Battery energy storage systems offer data centers a triple advantage: sustainable power supply, enhanced resiliency, and reduced energy costs.Image: Alamy
The recent energy crisis has accelerated investment in renewable energy across global markets, revealing both its promise and its vulnerabilities. Perhaps the most pressing challenge is the strain that intermittent sources like wind and solar place on power grids that rely on consistent and centralized energy flow.
As energy production becomes more variable, maintaining grid stability has become a critical concern, and battery energy storage systems (BESS) have become a promising solution globally.
By storing excess energy generated during periods of high production and releasing it when demand peaks, BESS can smooth out power fluctuations while offering the flexibility needed for a reliable, low-carbon grid.
These benefits make BESS especially valuable for data centers, offering more sustainable power supply, ensuring uptime by enhancing resiliency, offering back-up storage options, and reducing overall energy costs.
French law firm De Gaulle Fleurance recently hosted a webinar that focused on the evolving role of battery energy storage systems in Europe’s decarbonization efforts, which, among other targets, aims to reduce greenhouse gas emissions 55% by 2030.
The event featured insights from legal and energy experts in France, Belgium, Poland, and the UK, who discussed regulatory frameworks, financing mechanisms, and operational challenges in the electricity storage sector.
Related:How BESS Could Unlock a Sustainable Future for Data Centers
As renewable energy and electric vehicles become more popular worldwide, the need for energy storage has increased significantly, and the energy storage market has expanded quickly. According to the Réseau de Transport Énergie (RTE) Generation Adequacy Report, the share of renewable energy could reach 320 TWh by 2035.
Such a significant rise in renewable energy production makes the need for flexible solutions like battery storage more urgent, and in turn has made it an attractive investment. French investors are beginning to prioritize it over other forms of energy investments, not only because of the rapid growth, but evolving market dynamics which are informed, in part, by the limited expansion potential of traditional storage methods like hydropower.
According to Corentin Baschet, head of market analysis for Clean Horizon, the driving factors are twofold. “The first is the energy crisis, as well as market signals. The ancillary sources and capacity markets that are crucial for battery storage revenues, but also other revenues,” Baschet said.
“The second is the capture price of PVs [photovoltaics] and solar has decreased more quickly than anyone expected, which leaves investors looking to make their projects work.”
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Combined with a maturing regulatory framework and growing recognition of energy storage’s role in grid stability, these factors have positioned BESS as a strategic and lucrative focus for energy investors in France.
This momentum is reflected in the rapid growth of battery capacity and investor commitment. Battery capacity has grown from under 50 MW to 1.07 GW in just five years, with over 7 GW of projects already holding grid access rights – signaling strong momentum and institutional backing.
Battery systems offer diversified revenue streams through energy arbitrage, grid balancing, and capacity markets, making them more attractive than standalone solar or wind. “Since energy storage is a source of flexibility for the markets, storage should reduce the volatility of the wholesale prices, which in turn should reduce the risks for data centers,” says Baschet.
U.S. companies Meta, Iron Mountain, and ZincFive have all integrated battery storage systems into their data centers, and cite lifetime cost, sustainability, and resiliency as primary factors for BESS projects.
Related:Beyond Lithium: How Organic Flow Batteries Could Transform Data Center Energy Storage
States like California, New York, Maryland, and New Jersey have self-generating incentive programs (SGIPS), which offer generous funding to energy storage projects. States like Virginia, Oregon, Iowa, and Texas, driven by large-scale solar projects, low-cost power grid access, and significant data center development, also support BESS deployments.
As of March 2024, energy storage markets in the U.S. reached a record 34% storage increase in energy deployments across all market sectors, and projections indicate that the U.S. is on track to install around 15 GW of battery storage capacity in 2025, representing a 25% increase over 2024.
The EU added 11.9 GW of BESS capacity last year and has experienced a slower rollout of BESS projects. Both the U.S. and EU are on track to expand BESS capacity significantly in the coming year, but they are doing so in very different energy, market, and regulatory landscapes.
A primary motivation for the EU to invest in BESS projects is to reach decarbonization targets as outlined by the EU’s Green Deal. While sustainability is also a significant motivating factor for the US, its most urgent need is to meet AI and data center energy demands and ensure a more stable power grid.
“As renewable energy production accelerates in France – with output expected to more than double by 2035 – electricity storage has become essential for grid flexibility and balance,” says Beatrice Boisnier, an energy lawyer with De Gaulle Fleurance.
As RTE explains: “Storage is a key solution, as it allows both electricity to be drawn from the grid and injected into the networks as needed.” However, uncertain revenue from system services means storage projects often rely on market arbitrage and require clearer legal frameworks, better grid access, and, in some cases, public funding – varying widely across countries – to ensure viability and investor confidence.
The EU’s integration of BESS receives strong policy support and is backed by federal incentives like VAT exemptions and tariff waivers. In contrast, the U.S. faces similar storage challenges but with even greater complexity due to its fragmented regulatory environment and regionally managed grids.
Unlike France’s centralized approach under RTE, U.S. storage deployment is often driven by state-level policies and incentives, creating uneven progress across the country.
Currently, regulations play a critical role in shaping BESS projects across Europe. Government regulation defines how companies access the grid, qualify for subsidies, and interact with energy markets.
This significantly influences investment potential by determining revenue certainty through mechanisms like capacity markets or de-rating rules. It also governs production and environmental impact through safety standards and lifecycle emissions regulations.
Regulation not only provides legal clarity but also paves the way for incentives and project momentum. Clear and supportive policies can accelerate deployment, while regulatory gaps or uncertainty often delay projects and raise costs. In the U.S., battery storage faces regulation at the federal, state, and local levels.
Inconsistent regulation means that investors must navigate different permitting processes, grid connection and deployment timelines, and revenue markets. This uncertainty can raise overall project costs and push small investors out of the market for fear of having to absorb costs or risk regulatory delays.
Despite federal incentives like the Inflation Reduction Act (IRA), the lack of a unified regulation results in greater risk and can inhibit large-scale development, especially compared to countries with more unified frameworks.
This challenge mirrors the regulatory fragmentation facing data centers, where overlapping jurisdictions and evolving rules around grid participation and energy sales create similar uncertainty and can impact long-term profitability.
In 2020, U.S. regulations allowed battery systems to operate in wholesale electricity markets, which means that data centers with on-site battery storage can sell power to the grid, not only ensuring revenue stability but also allowing data centers to generate new revenue streams.
Damien Verhoeven, an energy lawyer and regulatory partner for Liedekerke in Brussels, argues that a variety of revenue streams increases overall profit but also introduces its own set of challenges.
“In terms of risks, there is some kind of paradox because while there is an important diversity of revenues for BESS markets, such a wide variety of revenue sources can make it difficult to have a clear view of profitability on BESS products,” he said.
Multiple market sources pose regulatory challenges, too, because BESS does not neatly fit into categories of generation, transmission, or consumption, further complicating how it might be classified and regulated across jurisdictions.
Fragmented regulation has created challenges with BESS projects, namely when it comes to connecting BESS to distribution networks. This means that even if projects are approved and permits are expedited, companies can face major delays when it comes to interconnection.
In the U.K., investors are facing challenges around grid access demand, which has grown tenfold since the Covid-19 pandemic. The issue lies in how grid connection is obtained, says Isaac Murdy, a solicitor with Shakespeare Martineau.
“It has been too cheap to make an application, secure their place in the queue, then wait for the value of that connection to increase before they sell it on,” Murdy said. “Unfortunately, this has led to Zombie projects, projects that can’t get funding, builders, and planning, and they are holding up the genuine projects waiting in the background. So, the number of projects we see is not reflective of the number of projects coming to fruition.”
Issues like this illustrate the difficulty that arises when regulatory processes are misaligned.
Despite delays and regulatory challenges, the market for battery storage remains strong around the globe, even without resorting to government subsidies. “The National Energy System operator (NESO) has changed the way grid connection works recently. We are hoping this will unlock £40 billion ($53 billion) of investment into energy infrastructure per year,” says Murdy,
“Our clients aim towards frequency response and reserve services for the grid and arbitrage, but we are also seeing colocation with constrained assets that can store their power and offer backup energy sources for high-energy use consumers like data centers.”
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As AI dramatically increases energy demand and underscores the need for a stable energy infrastructure, BESS becomes a particularly valuable infrastructure for data centers. If investments materialize, BESS will mark a turning point for the data center industry – enabling greater energy resilience, cost savings through arbitrage, and a clearer path toward decarbonization.
Still, battery storage brings its own set of operational and strategic challenges that data center operators must carefully navigate. The most significant challenge is its price tag. While battery storage will reduce costs in the long term, the upfront cost is very high. According to Exenell, the average cost of a typical BESS is $400-$600 kWh.
UPS systems can effectively provide back-up power in the case of outages for significantly less cost, but only provide short-term, non-renewable energy. BESS has significantly more reliable energy capacity.
Battery systems are sensitive to environmental conditions like extreme heat, cold, or humidity, and long-term exposure to these elements can degrade performance and shorten battery lifespan. These factors necessitate robust climate control systems and careful site selection. Operators must also address concerns around fire safety, battery degradation, and regulatory compliance, all while ensuring the uptime and reliability expected of mission-critical facilities.
As AI workloads continue to strain the power grid, BESS offers a way forward, albeit with some trade-offs. Yet for data centers willing to take on these challenges, battery storage might just be the investment of the future.
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