“If you really believe that batteries will be as big an asset class as everyone says they will, you will need a lot more applications for how to commercialise a battery. That’s why we founded Terralayr,” Man said.
BESS developer, operator and aggregator
The company was founded in 2022 and completed its first big financing—roughly 80:20 equity to debt—late last year to expand its platform.
The platform makes battery energy storage system (BESS) capacity available from both its Terralayr-owned projects and third-party assets. It bundles, aggregates and virtualises front of meter (FTM) BESS assets and sells offtake agreements for contract durations between 15 minutes and 15 years.
Terralayr now has three of its own BESS online, the most recent being a 10.35/22.83MW project connected to the grid in Tittling, Bavaria, last week, with two more under construction. It will reach 100MW of owned operational bess within the next year or so.
Tittling used LFP BESS units from Trina Storage and connects to the network of Bayernwerk Netz, the largest DSO in Bavaria. Another, similarly sized one in Kulmbach (also Bavaria) which is under construction will use units from Sungrow.
“Our sweet spot for our own projects is 10-30MW, 2-hour systems on the medium-voltage network, though we are starting to develop larger systems of around 100MW too. Medium voltage projects have been much quicker to develop, and also means we get good diversity in terms of location and optionality,” Man said.
“Though, we have extra land on those sites to increase the size as the grid connection capacity increases over the next 5-10 years, too.”
Platform
The rationale for investing in the ‘flexibility as a service’ offering is that the conventional model of commercialising BESS in Germany is highly limited, Preuss said.
“If you own a battery, you have two main options. You can go fully merchant, which means you need to underwrite the trading capabilities and algorithm of the optimiser, and there is not really an index for deciding if it was a good or bad choice yet. On the other side, you can toll the asset with a larger company with a good credit rating. But, presumably, if you are in the BESS game, you are looking for higher returns and are comfortable with higher volatility,” he said.
Note that Germany doesn’t yet have an equivalent to market analytics firm Modo, which provides data on the performance of different BESS optimisers in the GB market. However, optimiser enspired and university RTWH Aachen are working on a revenue index that will be available to the market.
“To solve this challenge (of commercialisation), we created a platform where you can configure your revenue stack that can allow you to, for example, have a 50% offtake for 7 years or 30% over 3 years via conventional tolls with the rest merchant. And that merchant portion can have a competitive tension as we auction that off on the platform on a continuous basis. We also know the optimisers well,” Preuss explained.
“You could do this on your own with your own BESS, but most are mid-sized, and splitting their capacity may be limited by the technical configuration of the site. You’ll also be limited for tolls because toll takers are big corporations with high credit ratings that don’t want to work with small projects.”
Preuss was keen to emphasise that Terralayr is not a competitor to either toll takers or optimisers, both being its customers and that it doesn’t do the trading itself.
Through the platform, Terralayr links into the energy management system (EMS) of the BESS and takes care of its dispatch in the market.
For merchant applications, it has a marketplace for days, weeks, months or hours and with slices of capacity for onboarded offtakers to bid for via an auction, with designated optimisers on standby in case the auction doesn’t clear at a specified threshold price. For tolling, it pools capacity and puts it under a virtual tolling framework, something that is “very new to the market”, Preuss said.
Germany ‘won’t saturate like the GB market did’
The emergence of independent BESS developer-operators that provide flexibility capacity to the market, like Terralayr and another company, ‘green flexibility’ speaks to a shift in the profile of BESS owners in Germany from a few years ago, explored in our coverage of green flexibility’s acquisition by Partners Group. Man said this evolution is mainly due to the hugely increased need for flexibility in Germany.
Germany is most definitely a ‘hot’ storage market in Europe, but like with any ‘hot’ market, the question of revenue saturation is on people’s minds. Man and Preuss, while not willing to give a figure, both indicated saturation will happen but that it is unlikely to be as dramatic as what happened in the GB market in 2023 and 2024.
Man: “The German market isn’t likely to see the same sharp saturation that was seen in the UK. Germany is completely interconnected, with much deeper intraday and day-ahead market, the electricity mix is a bit different and Germany is a lot more distributed than the UK. In the UK, there is a lot more reliance on offshore wind and a difference in concentration.”
Preuss said that the two main parts of the revenue stack in Germany are still frequency containment reserve (FCR) and automatic Frequency Restoration Reserve (aFRR). “Depending on who you ask, there are different assumptions on when and by how much saturation will kick in—but there is a trend to a higher degree of saturation in those markets,” he said.
As such, over time BESS will earn more in energy-heavy applications like trading in the spot market, Preuss added.
In the GB market, operators believed that the Balancing Mechanism (BM) would help offset saturation of ancillary services, but BESS penetration of the BM was much slower than anticipated.
Alongside Man’s earlier points, Preuss said that other avenues will increase and diversify the revenue stack for energy storage in Germany.
Preuss: “There are many use cases for flexibility for storage that are today not even served yet. Aggregators and marketers of renewable power have two big challenges. One is operational, that every day their forecasts might differ from actual output leading to imbalance costs. There is also a decline in subsidy schemes and an increase in cannibalisation for the average price of PPAs, so it’s becoming more and more unattractive to sell conventional PPAs. Flexibility can reduce imbalance costs or hedge the PPA.”
Larger power users like industrials and data centres could use storage too through the platform, Preuss claimed.
