What is a tolling agreement for battery storage?

How are battery storage operators remunerated under a tolling agreement?

Under a tolling agreement, the owner of the battery storage system receives a fixed remuneration. Over the term of the contract, this payment is independent of the revenue streams generated by the marketer through storage optimization and of the actual revenues achieved.  

However, the level of remuneration is largely determined (ex ante) by the expected revenue potential of the respective battery storage system. Numerous storage characteristics play a role here, particularly power output, but also storage duration, location, grid connection, technical flexibility and expected market opportunities. In this respect, these parameters are just as important for ROI under tolling as they are under revenue-sharing models.

Since experienced storage marketers are often better able to unlock revenue potential, they can frequently offer more attractive conditions. At the same time, a solid tolling agreement also requires financial strength on the marketer´s side. This is why larger companies often act as tollers behind such agreements. 

How is settlement handled (payment cycle)?

Marketers have two main ways of generating revenues with battery storage systems: electricity market arbitrage and ancillary services.  

• Electricity market arbitrage
• Typically, battery storage systems are mainly marketed on the various spot markets of the power exchange:  
• Day-ahead Trading
• Intraday auctions
• Continuous intraday trading

The principle is simple: when the exchange price for one megawatt-hour (MWh) of electricity is relatively low, the marketer charges the storage system. The stored electricity can then be sold again at a later point in the time – ideally at a higher price. To participate price movements, marketers use forecasting models based on weather forecasts and other data sources. 

Balancing services 

Balancing energy is held in reserve within the power grid to compensate for fluctuations in grid frequency. Since system stability depends heavily on balancing services, assets must undergo prequalification process before participating in this market. This process is usually handled by the power trader.  

Once prequalifies, the trader can market the flexibility in balancing energy auctions. In principle, battery storage systems are eligible for all types of balancing services:  

• Frequency Containment Reserve (FCR)
• Automatic Frequency Restoration Reserve (aFRR)
• Manual Frequency Restoration Reserve (mFRR) 

How does the power trader hedge marketing risks?  

Through a tolling agreement, flexibility marketers almost completely assume electricity market risks from storage operators. In turn, marketers have two options: they can deliberately retain these risks (“risk warehousing”) in order to preserve higher profit opportunities or hedge them themselves through different trading strategies on electricity markets.  

Is a tolling agreement an FPA?

Yes. Long-term contracts for marketing battery storage systems are also referred to as Flexibility Purchase Agreements (FPAs). The term emerged in the mid-2020s in analogy to Power Purchase Agreements (PPAs), i.e. long-term electricity supply agreements between wind and solar farm operators and large consumers or optimizers.  

Besides tolling agreements, there can other types of FPAs in which operators are partially (“Floor”) or fully (“Fully Merchant”) exposed to market risks. Long-term contracts are also possible in these models, although they are less common. 

What happens if actual revenues deviate from expectations?

Who bears electricity price, spread and forecasting risks? Under tolling agreements, marketing risks in the narrower sense are borne entirely by the marketer. This applies not only if the marketer underperforms – for example due to incorrect forecast (forecast risk). Even if declining electricity prices or smaller spreads on spot markets reduce arbitrage opportunities, this does not affect the fee owed to the operator. The same applies in balancing energy markets if bid prices or activation volumes are low.  

Who bears the risk of poor technical performance?

Th operator is generally responsible for technical performance and asset availability. If the batter storage system is unavailable or only partially operational, the marketer may claim compensation for lost trading revenues or withhold usage fees. The form and level of such availability penalties are contractually defined. Naturally, this does not apply to outages caused by control errors on the marketer´s side. Regularly maintenance is usually priced into agreement in advance.  

How are long-term technical risks (e. g. degradation) considered? 

Like maintenance, degradation – meaning the loss of power and especially storage capacity – is usually already reflected in the contract. Typically, tolling agreements impose operational on the marketer. These are often aligned with the manufacturer warranty of the storage system. This protects the owner against premature degradation risks in both directions. Such provisions frequently include:  

• A maximum number of cycles per day,
• A maximum annual energy throughput (MWh throughput), 
• A maximum of C-rate (charging and discharging speed), 
• Limits for the State of Charge (SoC), meaning the fill level must remain within a defined range, e.g. between 5 and 95 percent. 

Penalties for breaches of the agreed operational limits (excessive use fees) may also be stipulated. Conversely, bonuses may be granted if the marketer operates the battery more gently than agreed.  

How does the operation of a battery storage system work under a tolling agreement? 

Under tolling agreements, battery storage systems controlled essentially in the same way as generation assets under direct marketing agreements: the flexibility marketer controls the asset. In the case of battery storage, this means managing charging and discharging processes.  

How does operational control of the storage systems work?

To manage charging and discharging processes, the marketer installs a control unit on site and establishes a secure data connection that enables direct remote access to the battery storage system. This allows the marketer both to monitor key operating data – especially the State of Charge (SoC) – and control charging and discharging (dispatch). Independently of commercial optimization, the responsible grid operator – usually the local distribution system operator (DSO) – may also access the battery storage system. This allows grid operators to prevent potential power outages within the framework of congestion management (redispatch). Such non-market interventions are subject to strict legal requirements und sections 13 and 14 of the German Energy Industry Act (EnWG).

What rights and obligations does the flexibility marketer have under tolling agreement?  

A tolling agreement grants the marketer the right to physically and economically utilize the storage system with the agreed scope. This includes in particular charging and discharging processes in order to market storage system across different markets.  “With the agreed scope” means that the operator can define contractual limits for assets usage. Extremely rapid and deep charging and discharging cycles may accelerate battery degradation. Therefore, contractual operational envelopes are typically defined. More on this in the section “How are long-term technical risks (e.g. degradation) taken into account?” 

What rights and obligations does the storage operator have?

The storage operator – usually also the owner – is entitled to the agreed remuneration. In return, the operator is primarily responsible for maintenance and servicing of the asset. In other words, the operator must ensure that the battery storage system remains operational and controllable by the marketer.  
 

What role do tolling agreements play in the market for battery storage?

Thanks to their fixed remuneration structure, tolling agreements have the potential to improve the bankability of battery storage projects. Fixed monthly payments mean stable cash flows, often over contract terms of five to seven years. This is particularly relevant for large-scale projects, which are frequently financed to a significant extent through debt capital. However, tolling can mean not only lower capital costs for operators and investors, but also lower entrepreneurial risk and greater planning certainty. In addition, outsourcing optimization to professional marketers frees up resources for further projects.  

What alternatives exist to tolling agreements for battery storage systems?  

Besides tolling, there ate remuneration models in which the operator participates directly in actual market revenues. The most common variants are Fully Merchant, Merchant with Floor and Merchant with Cap and Floor:  

• Fully Merchant: operator optimizer shares all revenues according to an agreed percentage.  
• Merchant with Floor: the operator receives a guaranteed minimum remuneration (“floor”) plus profit sharing.
• Merchant with Cap and Floor: the operator receives a guaranteed minimum remuneration (“floor”) and participates in proportionally in revenues up to a defined cap.  

In addition, tolling agreements may also include bonus payments for particularly high revenues. Hybrid models combining tolling and merchant structures are also offered. In such cases, the marketer pay partly through a fixed amount, for example 80 percent, and the remainder through revenue sharing.

Since when has tolling played a role in Germany and Europe?

In the early years, batter storage marketing in Germany and Europe was primarily based on merchant models. With the battery boom in the mid-2020s, competition in storage optimization intensified. Banks and other investors therefore increasingly demanded refinancing models with more stable cash flows than those available under merchant revenue-sharing agreements. In response to this demand, marketers developed tolling models for the German market.

In March 2026, the Norwegian consultancy DNV identified excess demand for tolling agreements in the European energy storage market. In the same month, the consultancy Aurora Europe expected Germany – alongside the United Kingdom and Italy – to become one of the most attractive markets for tolling agreements. As early as late 2025, battery storage expert Tom Smout consultancy LCP stated in the podcast “Talking New Energy” that tolling would play an even lager role in Germany than in the UK. He attributed this to the fact that Germany still lacked a long-term capacity market at that time.

Tolling agreements could therefore increase the attractiveness of battery storage investments for more risk-averse market participants by acting as cash flow guarantees. For the energy transition in Germany and Europe, this means: tolling could become a major accelerator for the urgently needed expansion of battery storage capacity. 

Disclaimer: Next Kraftwerke does not take any responsibility for the completeness, accuracy and actuality of the information provided. This article is for information purposes only and does not replace individual legal advice.