Unlocking Poland's energy storage potential

Poland's power sector is transitioning away from coal, with the share of coal-fired power generation in the country expected to fall from 90% in 2010 to 55% in 2025 and further down to 20% by 2030, according to the S&P Global Commodity Insights Planning Case released in January.

Integrating renewable energy sources has become a focal point for the country's energy strategy. As the share of variable renewables grows, reliable energy storage solutions are more critical than ever. Battery energy storage systems, or BESS, are emerging as a key technology to support this transition, offering reliability, grid stability and economic optimization solutions.

Poland is poised to become one of the leading markets in Europe for new installed capacity in BESS, driven by the introduction of new revenue streams and various forms of government support.

For instance, BESS have secured over 4 GW of capacity in the past three capacity auctions, with allocations increasing in each new round. This trend is remarkable as less favorable participation rules were introduced in the latest round.

At the same time, however, the reform of the ancillary services market in June 2024 has created new revenue streams and opportunities for BESS.

Incentives and ancillary services

More recently, the European Commission approved a scheme to support investments in electricity storage facilities under the State Aid Temporary Crisis and Transition Framework. This led to the establishment of the "Electricity storage facilities and related infrastructure to improve the stability of the Polish power grid" program, launched by the Ministry of Environment in March. The program offers financing in the form of grants covering up to 45% of the total investment costs, and potentially up to 65% under certain conditions.

The interplay of diverse incentives and the decreasing costs of BESS fuel a remarkable surge in installed capacity for this technology. Current projections indicate that this capacity is set to triple in the coming year, increasing from 0.4 GW at the end of 2025 to 1.3 GW by end-2026.

This rapid acceleration in installations is anticipated to persist, surpassing 8 GW by 2030, representing a substantial capacity contribution relative to the estimated peak load of 30 GW.

Notably, more than 70% of this expanded capacity is expected to derive from utility-scale BESS.

Since June 2024, the reform of the ancillary services market has unlocked new revenue opportunities for batteries. The prices for Frequency Containment Reserves (FCR), automatic Frequency Restoration Reserves (aFRR), and manual Frequency Restoration Reserves (mFRR) have been unusually high since mid-2024. This trend offers a significant advantage to early entrants who can capitalize on it. A one-hour BESS operating since mid-2024 could have generated substantial gross profit margins, implying a payback period of approximately six to eight months.

Gross margins forecast

The gross margin is defined as the sum of three components:

1. day-ahead arbitrage margin is the difference between the revenues from energy sold and the cost of energy bought in the day-ahead market;
2. ancillary services include FCR, aFRR, and mFRR; and
3. capacity revenues are based on the results of the 2024 main auction for delivery year 2029 (61% de-rating factor and PLN 264.9/kW).

Analysts from Commodity Insights forecast that for a standard 1 MW/4 MWh battery, margins will be highest in the initial years and will decline over time. The primary driver of this decline is the diminishing opportunities for battery participation in the ancillary services market.

This trend has already been observed in more established markets, such as the UK and Germany, where the ancillary services markets have already started to saturate. These ancillary service markets tend to be shallow, meaning that the contracted capacity is low, and the opportunities for revenue shrink as more players enter the market.

Commodity Insights analysts expect this situation to unfold in Poland over the next four to five years, coinciding with the addition of 8 GW of BESS in that timeframe. Consequently, the share of revenue from ancillary services is projected to drop from 75% in 2025 to less than 20% after 2032.

Continuing the exercise and applying financial modeling to the BESS asset with one-hour and four-hour durations reveals the potential for this technology, as evidenced by the net present value (NPV) breakdowns for a BESS that will start operating in January 2026

The results shown consider a BESS with the following characteristics: capacity normalized to 1 MW, round-trip efficiency of 85%, minimum state of charge of 10%, capital expenditures of €329.85/kWh (1-hour) and €196.61/kWh (4-hour), OPEX of 2.6% of capex per year (annualized), lifetime of 15 years, nominal discount rate of 11%, capacity market price of PLN 264.9/kW starting from 2029, capacity market derating factor of 61%, and exchange rate of 0.24 EUR/PLN.

The Polish market presents significant opportunities for BESS. As Poland continues to transition from coal-fired power plants to renewable energy sources, the need for reliable energy storage solutions becomes increasingly critical.

The introduction of new revenue streams, government support, and decreasing costs of BESS are driving rapid growth in installed capacity. With projections indicating a substantial increase in capacity over the next few years, early entrants have the potential to capitalize on high revenue opportunities, particularly in the ancillary services markets.

However, as these markets mature, the share of revenue from ancillary services is expected to decline, indicating that battery storage developers need to consider carefully the revenue stack they face over the project lifetime.

Learn more: CI Consulting