AleaSoft Energy Forecasting, June 5, 2026. The European Commission’s approval of the capacity market in Spain introduces a new signal for energy storage, in a context in which batteries are gaining prominence for providing firmness and flexibility to the electricity system. For BESS projects, both standalone and hybridised with renewables, this mechanism opens up new possibilities, but it does not remove the need for prudent, longterm financial analysis.
The capacity market in Spain may become a relevant source of stable revenue for batteries, but project financing will continue to depend on rigorous modelling of merchant revenues, market risks, availability obligations and the project’s ability to cover longterm debt service.
Spain now has European approval for the creation of a capacity market in the peninsular electricity system. The mechanism envisages the provision of capacity services being awarded through competitive auctions for firm capacity, remunerated in euros per MW per year, with the aim of strengthening security of supply and facilitating the integration of renewable energies through firm and flexible technologies, including energy storage.
For battery projects, both standalone and hybridised with photovoltaics, this mechanism may represent an important change. Until now, the bankability of many BESS projects has relied mainly on merchant revenues: arbitrage in the dayahead and intraday markets, adjustment markets, balancing services, cycle optimisation and the capture of volatility. The arrival of capacity payments would add a more predictable source of revenue, linked to the availability of firm capacity at critical moments for the system.
However, a simplistic interpretation should be avoided. The capacity market will not replace comprehensive revenue analysis, nor will it automatically make any BESS project financeable. Although the mechanism already has European approval, key elements still need to be defined, such as derating or firmness coefficients, availability obligations, penalties for noncompliance, required guarantees, contract duration, technical requirements, compatibility with other revenues and the prices resulting from the auctions.
Furthermore, batteries will not compete alone. Different technologies capable of providing firmness or flexibility to the system will be able to participate in the auctions, including dispatchable generation, storage and demand response. Therefore, the value captured by BESS will depend not only on their technical capacity, but also on the final design of the mechanism, competitive pressure and the volume of capacity awarded.
The signal is clear: developers, funds, banks and utilities should start incorporating the capacity market into their strategic analyses, but with caution. Not as a riskfree guaranteed income, but as an additional scenario that must be integrated into robust financial models, with transparent sensitivities and assumptions.
The key to bankability will continue to lie in the quality of the forecasts. To properly value a battery, it is not enough to assume a fixed payment per MW/year. It is necessary to simulate, hour by hour and over the long term, the evolution of electricity market prices, dayahead and intraday spreads, volatility, renewable energy penetration, curtailment, solar cannibalisation, future storage saturation, charge and discharge cycles, degradation, efficiency, operational constraints and participation in adjustment markets.
At this point, the DSCR, or debt service coverage ratio, becomes a central metric. Financiers will not only look at expected revenues, but also at the project’s actual ability to cover debt service under conservative scenarios and with the highest possible proportion of predictable or contracted revenues, including capacity payments. A capacity payment may improve the risk profile, but if merchant revenues are poorly estimated, if future spreads are overvalued or if the massive entry of new batteries is not taken into account, the project may show an apparent return that ultimately fails to materialise.
It will also be important to analyse the possible cannibalisation of the capacity market itself. If the development of storage accelerates significantly, competition in the auctions may reduce awarded prices and limit the positive impact of this revenue on the financing of new projects.
The Spanish market needs storage, and batteries need longterm signals. Capacity auctions can help close that circle. But true bankability will not come solely from a new line of regulated or semiregulated revenue, but from a complete view of the future electricity market.
For standalone BESS and for hybridisation with photovoltaics, the conclusion is clear: the capacity market should start to form part of investment analyses, but always accompanied by longterm hourly forecasts, probabilistic scenarios and rigorous modelling of revenues, risks, degradation, availability and DSCR.
The capacity market opens up a new opportunity for BESS. Technical and financial prudence will remain key to turning it into genuinely bankable projects.
AleaSoft Energy Forecasting’s analysis for battery storage and hybridisation with renewables
To turn this opportunity into bankable projects, it is essential to calculate expected revenues, size storage efficiently and define operating strategies that maximise IRR and reduce risks. At AleaStorage, a division of AleaSoft Energy Forecasting, these analyses are carried out for standalone projects and hybrid systems with renewable energies through simulations of future hourly prices, probabilistic scenarios, optimisation algorithms and a comprehensive view of market opportunities, including potential participation in capacity auctions.
Source: AleaSoft Energy Forecasting.
