In this blog post, we are pleased to share the English version of the article originally published by Qualenergia (Battery Tolling), based on interviews with market experts including Partner at Our New Energy, Dario Gallanti,  who shared his views on the use of tolling agreement and more evolved PPA structures for Italian storage.

Battery Tolling: The Flexible PPA Model Looking for Followers

10 July 2025 – Lorenzo Vallecchi

In Italy, interest is growing around specific PPA contracts designed to finance battery storage systems without relying on MACSE or public incentives, focusing instead on time shifting and flexibility.

The classic business model for Power Purchase Agreements (PPAs), based on kilowatt-hours delivered, does not fully capture the intrinsic value of Battery Energy Storage Systems (BESS).

Batteries do not generate electricity; rather, they provide flexibility and stability for both users and the grid. With batteries, when, how, and where electricity is discharged often matters more than how much is delivered.

To better capture the value of storage, business models already used in the gas sector around the turn of the century are now being applied across Europe and Italy, adapted to this “new lithium era.” Among these models, the one attracting the most attention is “tolling,” applied to BESS as a variation on the PPA model for renewable energy generation.

What Tolling Is—and Is Not

A tolling agreement is a contract where the owner of the asset—in this case, a battery—retains ownership and operational control of the system, while granting a counterparty, the service buyer (or “toller”), the right to manage the battery, i.e., to decide when to charge and discharge. In exchange, the owner receives a fixed fee and/or a share of the generated revenues.

Effectively, it’s like “renting out” the battery’s capacity and flexibility without transferring physical ownership.

“In simple terms, tolling is like “leasing” a battery to maximize its value across all potential revenue streams. The optimizer can use the asset freely within predefined contractual limits, paying either a fixed price or a guaranteed minimum (‘floor’), with a revenue-sharing arrangement for any upside,” explained Dario Gallanti, Partner at Our New Energy (ONE), a leading European transaction advisory firm specializing in PPA and tolling deals, in an interview with QualEnergia.it.

This type of agreement should not be confused with a simple capacity lease, where the lessee has limited or no operational control over the asset.

It is essentially a private contractual model that can make a project bankable in the absence of public support schemes like Italy’s MACSE (Electric Storage Capacity Procurement Mechanism).

An Alternative to MACSE

In Italy, tolling is gaining traction outside the MACSE scheme, which was promoted by Terna to secure storage capacity in Central and Southern Italy.

“Until a few months ago, investors relied almost exclusively on MACSE, at least in Southern Italy. But as authorizations have increased, investors have started to feel the competitive tension and the growing risk of losing auctions. As a result, they are also exploring market alternatives like tolling contracts,” says Gallanti.

“The structure is straightforward: you negotiate a base price (a floor) and add a percentage split of the profit margin or upside—typically 80/20 or 90/10 depending on the floor value. We’re talking about contracts lasting 5 to 10 years, usually offered by major trading desks or utilities. In some cases, instead of a floor, it’s even possible to secure an all-in fixed price,” he explains.

While there is growing curiosity around this model, it has not yet become a fully mature market. “To date, no tolling contracts have been published in Italy. We’re working on several, but battery tolling remains an emerging market,” Gallanti adds.

He sees tolling as potentially working in synergy with the capacity market in Northern Italy, while in the South—although seen as the only option outside MACSE—the situation is more complex.

“As with solar PPAs in the early market-parity days nearly a decade ago, many investors hope to offload most of the risk onto the offtaker while maintaining high prices. But in reality, achieving acceptable returns for this asset class requires a reasonable compromise,” he says.

Time Shifting and Ancillary Services: Two Separate Worlds

A positive sign for the development of the merchant market comes from Virginia Canazza, Partner at the advisory firm Key to Energy.

“The merchant solution is becoming investment-grade, mostly thanks to a significant drop in capital expenditures,” she told Montel. According to her, battery revenues will come mainly from time shifting (60–70%) and partly from ancillary services (30–40%), such as balancing markets.

A battery’s value comes from two key components: time shifting: arbitrage between low- and high-price hours and ancillary services: meaning reserve, balancing, frequency response, and other grid services.

Gallanti notes that Italian offtakers are more open to pricing time shifting over five-to-ten-year terms, but remain skeptical about ancillary services.

“With time shifting, it’s possible to reasonably model hourly price curves over 5–7–10 years—trading desks already have such forecasts. But for grid services, very few offtakers are willing to commit, due to regulatory uncertainty. So when a tolling contract asks the offtaker to cover ancillary services over the medium term, the recognized value is minimal,” he explains.

As an alternative, new PPA products are emerging for BESS where only time shifting is priced with the offtaker—using a pre-agreed flexibility profile and a mid- to long-term horizon—while ancillary services remain under the asset owner’s direct control.

“These structured products offer a more balanced risk allocation between parties, ensuring returns in line with investor expectations while maintaining bankability. In this setup, ancillary services revenues remain, at least partially, within the project, representing its merchant exposure and potential upside,” Gallanti clarifies.

It is still essential to define technical operating constraints, which impact financial, regulatory, and engineering aspects.

“A battery is not infinite. It has a limited number of cycles. Investing in a battery means purchasing a finite number of cycles. Therefore, any tolling or PPA contract must include clear parameters reflecting this reality—like number of cycles, charge/discharge thresholds, and so on,” Gallanti adds.

“It is crucial to fully understand the technical features and risks and to clearly allocate these risks in the contract,” agrees Lorenzo Parola, founder and managing partner at Parola Associati, in a statement to Montel.

Germany: A Growing Market, Still at the Beginning

Germany is slightly ahead of Italy in developing tolling as a potential PPA equivalent for battery storage systems, though the market remains in its infancy.

“So far, only five tolling contracts have been made public in Germany,” notes Jürgen Mayerhofer, CEO of enspired, in a Pexapark podcast.

Pricing ranges widely: for two-hour batteries operating two cycles per day, values fluctuate between €83,000 and €135,000 per MW/year. This dispersion reflects different expectations around future revenues, saturation risks, and the value of ancillary services.

“In Germany, tolling plays a role because some developers need it to make projects bankable. But it depends heavily on the investor profile, the bank involved, and the structure of the portfolio,” Mayerhofer explains, noting that banks play a key role.

“We have seen banks that one year ago required tolling or floor contracts, and just eight months later financed fully merchant projects,” says Mayerhofer, stressing that the real issue remains the lack of standardization and transparency.

“We are trying to introduce comparable, traceable benchmarks. Simulations are no longer enough. We need real, verifiable data and tools that allow financiers to clearly assess performance,” he adds.

European Outlook: An Evolving Instrument

Tolling—and structured PPA products for batteries in general—is gaining growing interest, though still in early stages. It has the potential to be very useful, though it is still unproven and not fully understood.

“There is no one-size-fits-all solution. The choice depends on the investor profile, market view, and technical features of the asset,” says Roberto Jimenez, Executive Director at BW ESS, which has a 2.8 GW portfolio in Italy, in a comment to Montel.

For now, Italy and Germany are developing parallel, fragmented, still-small markets, but with considerable growth potential. “Market momentum is strong, both from investors and offtakers. We are just at the beginning, but the results of the first MACSE auction—scheduled for 30 September—and the associated time-shifting products from Terna will be decisive in setting the pace for the development of these instruments in Italy,” Gallanti concludes.