Auxilium Infrastructure Partners’ perspective on what Germany’s saturation and grid-fee debate signals for BESS investment in DK1 and DK2
The most recent installment of Modo Energy’s Transmission podcast takes Germany as its subject: which battery revenue streams hold up, and which collapse, as they already have in Great Britain, Texas, and Australia. The natural reading, for a German developer, is a warning about timing. The more useful reading, for a Danish operator, is that Germany is the market we should be watching to understand our own next three years. The Danish question is rarely whether a structural shift will arrive. It is how far behind the larger merchant markets we sit, and what we do with the lead time.
The German signal, read plainly
Three points from the episode matter for us. First, saturation is no longer a forecast in Germany — frequency containment reserve is already saturated, and automatic frequency restoration is close behind. Second, the headline two-hour revenues of roughly €200,000/MW/year are a function of timing rather than a durable structure: they reflect a window before fleet growth erodes the margin, not a stable equilibrium. Third, the long-running grid-fee uncertainty has resolved in close to the best-case scenario for batteries. The regulator confirmed modest capacity-based fees in the region of €4–7,000/MW/year, with the transmission operators’ earlier proposal of more than €50,000/MW/year taken off the table, and signaled dynamic, locational fees as the future direction. For an unconstrained asset, the confirmed fee is a low single-digit share of annual revenue. The risk that frightened investors and stalled German final investment decisions has largely passed — but the saturation it distracted from has not.
Why is this a Danish preview, not a German story?
The temptation is to treat Germany as a separate market with its own rules. The mechanism, however, is the same one already visible in DK1 and DK2. FCR compresses first because it is shallow and fills quickly; aFRR follows as prequalified capacity overtakes a roughly flat demand for it; arbitrage then becomes the load-bearing revenue stream, whether or not the asset was designed for it. Denmark is smaller and currently less saturated than Germany, which is precisely the point. It means we can see the sequence play out in a larger, faster market and underwrite it before it arrives, rather than discovering it in a portfolio already committed to the wrong configuration. An operator who treats Germany’s present as Denmark’s near future is underwriting with foresight. One who treats Danish FCR depth today as a durable revenue base is underwriting with a rear-view mirror.
What are the leading indicator changes in project design?
If ancillary revenue is a window rather than a foundation, three design choices follow, and they are choices we have been making.
The first is duration. Modo’s own modelling shows four-hour systems out-earning two-hour systems on a lifetime IRR basis despite materially higher capex, precisely because the value migrates to energy arbitrage as reserves saturate. The asset has to be built for where the revenue is going, not where it is.
The second is the move from capacity products to energy-volume products and liquid intraday markets. Germany’s intraday market is the most liquid in Europe, and the price spikes that batteries feed on are a structural feature of a high-renewables, fifteen-minute-settled system. DK1 and DK2 are traveling the same road — fifteen-minute resolution, deficit-zone pricing in DK2, and an intraday and balancing market where volatility, not reserve scarcity, becomes the prize. Designing for that means EMS and trading capability as a baseline requirement rather than a differentiator.
The third is the connection agreement itself. Flexible connection terms — ramp-rate limits, export caps, curtailment exposure — are quietly reshaping returns in Germany, and the same locational logic is arriving in Denmark through grid-fee reform and serial operator metering. Where an asset connects and on what terms are becoming revenue variables rather than engineering footnotes. The right site behind the right connection can carry locational value that a nominally identical asset elsewhere cannot.
The AIP position
We have deliberately built against the single-product, FCR-anchored model that the German market is now living through in real time. Our pipeline is weighted toward longer-duration, multi-market assets, integrated trading and aggregation across FCR, aFRR, mFRR and arbitrage, and hybrid and behind-the-meter configurations that capture locational and energy-volume value rather than reserve scarcity alone. The German episode is not a reason for Danish operators to be cautious. It is a reason to be specific — about duration, about market access, and about where and how an asset connects. The lead time is an advantage. The question is only whether it is used.
At Auxilium Infrastructure Partners, we continuously engage with these dynamics in both development and operations across DK1 and DK2. We are always interested in discussing our perspective with investors and partners navigating this transition.