Private Markets
Battery storage: unlocking the bottleneck of the Energy Transition
Explore how battery storage helps solve grid bottlenecks, support renewables and create infrastructure investment opportunities.
Key takeaways
- Battery energy storage systems (BESS) are becoming a critical infrastructure solution for the energy transition as they help balance renewable energy supply and electricity demand.
- BESS can support grid resilience, reduce grid congestion, limit renewable curtailment and improve the use of existing electricity infrastructure.
- Global and European battery storage markets are growing rapidly, supported by electrification, digitalisation, rising power demand, phase-out of fossil fuel generation and increasing volatility in energy markets.
- For institutional infrastructure investors, battery storage can offer exposure to a growing segment linked to the energy transition, although market, technology and operational risks require careful management.
- Long-term contacted offtake agreements (tolls, floors) can improve revenue visibility, while contractual structures and risks require careful management.
The Energy Transition thematic can be framed into its key market components:
- Upstream (Renewables generation/production)
- Midstream (Storage, Transmission & Distribution)
- Downstream (Consumption)
Historically there has been significant investment focus in the Upstream renewables generation of the market over the last 10-15 years. However, the global energy transition has by now entered a new phase. The challenge is no longer simply producing more green electricity; the bottleneck increasingly lies in grid capacity, system flexibility and balancing fluctuating renewable generation.
Battery Energy Storage Systems (BESS) are emerging as one of the most important solutions and are now the fastest-growing power technology.1
As renewables expand across Europe, North America and Asia-Pacific, electricity systems are being transformed. Solar and wind generation are variable and often do not match demand patterns. This can lead to grid congestion, curtailment of renewable generation and greater volatility, especially given the grid infrastructure has not kept pace and noting these systems were not designed or set-up to deal with such large-scale renewable production.
At the same time, electrification, digitalisation and the rapid buildout of AI-driven data centres are increasing electricity demand and placing additional pressure on power systems, further strengthening the need for flexible storage capacity.
The next phase of the energy transition will therefore be defined less by the ability to generate renewable power and more by the ability to store, transport and manage it efficiently.
Bridging the gap for more flexibility
BESS can help bridge the gap between generation and consumption by storing surplus electricity generation and releasing it when demand rises. They can enhance grid flexibility, support resilience and facilitate the integration of renewable energy, making battery storage assets an essential element of modern energy infrastructure.
Earlier this year, AllianzGI acquired a major stake in a German battery storage joint venture with TotalEnergies as well as in the German battery storage platform GESI, highlighting the increasing importance of battery storage in institutional infrastructure portfolios.
According to the International Energy Agency, 108 GW of new battery storage capacity was deployed worldwide in 2025, 40% more than in 2024.2 In Europe, new installations reached 36 GWh in 2025, up 48% year on year.3
Global battery storage capacity additions, 2020-2025
Higher renewable penetration, electrification, digitalisation and power market volatility are strengthening the case for battery storage. SolarPower Europe expects total installed battery storage capacity in Europe to grow more than sixfold, from just over 100 GWh today to around 580 GWh by 2030 under its medium scenario.3
While grid expansion remains essential, battery storage offers one of the fastest deployable solutions to increase system flexibility at competitive costs. Battery projects can typically be developed and brought into operation within two to four years. As a result, in many markets, storage can be brought online years before major transmission projects are completed, helping address bottlenecks in the near term while broader infrastructure investments are underway.Investing in battery storage systems
Several factors are contributing to the maturation of the sector, including declining battery costs, improvements in technology performance, increasing lender familiarity and the emergence of more sophisticated route-to-market structures. Together, these developments are supporting greater institutional participation across both equity and debt investments.
For institutional investors, battery storage can offer an attractive risk-return profile combining exposure to long-term structural growth trends with infrastructurestyle characteristics. Depending on the revenue structure, BESS assets can benefit from contracted cash flows that provide downside protection while retaining exposure to upside from power and flexibility markets. Unlike regulated electricity networks, however, battery assets typically operate in competitive energy markets, creating opportunities for enhanced returns but also requiring careful management of market, technology and operational risks.
BESS investments are also becoming more institutional in nature. Long-term contracted offtakes such as tolls and floors with utilities, energy traders and industrial offtakers can improve revenue visibility while still retaining selective exposure to merchant upside. Depending on the balance between contracted and merchant revenues, battery storage can sit between core and core-plus infrastructure. Not all BESS opportunities are equal and it is critical to have the sectorial expertise to fully evaluate the risk assessment including the regulatory framework, stage of development, the financing and route-to-market structure, the asset specifics and the type of contractual protections.
Investments in battery storage are a natural evolution for institutional capital in the broader energy infrastructure solution. In many markets, renewable deployment is constrained by limited grid capacity and long connection queues. Storage can help absorb excess electricity, reduce congestion and improve utilisation of existing infrastructure, making batteries a critical enabler of the energy transition.
AllianzGI expects BESS to continue to grow, supported by several industry reports. Earlier this year AllianzGI has provided financing for several solar & storage projects in the US. The next phase of market development will increasingly focus on hybrid projects combining batteries with renewable generation, such as solar-plus-storage and wind-plus-storage. Rising power demand from data centres, artificial intelligence and electrified transport is also increasing the need for flexible capacity.
The energy transition is no longer only about generating more clean power; it is increasingly about building the infrastructure required to make renewable energy systems function efficiently and reliably. As renewable penetration rises, the value of flexibility is expected to increase, making storage an increasingly important part of the energy ecosystem.
Outlook
For investors, BESS represents more than a growth opportunity. As storage becomes an increasingly important part of modern power systems, careful asset selection remains critical. Key evaluation criteria include project location, grid access and eventual grid constraints, route-to-market and access to flexibility markets, and the experience of development and operating partners.
Battery storage projects address a critical infrastructure bottleneck while benefiting from long-term structural trends including electrification, digitalisation and the decarbonisation of the economy. In our view, battery storage has moved beyond a niche energy-transition opportunity and is becoming a foundational component of modern power systems. As the value of flexibility is expected to increase, BESS is becoming a core component of tomorrow’s infrastructure landscape.
Facts & Figures
- AllianzGI has been investing in infrastructure for over 20 years.
- In 2025, 108 GW of new battery storage capacity was installed worldwide. The installed capacity globally is now eleven times higher than in 2021.2
- To facilitate the rapid deployment of new renewable energy, global energy storage capacity needs to increase sixfold to 1,500 GW by 2030.2
- Batteries account for 90% of the increase in storage in the Net Zero Emissions by 2050 (NZE) Scenario.4
- Utility-scale BESS projects can typically be deployed within two to four years.
Investments of AllianzGI
- Joint Venture with Total Energies: AllianzGI partners with TotalEnergies in Germany and has acquired a 50% stake in a portfolio of 11 battery storage projects of c. 800MW directly contributing to the resilience of the German power system by reducing grid congestion.
- EsVolta: AllianzGI provided financing for the expansion of esVolta’s battery storage portfolio, providing critical infrastructure supporting grid stability and renewable energy integration across U.S. power markets.
- GESI: AllianzGI acquired a 51% stake in German battery storage platform GESI which develops, constructs and operates large utility-scale battery storage systems to provide flexibility within the energy system.
