BESS & Grid Storage Developed 2023 · C7 4 min

Evaluating the Business Model of BESS

Evaluating the BESS business model means deciding whether battery energy storage can generate reliable returns in a market without the long, fixed contracts that once made renewable projects bankable. This case study follows Frontier Corp., a developer weighing whether to enter the storage business and, if so, in which country and with which technology. The core tension is that storage revenues are harder to forecast than the feed-in tariffs the company relied on before.

From solar developer to storage prospect

Frontier Corp. has operated since 2009, building utility-scale solar and running on the certainty of feed-in tariff programmes. In Europe, a grid-connected solar park could secure a 20-year fixed-price power purchase agreement at rates initially at least four times the wholesale price. The company built and ran many solar systems in Italy, then in 2018 divested and moved capital to Japan, which had introduced a generous feed-in tariff after deactivating most of its nuclear plants following the 2011 Fukushima disaster. Frontier developed further solar assets there in partnership with a major industrial firm before selling in 2021, having deployed over one billion US dollars across Europe, Japan and South America. Since 2022 it has explored new models including offshore wind and, more recently, battery energy storage systems. It brings strong international development skills, over ten million US dollars in cash and full flexibility on region and technology, so the question is where and how to deploy them.

Why storage, and why the revenue model is harder

The rationale for BESS is technical as much as commercial. Solar and wind now offer the lowest levelized cost of energy in many markets, so investment flows to them, but their output is intermittent. The case uses the familiar demand curve where solar floods the system midday and drops away as the sun sets, leaving the rest of the grid to cover a steep early-evening ramp. Batteries flatten this by absorbing surplus solar during the day and injecting it in the evening, which makes renewables more dispatchable, optimises grid and substation use, and provides fast, accurate frequency response without inertia. The commercial catch is the revenue structure. Where solar earned secure income through 20-year tariffs, BESS typically earns through a mix of energy arbitrage, ancillary services and potentially carbon credits. Long-term fixed contracts are unusual, so forecasts are more uncertain and the choice of jurisdiction becomes decisive, since timing and location produce materially different outcomes.

Comparing the US, Italy and Japan

The study evaluates three markets. The US is the most mature: regulations to compensate storage for ancillary services are well established, rules allow BESS to connect to grid nodes, and the Inflation Reduction Act adds production and investment tax credits that can lift investment credits from 20% toward 60% or 70% of total cost. The drawback is that Frontier has no track record, lenders or developer relationships there, though two executives have relocated to begin building an in-house team. Italy and Japan are the opposite: Frontier has deep networks, advisors and boots on the ground in both, but neither has finalised how ancillary services will be compensated for storage. Japan introduced grants covering over half the capital cost of BESS, but these were allocated quickly with no visibility on renewal, while Italy is still discussing a compensation framework. In both, arbitrage alone offers limited returns at current capital costs, though falling BESS cost curves are forecast to improve the economics over time.

What it means for the industry

The wider backdrop is a policy race that shapes where storage capital lands. The US Inflation Reduction Act, with 369 billion US dollars in tax relief and subsidies, has accelerated the battery supply chain and drawn a wave of announcements, offering, for example, around 50 US dollars per kWh in EV supply-chain subsidies, over a third of the cost. In response the European Union unveiled a Green Deal Industrial Plan built on regulatory, funding, skills and trade pillars, followed by a Net Zero Industry Act targeting at least 40% of the bloc's clean-tech manufacturing needs by 2030 and a Critical Raw Materials Act, though concrete funding remains unclear. The risk is that Europe falls behind both the US and China. For Frontier, the decision turns on a trade-off between market maturity and local presence: the US offers the deepest incentives and clearest rules but demands building a network from scratch, while Italy and Japan offer established relationships but uncertain compensation frameworks. The case leaves the choice open, but the analysis points toward following the clarity of regulation and revenue, since a storage business lives or dies on how well arbitrage and ancillary services are compensated in a given jurisdiction.

Key Takeaways

Frontier Corp. shifts from tariff-backed solar to storage, trading contract certainty for a more variable revenue model.

BESS earns mainly through arbitrage, ancillary services and possible carbon credits, not long-term fixed contracts.

Batteries flatten the solar duck curve, making renewables dispatchable and providing fast frequency response.

The US is the most mature market thanks to established ancillary-service rules and Inflation Reduction Act tax credits.

Italy and Japan offer strong local networks but lack finalised compensation frameworks for storage.

US tax credits can raise investment credits from 20% toward 60% or 70% of total project cost.

Jurisdiction choice is decisive for BESS returns because timing and location drive materially different outcomes.