Flexibility moves to the front line of the energy shift

What has changed in the past year

Since 2024, battery storage deployment has accelerated in Europe and the US, driven by price volatility, ancillary service revenues, and supportive subsidy schemes, such as Germany’s innovation tender and Italy’s MACSE1 support programme. However, grid access constraints and the lack of viable long-term business models remain key challenges in many markets. Moreover, the current limited ability of DSOs and TSOs2 to actively control BESS means that storage systems often act as stressors rather than enablers of grid stability. In many markets, the absence of a suitable market design prevents full integration of BESS and limits their potential to contribute to grid balancing and flexibility services.

Hydrogen saw continued investment announcements, but actual electrolyser deployment and renewable hydrogen offtake remain limited due to high costs and uncertain industrial demand. Expectations around hydrogen have moderated, with electrolysis roll-out slower than anticipated.

Regulatory frameworks for storage are evolving but progress is uneven. Some countries are beginning to adapt market design to better value flexibility, though this remains the exception. Beyond electricity, interest is growing in thermal and compressed air storage as complementary
solutions. Overall, flexibility is gaining traction, but systemic, technology-neutral support mechanisms are still lagging behind deployment needs.

Outlook and key action points

Flexibility must be treated as a core design principle of decarbonized energy systems. Battery storage will continue to scale but needs regulatory clarity, improved revenue stacking3, and streamlined grid access. Demand-side flexibility, supported by digitalization and real-time grid monitoring, can reduce stress on infrastructure and lower the need for costly storage investments. While lithium-ion batteries dominate short-duration balancing, a diverse mix of technologies, including compressed air, thermal storage, and long-duration options like pumped hydropower, will be essential and complementary. Hydropower, including existing reservoirs and expanded pumped storage capacity, plays a unique role by providing reliable, large-scale flexibility, seasonal balancing, and inertia that supports grid stability as variable renewables grow.

Hydrogen’s future depends on long-term offtake agreements, coordinated regulation, and timely infrastructure development. Renewable and low-carbon hydrogen can play a pivotal role in industrial decarbonization, particularly in feedstock applications, high-temperature processes, and steelmaking, as demonstrated by projects like HYBRIT and Stegra.

However, high production costs and limited demand-side certainty remain key barriers to scale. Regions with abundant renewables, such as the Nordics and Spain, are positioning themselves as future production hubs. FlagshipTWO in Sweden is a notable example, set to become one of Europe’s largest planned e-methanol projects with a capacity of around 100,000 t/year. Developed on the same site as the previously cancelled FlagshipONE, it reflects continuity and scale-up despite earlier market setbacks. As a first-of-its-kind commercial-scale e-fuel facility focused on exports for shipping and chemical sectors, it underscores renewed momentum in building out export-oriented hydrogen and e-fuel infrastructure.

Europe will require more renewable hydrogen than it can produce domestically. Strategic support mechanisms should prioritize sectors that are hard to electrify while ensuring affordability. A long-term investment perspective is critical, especially for hydrogen and other emerging storage technologies, to unlock the flexibility needed for resilient, high-renewable energy systems.

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