What Are BESS Offtake and Optimization Agreements?

As the leading provider of BESS pricing data and advisory support, we’re here to help you navigate the full BESS offtake and optimization journey.

Discover what Flexibility Purchase Agreements (FPAs) are, the main structures in the market, and how they work – plus download a practical tolling agreement checklist to help you prepare for and negotiate tolling agreements.

 

What You Will Learn:

 

BESS Resources:

What are BESS offtake and optimization agreements?

A BESS offtake agreement or Flexibility Purchase Agreement (FPA) is a contract between a BESS asset owner and an offtaker/optimizer. Under this arrangement, the offtaker commits to monetizing the flexibility of the BESS asset and provides the asset owner with a fixed or guaranteed revenue stream. This predictable income can help secure project financing.

Revenues under FPAs typically take the form of tolling agreements, price floors, or financial swaps (see guide below for more detail).

A BESS optimization agreement, on the other hand, is generally a merchant route-to-market arrangement. In this model, an optimizer works on behalf of the asset owner to maximize battery revenue across the applicable revenue streams (such as wholesale markets and ancillary services), through the physical dispatch of the battery. Since the asset owner is not guaranteed any revenue stream, this is called a “merchant” agreement. The optimizer typically offers his services in exchange for a fee under a revenue-sharing model.

Importantly, FPAs include an optimization component too. In such cases (e.g., under a physical toll or floor), the offtaker optimizes the BESS above the fixed price to maximize trading revenues, keeping any upside or sharing it with the asset owner depending on the structure.

 

What are the main BESS offtake and optimization structures?

I. BESS Flexibility Purchase Agreements (FPAs)

Tolls

The offtaker or ‘toller’ guarantees a fixed payment (typically in €/MW/year) in exchange for the nomination and dispatch rights of all or part of a BESS asset (partial toll). The asset owner secures bankable, guaranteed revenue from the toll. The toller assumes market risk but is entitled to the potential trading upside.

Pro Tip: Tolling agreements can be structured as physical or virtual. In a physical toll, the offtaker obtains physical dispatch rights over a BESS asset and assumes both market and asset performance risks. In a virtual toll, the asset owner or asset aggregator retains responsibility for physically dispatching the asset while executing the offtaker’s virtual nominations across relevant revenue streams. Virtual tolls are typically accounted for as derivatives under IFRS 9 and therefore do not create lease liabilities on the offtaker’s balance sheet.

Revenue Swaps

These are purely financial structures with a Contract-for-Difference (CfD)-like payout, under which the offtaker takes market exposure by guaranteeing a fixed price against a floating index (e.g. day-ahead market) under a fixed-for-floating swap (or Contract-for-Difference). Payout is based on the asset’s performance in specific markets or can be entirely synthetic. The asset owner receives a fixed payment, providing predictable revenue, but must pay the offtaker when market prices or realised revenues exceed the fixed level.

Pro Tip: Revenue swaps are commonly referred to as financial tolls or day-ahead swaps, depending on the reference market. Day-ahead swaps in particular allow the offtaker to benefit from favorable day-ahead market developments without the obligation to physically own or operate an asset. On the other hand, they act as downside protection or floor for the asset owner, as they will be guaranteed a certain payout, protecting the owner against adverse market developments.

Floors

The offtaker provides the asset owner with downside protection through a ‘floor’, i.e., a minimum payment (typically on a EUR/MW basis). In return, the merchant upside is shared between the two counterparties.

Pro Tip: While asset owners are guaranteed a bankable payment, they retain a significant degree of merchant exposure and, therefore, market risk.

 

II. BESS Optimization

Merchant (Revenue Share)

The optimizer dispatches and trades the battery, usually pursuing strategies spanning the whole revenue stack to maximize profitability. In exchange, the optimizer receives a percentage of the profits as an optimization fee.

Pro Tip: Merchant-only agreements tend to be shorter-term (1-3 years) and rely heavily on market performance. However, some players also offer long-term merchant agreements based on a battery revenue index.

 

III. Renewable + BESS Offtake (Co-Location)

Hybrid PPAs

A blended offtake contractual structure covers both the renewable plant and the co-located BESS. In this case, the core role of BESS is to time-shift and firm the renewable output, so it matches the buyer’s required supply profile. In many ‘split’ deals, only a portion of the BESS is dedicated to meeting the PPA profile. The remaining part is optimized separately (either merchant or under an FPA) to capture additional value in wholesale markets or ancillary services.

Pro Tip: Hybrid PPAs must balance the delivery of a shaped renewable generation profile with the flexibility to fully optimize the BESS. Their contractual complexity – combined with grid constraints in many European markets – has resulted so far in limited widespread adoption.

 

What are FPAs for?

Project Financing

BESS, like renewable energy projects, are capital-intensive assets. To optimize their capital structure, project developers typically seek debt financing to reduce reliance on equity.

However, lenders – primarily commercial banks in Europe – require visibility on future cashflows before extending debt, which usually necessitates some form of guaranteed revenues.

BESS Flexibility Purchase Agreements – such as tolling agreements, swaps, or revenue floors – can provide this revenue predictability. These contracts help make a BESS project ‘bankable’, meaning lenders consider the anticipated cashflows sufficiently stable and reliable to support debt financing.

Pro Tip: BESS projects earn revenues from multiple markets, including wholesale trading, balancing markets, ancillary services, and capacity mechanisms. They are therefore exposed to a more diversified and volatile revenue stack. As a result, achieving comparable levels of debt financing can be more challenging for BESS than for renewables. In this context, contracted revenue arrangements play a critical role in making BESS projects bankable.

Portfolio Hedging and Imbalance Cost Mitigation

BESS offtake structures are not just revenue tools for developers and asset owners – they are also strategic hedging instruments for the utilities providing the guaranteed payments.

By locking in dispatch rights to flexible BESS capacity through tolling agreements, utilities can reduce imbalance costs and hedge against the profile risk of intermittent renewables.

Pro Tip: BESS can help market players with renewables-heavy portfolios hedge against profile risk – the mismatch between intermittent renewable generation and actual electricity demand – by storing excess energy when renewable generation is high and releasing it when renewable generation is low. By doing so, market players can ‘shape’ (i.e., smooth out) fluctuations in solar and wind output, reducing their reliance on the spot market and minimizing imbalance costs. BESS can also help vertically integrated utilities match the consumption profile of their retail customers.

Who are the typical counterparties in FPAs?

There is a wide range of players active in the BESS offtake space:

Offtakers/Optimizers

Utilities with sizeable renewable portfolios and retail customer bases often seek access to BESS flexibility to hedge their positions and reduce imbalance costs. Utilities can also function as pure optimizers, offering their trading capabilities to third-party assets. These players typically have the expertise, balance-sheet strength, and creditworthiness to offer fixed-payment structures such as tolls and floors.

Trading Houses – from investment banks to commodity and energy traders – aim to monetize volatility in electricity markets, capturing both revenue and market share without directly owning BESS assets.

Smaller Optimizers (“Algo-Traders”) provide software-driven BESS dispatch and trading capabilities, often highlighting strong merchant performance. Due to limited balance-sheet capacity, they typically cannot offer guaranteed payments. However, more advanced algo-traders partner with utilities to access the FPA market.

BESS Asset Owners

BESS Developers: Specialist companies that build and operate BESS, monetizing them through revenue stacking across wholesale markets and ancillary services.

Independent Power Producers (IPPs) and Utilities: Operators who integrate BESS with renewable generation to unlock flexibility and dispatchability benefits.

Investment Funds: Investors acquiring or funding BESS projects to secure attractive long-term returns, often targeting fixed offtake arrangements.

What are the benefits of FPAs?

BESS Flexibility Purchase Agreements can unlock a series of strategic advantages for offtakers and asset owners alike.

Benefits for BESS Asset Owners:

Tolls, floors, or day-ahead swaps are critical in turning BESS projects into bankable infrastructure assets. Contracts providing guaranteed revenue can:

  • Improve bankability, by providing predictable cashflows. In doing so, they make the project more attractive to lenders and investors by reducing merchant risk. Bankable revenues can then unlock non-recourse debt and improve capital efficiency for asset owners.
  • Provide downside protection: Structures like floors can act as a safety net during periods of low market volatility or ancillary services saturation, ensuring stable minimum returns while still allowing asset owners to capture the merchant upside.

Benefits for Offtakers/Optimizers:

FPAs can bring significant revenue and risk-management benefits to offtakers/optimizers:

  • Portfolio hedging: Offering a tolling agreement allows the toll provider to gain direct exposure to flexible capacity.
  • Capturing trading upside: Through tolling agreements, tollers can gain operational control of storage assets, enabling them to execute sophisticated trading strategies across multiple markets and extract additional value.
  • Strategic positioning: Structuring offtake products builds long-term client relationships, enhances visibility over future volumes, and strengthens competitive positioning in energy flexibility markets.

Benefits for Lenders:

From a financing point of view, FPAs are the primary instruments to secure project bankability, offering downside protection to ensure debt servicing is always guaranteed.

What is negotiated in FPAs?

  1. BESS Specifications

The BESS asset must be optimized against its specifications, e.g. the number of cycles per day, the asset’s warranted degradation profile and round-trip efficiency.

  1. Tenor and COD

Counterparties negotiate the tenor and commercial operations date and the point in time when the agreement enters into force.

  1. Asset Performance and Availability

Asset performance and availability are crucial variables linked to the price of FPAs. Availability below a certain threshold can trigger penalties or liquidated damages. Counterparties can negotiate exemptions for planned outages, force majeure, or grid curtailments outside the asset owner’s control.

  1. Commercial Structure

The contract should clearly elaborate on the commercial structure. Is this is tolling type of contract or a profit sharing (sharing risks and benefits of the optimization). Benchmarking clauses might be required for revenue-share arrangements where they rely on the optimizer’s performance to maximize returns.

  1. Risk Mitigation and Allocation

We home in on four key risks involved in BESS FPAs:

  • Counterparty risk: The risk to default on a payment. Protections that can be put in place include parent guarantees and letters of credit from toll or floor providers.
  • Market risk: The risk stemming from exposure to multiple volatile revenue streams. Estimating market risk is essential to agree on a fair floor or toll price level.
  • Performance risk: The risk that the optimizer or offtaker fails to generate revenues in line with market potential or agreed benchmarks, reducing the asset owner’s expected returns under the toll or floor arrangement.
  • Operational risk: The risk that the BESS cannot be dispatched as required due to technical failures, maintenance issues, grid constraints, or other factors affecting its physical availability.

 

For a comprehensive list of the key points to negotiate in FPAs, get in touch with our BESS Advisory team.

To help you better understand, prepare for, and confidently negotiate tolling agreements, our BESS experts have created a free Tolling Agreement Checklist. Download it here to explore the 10 essential points you should negotiate.

BESS Resources

1. BESS Tolling Agreement Checklist

This checklist highlights 10 essential commercial considerations when structuring BESS tolling or optimization agreements. It’s designed to help you structure discussions at the term-sheet stage, supporting you to avoid unsuitable relationships, unfavorable terms, or managing operational complexity in-contract. Covering key areas such as flexibility valuation, revenue stacking, risk allocation, and performance management, it helps ensure robust and bankable BESS contracts.

Download your free checklist now

 

2. BESS Price Intelligence

Pexapark provides comprehensive BESS Price Intelligence across key European markets. Our data and insights are derived from unique price points received straight from credible optimizers, through our monthly IOSCO-aligned BESS polling. With deep experience in structuring and valuing flexible assets, and supported by our market-leading analytics, we offer unique insights into the range of price expectations for BESS tolling agreements, market benchmarks, and commercial trends. Learn more here >

3. BESS Advisory

Pexapark’s BESS Advisory services help market players navigate commercial, technical, and regulatory challenges by evaluating revenue stacks, designing offtake structures, optimizing operating strategies, and managing market risks. Having supported over 3,000 MW of BESS offtake mandates, we help projects access debt or equity financing for both co-located and standalone projects. Learn more about Pexapark’s BESS Advisory offering here >

4. BESS Academies

Pexapark academies are designed for commercial, financial, and technical teams looking to build internal capabilities around BESS operations, contracting structures, and revenue optimization. Learn more about our Battery Offtake and PPA Deals academies here >

5. BESS Deal Tracker

Stay up to date with the latest commercial activity in the European storage market through the Pexapark BESS Deal Tracker. See which market players have recently closed BESS deals, understand the contracting structures being used, and assess the deal sizes and market approaches gaining traction. You’ll need a Pexapark account to view this tracker, if you don’t have one, you can register for free here >

6. BESS Brief Series

The BESS Brief Series provides insights into the key themes and trends shaping battery energy storage markets.