BESS Tolling Agreement Structure Explained — Return/Engie Spain & EnBW/Zelestra Italy 2026 Market Analysis
Overview of Southern Europe's Tolling-Based BESS Commercialization
Two landmark long-term battery energy storage tolling agreements announced on July 21, 2026, mark a pivotal transition in Southern Europe's BESS market: the shift from subsidy-driven, auction-based procurement models to market-based, bilateral capacity offtake arrangements that transfer merchant revenue risk from asset owners to creditworthy energy trading counterparties. In Spain, energy storage operator Return — a Madrid-based independent storage platform focused on the Iberian market — signed a 10-year tolling agreement with Engie, the French multinational utility and one of Europe's largest energy trading organizations, covering three BESS projects in the Basque Country region of northern Spain with a combined capacity of 55 MW/220 MWh (4-hour duration). The three projects, which Return is developing under a build-own-operate model, are targeted for commercial operation by the end of 2027, and the tolling agreement grants Engie full market optimization rights — including wholesale energy arbitrage, ancillary services participation, and balancing market access — across all Spanish electricity markets.
Simultaneously, in Italy, German utility EnBW (Energie Baden-Württemberg AG) signed a long-term tolling agreement with Zelestra — the Spanish-headquartered renewable energy and storage developer formerly known as Solarpack — for 300 MW of the 500 MW/2,000 MWh BESS project that Zelestra is developing in the Emilia-Romagna region of northern Italy. The project, which at 500 MW/2,000 MWh will be one of Europe's largest single-site BESS installations upon its planned commercial operation date in 2028, will dedicate 60% of its capacity to the EnBW tolling agreement, with Zelestra retaining the remaining 200 MW for its own merchant optimization or for additional bilateral offtake agreements. Notably, the EnBW-Zelestra tolling agreement was negotiated bilaterally and does not rely on Italy's MACSE (Meccanismo di Approvvigionamento di Capacità di Stoccaggio Elettrico) capacity market auction — a deliberate strategic choice that Zelestra's Italy CEO has explained in detail, citing the long-term certainty and counter-party credit quality advantages of a bilateral toll with an investment-grade utility over the auction-based MACSE offtake structure.
Why the Tolling Model Matters for Global BESS Commercialization
The emergence of long-term bilateral tolling as the dominant BESS commercialization model in Southern Europe carries implications for storage markets globally, particularly in emerging storage markets in Southeast Asia, Latin America, and Africa where policy frameworks are nascent and offtake certainty is the binding constraint on project finance. The tolling model — in which the asset owner (the "toll payer") retains ownership of the physical BESS asset and contracts with a "tolling counterparty" (typically a utility, energy trader, or large commercial/industrial offtaker) that pays a fixed capacity fee and, in exchange, receives the right to dispatch and optimize the asset across all available market revenue streams — effectively separates asset ownership risk from market revenue risk. The asset owner bears the construction, technology performance, and operational risks — risks that are within the asset owner's control and can be managed through EPC contracts, technology warranties, and O&M agreements — while the tolling counterparty bears the market revenue risk — the risk that wholesale energy prices, ancillary services prices, and capacity market prices will generate sufficient revenue to recover the capacity fee payment and earn a trading margin.
This risk separation is the fundamental innovation of the tolling model and explains its growing appeal to both asset owners and tolling counterparties. For asset owners like Return and Zelestra, the tolling agreement provides a contracted, visible revenue stream — the fixed capacity payment from the tolling counterparty — that can be modeled with high confidence in project finance cash flow projections, supporting higher debt-to-capital ratios and lower financing costs than a pure merchant revenue model would permit. The capacity payment effectively transforms a merchant storage asset — whose revenues are inherently volatile and correlated with unpredictable market conditions — into a contracted infrastructure asset with stable, predictable cash flows that appeal to institutional infrastructure investors. For tolling counterparties like Engie and EnBW, the tolling agreement provides access to large-scale, grid-connected storage capacity without requiring the capital expenditure to build and own the physical asset — effectively an "asset-light" route to storage market participation that leverages the utility's core competitive advantage: energy trading, market optimization, and portfolio management capabilities developed over decades of participation in European wholesale electricity markets.
Technical Deep Dive: BESS Tolling Agreement Contract Engineering
The tolling agreement structure that Return-Engie and EnBW-Zelestra have adopted — while customized to each transaction's specific circumstances — follows a contractual architecture that has been refined through multiple precedent transactions in the UK, German, and now Southern European storage markets. Understanding this architecture is essential for storage developers, investors, and lenders evaluating tolling-based project finance structures, as the allocation of rights, obligations, and risks within the tolling agreement directly determines the project's bankability and credit quality.
The core commercial terms of a BESS tolling agreement comprise five interrelated layers. First, the fixed capacity payment — a monthly or quarterly payment from the tolling counterparty to the asset owner, denominated in €/MW/month or €/MW/year, that compensates the asset owner for making the storage capacity available to the tolling counterparty. The capacity payment is typically structured as a "take-or-pay" obligation: the tolling counterparty must pay the capacity fee regardless of whether it actually dispatches the asset, as long as the asset is available (meeting its contractual availability guarantee, typically 95-98% on an annual basis). This take-or-pay structure is what transforms the storage asset's revenue profile from merchant to contracted and is the foundation of tolling-based project finance. The capacity payment level for the Return-Engie and EnBW-Zelestra transactions has not been publicly disclosed, but recent European BESS tolling benchmarks — including the EnBW-Zelestra Italy 300 MW transaction announced in July 2026 and prior transactions such as the Alpiq-Harmony Energy UK tolling agreement — suggest tolling fees in the range of €40,000-70,000/MW/year for 2-hour assets and €70,000-120,000/MW/year for 4-hour assets, with premiums for longer-duration assets that offer greater dispatch flexibility.
Second, the dispatch and optimization rights — the contractual grant from the asset owner to the tolling counterparty of the exclusive right to charge and discharge the BESS asset within its technical operating envelope (power capacity, energy capacity, ramp rate, minimum and maximum state of charge). The tolling counterparty's dispatch rights are typically "full" — meaning the counterparty can dispatch the asset at any time, for any duration, within the technical constraints, without requiring the asset owner's approval — but are subject to operational constraints that protect the asset's long-term health: maximum daily cycle limits (typically 1.0-1.5 full equivalent cycles per day for lithium-ion BESS), minimum and maximum state-of-charge guardrails (typically 10-90% to prevent deep discharge and overcharge degradation), and temperature and voltage operating limits specified in the battery manufacturer's warranty conditions. The tolling counterparty's optimization team — typically a 24/7 trading desk with automated dispatch algorithms — optimizes the asset's participation across multiple markets simultaneously: day-ahead and intraday wholesale energy markets, primary and secondary frequency regulation markets, and, where applicable, capacity market or resource adequacy obligations.
Third, the efficiency and performance guarantees — the contractual commitments from the asset owner regarding the BESS asset's technical performance, including round-trip efficiency (typically guaranteed at 85-92% for new lithium-ion systems at the DC level, or 80-87% at the AC level including power conversion system and transformer losses), availability (typically 95-98% on an annual basis, excluding planned maintenance), and capacity degradation (typically guaranteed through the battery supplier's warranty at no more than 2-3% capacity loss per year, with an end-of-warranty capacity of 70-80% of nameplate at year 10-15). If the asset's actual performance falls below the guaranteed levels, the asset owner typically incurs a financial penalty — either a reduction in the capacity payment or a direct compensation payment to the tolling counterparty for the revenue that the counterparty would have earned had the asset performed at the guaranteed level. These performance guarantees are critical for the tolling counterparty's business case, as the counterparty's trading models and revenue forecasts assume specific levels of round-trip efficiency and availability, and performance shortfalls directly reduce the counterparty's trading margin.
Fourth, the degradation allocation — the contractual provision that determines which party bears the cost of battery capacity degradation over the tolling agreement's term. In a typical structure, the asset owner bears degradation risk up to the manufacturer's warranted degradation curve (e.g., 2% per year for the first 5 years, tapering to 1.5% per year thereafter), and any degradation beyond the warranted level is covered by the manufacturer's warranty — with the asset owner responsible for pursuing warranty claims. The tolling counterparty, in turn, accepts that the asset's usable energy capacity will decline over time in accordance with the warranted degradation curve, and the counterparty's dispatch optimization algorithms must adapt to the declining energy capacity — for example, by reducing the duration of energy arbitrage cycles as the asset's energy capacity diminishes. This degradation allocation aligns economic incentives: the asset owner is incentivized to select high-quality battery technology with favorable degradation characteristics and to operate the asset within the manufacturer's warranty conditions, while the tolling counterparty accepts the natural aging of the battery as a known, model-able cost of storage-based trading.
Fifth, the augmentation and life-extension provisions — the contractual framework for decisions about whether and when to augment (add additional battery capacity) or replace battery modules as the asset ages. In a typical structure, the tolling counterparty has the right — but not the obligation — to request augmentation if the degraded energy capacity falls below a threshold that materially impairs the counterparty's trading strategy (e.g., if the usable energy capacity falls below 70% of nameplate, reducing the 4-hour asset to less than 2.8 hours of effective duration), and the asset owner has the right — but not the obligation — to implement augmentation, with the cost-sharing between the parties subject to negotiation based on the remaining tolling agreement term and the projected incremental revenue from the restored capacity. These augmentation provisions address a structural feature of battery storage that distinguishes it from conventional power generation assets: the asset's primary revenue-generating capability (its energy capacity) degrades predictably over time, and the economic decision to reinvest in the asset (through augmentation) must be evaluated against the remaining contract term and the projected market revenue environment at the time of augmentation — a multi-variable optimization problem that tolling agreements are increasingly addressing through pre-agreed cost-sharing formulas rather than leaving augmentation decisions to ad hoc negotiation.
Spain vs Italy: Divergent Market Dynamics Driving BESS Tolling Demand
While the Return-Engie and EnBW-Zelestra tolling agreements share a common contractual architecture, the market dynamics driving BESS tolling demand in Spain and Italy are shaped by fundamentally different grid and policy conditions — differences that illustrate how storage commercialization models must adapt to local market structures.
Spain's BESS market acceleration is driven, in significant part, by a catalytic event: the April 2025 Iberian Peninsula-wide blackout that affected approximately 50 million people across Spain and Portugal and exposed critical vulnerabilities in the Iberian electricity system's frequency control and system restoration capabilities. The blackout's root cause — a cascading failure triggered by the simultaneous loss of multiple transmission lines during a period of high renewable penetration and low system inertia — has galvanized Spanish energy policy, with the government accelerating storage deployment targets, streamlining permitting processes, and introducing regulatory reforms that improve the business case for storage providing grid stability services. The post-blackout policy response has created a regulatory environment in which BESS projects can access multiple revenue streams — energy arbitrage, frequency containment reserve (which Spain's system operator, Red Eléctrica de España, procures through daily auctions), and, prospectively, a capacity remuneration mechanism that the Spanish government has committed to implementing by 2027 — and the policy certainty has attracted international tolling counterparties like Engie that have the trading infrastructure and balance-sheet strength to optimize storage assets across these revenue streams.
Italy's BESS market, by contrast, is driven primarily by the country's aggressive solar photovoltaic deployment — Italy added approximately 5-6 GW of new solar capacity in both 2024 and 2025, bringing total installed solar capacity to over 40 GW — and the resulting "duck curve" effect that is reshaping the Italian wholesale electricity market. During sunny spring and summer days, solar generation suppresses midday wholesale prices to levels that are increasingly approaching zero or even negative (the Italian day-ahead market recorded negative prices on approximately 15% of hours in Q2 2026, according to Gestore dei Mercati Energetici data), while the evening ramp — as solar output declines and demand increases — creates a 15-20 GW net-load swing over 4-6 hours that must be met by flexible generation and storage. This duck curve creates an ideal revenue environment for 4-hour BESS: charge during the midday solar surplus at near-zero or negative prices, discharge during the evening ramp at prices that can exceed €150-200/MWh, and capture the spread. The MACSE capacity market auction, which Italy launched in 2025 as the first European storage-specific capacity mechanism, was designed to accelerate storage deployment to address precisely this duck curve challenge — but Zelestra's decision to bypass MACSE in favor of a bilateral toll with EnBW suggests that, for large-scale storage developers with strong balance-sheet tolling counterparties, the certainty and flexibility of bilateral offtake may be preferable to the administrative complexity and price risk of auction-based capacity contracts.
MACSE vs Bilateral Tolling: Strategic Comparison
Zelestra's decision to opt out of the MACSE auction for 300 MW of its 500 MW Emilia-Romagna project — opting instead for the bilateral EnBW tolling agreement — provides a revealing case study in the strategic trade-offs between auction-based and bilateral offtake for storage projects. The MACSE auction, administered by Italy's transmission system operator Terna, offers successful bidders a 15-year capacity contract with a fixed capacity payment (the "premio") that is determined through competitive bidding. The MACSE contract provides strong revenue certainty — the capacity payment is fixed for the contract term, indexed to inflation, and backed by Terna's credit — but imposes significant constraints: the storage asset must be available to Terna for dispatch during specified availability windows, the asset's participation in wholesale energy and ancillary services markets is restricted by Terna's dispatch priority, and the asset owner shares a portion of merchant revenue with Terna through a "clawback" mechanism that reduces the capacity payment when wholesale market revenues exceed a threshold.
The bilateral EnBW tolling agreement, by contrast, offers Zelestra a capacity payment that — while potentially lower than the MACSE auction clearing price on a €/MW/year basis — provides greater operational and commercial flexibility. Zelestra retains ownership and operational control of the asset (subject to EnBW's dispatch rights), avoids the MACSE auction's administrative complexity and compliance requirements, and — critically — retains 200 MW (40%) of the project's capacity for its own merchant optimization or for additional bilateral offtake agreements that could generate incremental revenue beyond the capacity payment. The bilateral structure also allows Zelestra to negotiate customized contract terms — including the degradation allocation, augmentation provisions, and termination rights — that a standardized auction contract (like the MACSE capacity contract) cannot accommodate. For a developer like Zelestra that has a long-term strategic interest in the Italian storage market and is building a multi-gigawatt development pipeline, the flexibility and relationship-building value of bilateral tolling with a strategic utility partner like EnBW may outweigh the short-term revenue certainty of a MACSE capacity contract.
Future Outlook: The Tolling Model's Global Replicability
The Southern European tolling transactions of July 2026 — Return-Engie in Spain and EnBW-Zelestra in Italy — establish a commercialization template that is likely to be replicated in emerging storage markets globally, particularly in regions where policy frameworks are insufficiently developed to support auction-based capacity contracts but where wholesale electricity markets are sufficiently liquid to support merchant storage revenue. The tolling model's key advantage — its ability to attract project finance debt by providing a contracted revenue floor while preserving the upside of merchant optimization — makes it applicable across a wide range of market maturity levels, from the relatively mature European markets where these transactions occurred to emerging markets in Southeast Asia (Vietnam, Philippines, Indonesia), Latin America (Chile, Colombia, Brazil), and Africa (South Africa, Kenya, Morocco) where storage deployment is just beginning.
The critical success factors for tolling-based storage commercialization in emerging markets include: the presence of investment-grade tolling counterparties with the trading capability and balance-sheet strength to assume merchant revenue risk; sufficient wholesale market liquidity and price transparency to enable the tolling counterparty to model and execute trading strategies; and a regulatory framework that permits third-party market participation (i.e., does not restrict wholesale market access to the incumbent utility). Markets that lack one or more of these factors may need to rely on auction-based offtake, government-backed PPAs, or multilateral development bank credit enhancement until the market infrastructure matures sufficiently to support tolling-based structures. The Southern European experience — where tolling has emerged organically as the preferred commercialization model without direct government mandate — suggests that, given the right market conditions, the private sector can develop storage offtake solutions that are more flexible, more commercially rational, and ultimately more scalable than government-designed auction mechanisms.
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