IN-DEPTH GUIDE · BESS
BESS economics — returns, CapEx and revenue model
Battery Energy Storage Systems (BESS) have become one of the most attractive green energy investments in Denmark. Here we walk through the economics of a typical 55 MW / 110 MWh case: CapEx structure, revenue model, IRR and the tax treatment of dividends for Danish holding companies.
Why BESS now?
Denmark has the highest renewable share of electricity generation in the EU and faces growing demand for short-term grid stabilisation. With the phase-out of coal plants and rising wind/solar generation, BESS has become critical infrastructure for Energinet. At the same time, under ordinary Danish corporate-tax rules, dividends to a Danish holding company on subsidiary shares (min. 10 % ownership, no holding-period requirement) are tax-free — strengthening the return profile significantly.
CapEx structure for 55 MW / 110 MWh facility
| Component | % of CapEx | Amount (DKK m) |
|---|---|---|
| Battery cells + BMS | 45 % | 180 |
| Power Conversion System (inverter/transformer) | 18 % | 72 |
| Grid connection and substation | 12 % | 48 |
| Civil works and site | 10 % | 40 |
| EPC costs | 8 % | 32 |
| Control, software, security | 4 % | 16 |
| Permits, DD, advisory | 3 % | 12 |
| Total CapEx | 100 % | 400 |
Revenue model
1. Frequency Containment Reserve (FCR)
Fast response (seconds) to stabilise grid frequency. Main revenue source for large BESS. Paid via Energinet's capacity and activation markets. Estimated 50-60 % of total revenue.
2. Automatic Frequency Restoration Reserve (aFRR)
Secondary regulation (minutes). Complements FCR and can be activated simultaneously. Estimated 20-30 % of revenue.
3. Spot arbitrage and capacity market
Charge when power is cheap (e.g. night with high wind), discharge at peak hours. Variable but growing revenue stream with more wind in the grid. Estimated 10-20 % of revenue.
Annual revenue and cash flow
| Line item | Amount (DKK m/year) |
|---|---|
| Gross revenue (FCR + aFRR + spot) | 100 |
| O&M and service contracts | -22 |
| Grid tariffs and other OpEx | -12 |
| Insurance and administration | -6 |
| EBITDA | 60 |
Indicative figures for a strong Nordic case — highly sensitive to market saturation. FCR/aFRR prices can fall as more BESS come online, and revenue in a specific case may differ materially.
Returns and IRR
With CapEx of DKK 400m and a market-dependent EBITDA of roughly DKK 60m/year, indicative returns are as follows. Figures are before financing, depreciation and tax — and assume FCR/aFRR prices roughly at 2024/2025 levels. Market prices may decline as more BESS come online, which is addressed with diversified market access and long-term capacity agreements where possible.
- Yield on Cost: approx. 15 % (unlevered, EBITDA / CapEx, indicative and market-dependent)
- IRR over 15 years (pre-tax): 12-16 % depending on gearing and market development
- IRR over 15 years (post-tax, with holding company structure): 10-14 %
- Payback period: 6-8 years depending on financing
For institutional investors, BESS is particularly attractive because it combines high IRR with ESG profile (SFDR-9 compatible in most structures). See our SFDR guide.
Risks
- Market risk: FCR/aFRR prices may fall as more BESS come online
- Technology risk: Battery degradation (typically 2-3 % per year)
- Regulation: Changes in grid tariffs and market access
- Technical: Large BESS is relatively new — O&M and insurance critical
- Financing: Gearing typically 60-70 % — interest rate exposure
Discuss a BESS case
Professional investor interested in BESS? Or owner of a BESS project seeking capital? Contact us.