Flexibility is becoming more valuable in the Nordic power system

The drivers behind this development are essentially twofold. First, from a system‑balancing perspective, the need for flexibility and regulating capacity is increasing as forecasting becomes more challenging and the system requires more last‑minute adjustments. Second, from a generator’s perspective, storage can support more active management of market exposure – both by enabling revenue optimization across products and by helping mitigate imbalance risk in a market environment where volatility and negative-price events have become more frequent.

Against this backdrop, we observe a rapid emergence of both standalone and co‑located BESS. This development will affect market outcomes: additional flexibility can, all else equal, reduce the frequency and/or severity of negative-price situations, although batteries are not a complete solution on their own. It may also mitigate congestion impacts locally, through reduced curtailment or improved utilization of generation, where storage is appropriately sited and operated, but it does not “increase” transmission capacity and should not be described as a substitute for grid reinforcement.

However, the evolution does not stop there. Standalone BESS operators in Sweden have already experienced a substantial compression of ancillary‑services revenues as battery capacity has expanded and competition has intensified, pushing prices down and forcing a shift toward more diversified multi‑market strategies (e.g., increased focus on mFRR and wholesale arbitrage trading). As a result, operators increasingly need to be creative in developing business models that work in a significantly more competitive landscape.

Co‑located BESS (i.e., battery assets located behind the meter together with wind and/or solar generation) face similar competitive dynamics, but also have additional opportunities to expand and diversify the revenue stack—provided the commercial and contractual framework is designed to avoid misaligned incentives.

Traditionally, a wind project would enter into a PPA and a contract with a Balance Responsible Party, locking in as much risk as possible and operating as a largely passive market participant. For many projects today, this is no longer the case. The increasing prevalence of negative-price hours is one clear signal that market dynamics have shifted and that revenue and risk allocation in offtake contracts is being stress‑tested. This shift requires a more sophisticated approach from both buyers and, in particular, sellers (power producers).

In co‑located projects, where the generating asset is subject to a PPA and the BESS is operated by an independent optimizer, it is crucial to ensure, to the extent possible, that conflicts of interest do not arise that could sub‑optimize overall project profitability.

This is, however, easier said than done. Many pay‑as‑produced PPAs now address negative-price risk explicitly, but the allocation is not standardized: outcomes range from full settlement through negative-price periods, to partial compensation regimes (e.g., hour caps or floors), to non‑settlement clauses where the seller bears the exposure and may have curtailment rights.⁶ This raises practical structuring questions for hybrid projects. For instance, does the PPA allow for “load shifting”, i.e., charging the BESS instead of curtailing generation during negative-price hours? And if energy is later discharged when prices are positive, how is settlement handled under the PPA: against a defined contracted share, against a deemed production concept, or outside the PPA altogether?

A related issue concerns environmental attributes such as Guarantees of Origin (GoOs). GoOs are certificate instruments intended to evidence renewable origin under European frameworks, but the treatment of energy routed through storage can be a contractual and registry‑implementation question that must be addressed explicitly in the documentation.

These questions are closely linked to how the BESS is utilized overall. When BESS capacity is committed to ancillary services or intraday strategies, it can constrain the degrees of freedom available for holistic optimization of the combined generation‑plus‑storage project. Moreover, the optimizer is typically incentivized to maximize battery revenues and may have contractual rights to dispatch accordingly – creating potential misalignment with the PPA economics of the co‑located generation asset unless governance and dispatch priorities are clearly defined.

One practical illustration, discussed in recent market dialogue, involves structures where settlement is triggered on the BESS charge (e.g., using a dedicated metering point between the generation asset and the battery). In one described example, payment crystalizes when the BESS charges from the co‑located generator rather than when it later discharges to the grid, explicitly to align settlement rights with metering and reduce certain tariff/settlement frictions.

Sophisticated market participants are aware of these challenges and increasingly seek to align PPA documentation and optimization agreements to minimize misaligned incentives and avoid value‑destructive dispatch outcomes – particularly as hybrid PPA structures are becoming a more prominent route to market in Sweden and Finland.

Ultimately, the physical power system sets the rules of the game. Continued electrification and deeper renewable penetration will further increase the importance of flexibility, volatility management and congestion awareness, and these forces will inevitably shape how PPAs are structured and how storage optimizers are allowed to operate. The implication is clear: contractual frameworks that treat PPAs and BESS optimization as separate value drivers will struggle in an environment where physical and commercial outcomes are increasingly intertwined.

Against this backdrop, DNB seeks to remain at the forefront of these developments by closely following how market design, system constraints and contractual practices evolve in tandem. By combining advisory capabilities with financing expertise, the ambition is to act as a relevant and informed partner to clients navigating the transition – helping structure projects and contracts that are robust not only from a financial perspective but also aligned with the realities of the underlying power system.