BESS Co-location in Europe: A Bumpy Road to Commercial Maturity

Co-location is gaining momentum across Europe despite challenging project economics and regulatory barriers. Subsidy schemes remain the main driver of capacity growth, but deal activity is picking up. Pexapark has tracked 3 GWh of disclosed co-located BESS contracted capacity in 2025 to date.

Co-location vs standalone in Europe: how do they compare?

Market conditions have rarely been more favorable for pairing renewables with BESS. Solar returns are under pressure from record cannibalization, with capture factors at historic lows across Europe. Co-location is increasingly seen as the primary tool to mitigate solar profile risk, hedge against cannibalization and negative prices, and at the same time capture value from volatile wholesale markets and ancillary services.

Standalone BESS remains dominant in the market, as co-location is still in its early days. Many co-located projects continue to face barriers and contractual complexities, particularly around securing unrestricted grid connection access alongside existing solar assets. Permitting rules and regulations around grid charging would therefore be the game changers: today, they remain a barrier in many markets, but if resolved, they could tilt the balance decisively in favor of co-location.

Despite a challenging backdrop, co-location deals are gaining traction. Since the start of 2025, Pexapark’s BESS Deal Tracker has recorded 22 co-location transactions across all European markets (all solar-plus-BESS), amounting to 3 GWh of storage capacity. While this still lags far behind the roughly 14.4 GWh contracted for standalone projects over the same period, the growth trajectory is striking: a 676% rise compared to 2024, outpacing the 392% growth in standalone deals.

How are co-location deals structured in Europe?

Co-location offtake remains broadly an emerging segment. These deals are inherently complex, as they combine two distinct asset classes. In practice, optimal multi-market BESS dispatch strategies are constrained by the priority feed-in of the solar asset and by limits on grid connection utilization – factors that must be accounted for in offtake design.

The most common structure, especially in Great Britain, contracts the solar asset under a long-term PPA or subsidy scheme, while optimizing the BESS separately on a merchant basis. The two assets are therefore contracted under separate agreements. This allows the BESS asset to capture value across the full stack while the solar asset secures stable, bankable cash flows. This model, however, does not address the waning appetite for pay-as-produced solar PPAs, and coordination issues may arise unless the optimizer is also the PV offtaker.

Hybrid PPAs, which integrate the two assets contractually, are now beginning to emerge as market participants gain experience with co-location. Pexapark identifies two distinct approaches:

• Partial hybrid PPAs: A portion of the BESS flexibility is bundled with the renewable asset, resulting in a premium on the PPA price. The residual battery flexibility is contracted separately – either through a fixed-payment structure for greater bankability or on a fully merchant basis. This structure can smooth the solar generation profile while preserving some optimization potential for the battery, but adds pricing and structuring complexity.

• Combined hybrid PPAs: Both assets are contracted under a single agreement, with payments either itemised separately or combined into one fee. This structure simplifies contracting, offers long-term price certainty, and can be fully bankable. However, adoption has been very limited so far, leaving market participants with little practical familiarity. Plus, only a handful of offtakers are capable of pricing and structuring such combined structures, resulting in a limited pool of potential counterparties.

How is co-location evolving across different markets?

Co-location is taking shape in different ways across Europe. At a high level, subsidy schemes remain the primary driver of new volumes and bankable revenues. Yet, as the market matures, dealmaking activity has gathered pace. We highlight three key markets:

Great Britain has emerged as a frontrunner thanks to its advanced market and the flexible design of its Contracts-for-Difference (CfD) scheme, which enables co-location. Since early 2024, 420 MWh of co-located BESS capacity has been contracted. Most of these deals have involved separate agreements, with BESS assets optimized independently and developers primarily benefiting from shared grid connections. UK government data shows that two out of three solar projects currently awaiting planning permission are slated to include co-located BESS.

Germany, in the midst of a standalone BESS boom, also shows strong potential for co-location. The Innovation Auctions have supported more than 700 MW of solar-plus-BESS since 2021. However, under the “exclusivity principle,” these projects cannot charge from the grid. Relief is expected from an ongoing reform that will allow full optimization of co-located BESS with subsidised renewables. For now, adoption outside government-backed schemes has remained limited.

Co-location is the talk of the town in Spain. Three separate capex subsidy programmes are set to support up to 5.7 GWh of co-located BESS, backed by a total of EUR 600 million. With solar PPA prices under heavy pressure, Spain could also become a testbed for hybrid PPAs, as illustrated by the recent Zelestra – EDPR deal.

Co-located BESS are not confined to these three markets. Deals have also been recorded in France, Poland, Austria, the Netherlands, and Bulgaria, where a 2.5 GWh optimization agreement was announced last spring. Despite the challenges, co-located BESS continue to gain ground and are set to remain a lasting feature of Europe’s energy landscape.

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