "There is no single solution or single strategy that maximizes the value of an investment in all contexts."
The IRR will depend on three variables
According to Aurora, investors should look at three key dimensions to protect the IRR of projects: route to market, location, and technical configuration .
The route to market defines how a battery generates revenue: merchant trading, capacity market, government contracts, private offtake agreements, or tolling contracts.
Location determines access to wholesale prices, balancing services, congestion, curtailment, and contractual opportunities.
And the technical configuration defines the duration, power, capacity and the relationship between the battery, renewable assets and grid connection.
“If we as battery investors face increasing competition, there are several factors we must carefully analyze to ensure our projects have an advantage and extract the greatest possible value,” Coriglioni stated.
Italy shows that there is no single path
The Italian case was used by Aurora as an example because of the variety of alternatives available for storage projects.
Merchant trading allows you to capture arbitrage opportunities in wholesale markets, ancillary services, and balance sheet trading. But, according to Coriglioni, it has a clear limitation: “You can probably make a lot of money with it, but it’s not very bankable.”
Contractual revenues, on the other hand, improve predictability and facilitate financing, although they may reduce the potential return.
One example is MACSE , the Italian scheme specifically for storage. The mechanism guarantees income for 15 years, which improves bankability, but it has also generated strong competition.
“The MACSE is very good for bankability purposes. However, being so attractive, it also attracted a lot of competition and margins were squeezed out,” Coriglioni said.
Aurora's analysis shows that the optimal strategy changes depending on the area.
In Northern Italy , where MACSE is not available, adding a tolling contract to a capacity market contract can increase the equity IRR by 1.3 percentage points .
In Central and Southern Italy , where the merchant economy is more attractive, that same strategy can reduce the equity's IRR by 4.5 percentage points . There, the most advantageous combination is capacity market plus merchant trading.
In Sicily , the various routes to the market show comparable results.
“Do you want me to tell you the best route to the market? I can’t. It depends on where you are,” he summarized.
Four or eight hours: the duration changes depending on the revenue model
The presentation also showed that the optimal battery life cannot be defined in isolation.
In Sicily, Aurora compared four- and eight-hour batteries under different routes to market. In a capacity-plus-merchant trading market model, moving from four to eight hours reduces the equity's IRR by 2.5 percentage points .
But under MACSE the opposite occurs: an eight-hour battery improves the equity's IRR by 3.2 percentage points compared to a four-hour battery.
The difference lies in the type of exposure. When the project depends on the merchant market, dispatch efficiency is more important. In contrast, in a more contractual arrangement, the priority becomes maximizing the probability of being awarded the contract.
“On a route to market that eliminates merchant exposure, competition becomes a matter of maximizing the chances of winning,” Coriglioni explained.
Location can move returns by more than 8%.
Another key point was the location.
Aurora showed that, even within the same region, balance sheet opportunities can generate significant differences in returns. In Sicily, the comparison between Palermo and Syracuse reveals relevant variations in balance sheet prices and volumes.
According to the presentation, the local balance sheet component alone can move more than 8% of the project's total returns.
“Palermo has above-average prices compared to the rest of the island, while Syracuse is below average,” Coriglioni explained.
With the same technical configuration and the same route to market, that difference can substantially modify the asset's profitability.
Solar plus batteries: the value depends on the curtailment
Aurora also analyzed hybrid projects, especially co-located solar plants with batteries.
According to the presentation, adding storage to a solar asset can generate value in three ways: recovering energy that would be lost through curtailment, shifting generation to higher-priced hours, and capturing battery revenue in ancillary markets.
But that value is not the same in all nodes.
In areas of high curtailment in Sicily, solar co-location plus battery storage can increase the net present value of margins by 24% compared to a standalone solar plant. In areas of low curtailment, the increase drops to 18% .
“When you think about whether you want to add a co-located battery to your existing solar asset, you should ask yourself if curtailment is a key risk for that asset,” he noted.
Spain: the size of the hybrid moves the IRR between 8.6% and 10.3%
For Spain, Aurora presented an example of a co-located solar plant with a four-hour battery.
The analysis shows that the relative sizing between photovoltaic plant, battery and grid connection can move the project's IRR between 8.6% and 10.3% .
In the case studied, the optimal configuration is located close to a 1.4:1 ratio between solar and battery.
“When you think about the size of your co-localized system, you really have to think about how the different effects interact with each other,” Coriglioni said.
Profitability will be in the details
Aurora's final message is that storage will need to grow rapidly in southern Europe, but returns will be increasingly conditioned by specific structuring decisions.
The IRR will depend on which contracts the project obtains, where it is located, how much debt it can handle, the battery's lifespan, and how it is sized relative to the renewable asset and the grid connection.
“The next time someone asks what the best way is to make money with a battery, the answer is: it depends,” Coriglioni concluded.
And he clarified: “You can believe this is an honest answer. It’s not just because we don’t know.”
In a market where batteries will be indispensable for the energy transition, that "it depends" sums up the new challenge for investors: the opportunity exists, but profitability will increasingly lie in the details.