Financing the flexibility race in South-East Europe: the merchant-vs-regulated storage showdown

South-East Europe’s battery storage build-out is accelerating, but the region’s biggest financial question is not technical—it is contractual. By 2026, the debate over whether Balkan BESS projects should operate as fully merchant assets exposed to market volatility, or instead depend on regulated support and contracted revenue mechanisms, is emerging as a defining factor for investment decisions across the energy transition.

Why storage economics now hinge on market design

Battery energy storage systems are no longer niche infrastructure. Across Serbia, Greece, Romania and Bulgaria—where gigawatt-scale pipelines are emerging as renewable penetration rises—storage is moving toward the center of power-system operation. Yet unlike traditional generation assets, storage economics remain tightly linked to how electricity markets are structured.

The financing framework selected today will influence which projects proceed, which types of investors gain influence in the market, and how quickly South-East Europe can develop a flexibility economy that can reliably monetize balancing needs created by renewables.

The merchant case: volatility as an opportunity

Supporters of merchant BESS argue that volatility itself is increasing. As solar deployment accelerates in Greece and Bulgaria, midday prices weaken during high-irradiation periods. In Serbia and Romania, wind generation can create sudden balancing swings. Cross-border congestion also intensifies during synchronized renewable events—widening the spread between low-price and high-price hours. In this environment, batteries can monetize intraday price movements and system needs.

A merchant battery can absorb cheaper electricity during oversupplied periods and discharge during balancing shortages or evening peaks. Revenue streams typically come from arbitrage plus participation in ancillary services, balancing markets and congestion management rather than from fixed tariffs or capacity-style payments.

Commodity traders, infrastructure funds and some utilities increasingly favor this model in SEE markets because they expect volatility to deepen as renewables grow—making flexibility more valuable over time. They view batteries less as quasi-regulated utility assets and more as active trading infrastructure.

Serbia and Greece as key test beds

Serbia stands out as an important proving ground for the merchant thesis. EMS agreements linked to roughly 4.54 GWh of planned storage suggest the market is preparing for structurally higher volatility. Wind growth in Vojvodina, expanding solar pipelines and Serbia’s central transmission position between Central Europe and the Balkans are cited as factors that could allow batteries to capture intraday and balancing value.

For aggressive investors, that potential translates into a “physical trading desk” concept: a well-located battery near congestion zones or renewable clusters could arbitrage volatility, support balancing and optimize renewable output dynamically if volatility continues to rise.

Greece reinforces the same logic through its solar-heavy profile. Widening intraday spreads emerge because midday solar oversupply weakens prices while evening balancing demand creates sharp ramps—conditions batteries can use to convert timing mismatches into tradable value. This has helped attract more merchant-oriented capital into Greece’s storage market.

Romania’s mix of risks—and opportunities

Romania presents a different balance of drivers. With nuclear baseload alongside hydropower and wind—and future offshore wind development—the country faces multiple layers of volatility and balancing opportunity. Batteries connected near strategic interconnectors toward Hungary, Serbia and Bulgaria may also benefit from congestion management and cross-border optimization.

Still, the merchant case depends on one core assumption: that volatility will keep increasing faster than markets become saturated.

Why lenders hesitate: uncertainty versus bankability

Despite growing interest in merchant models, many lenders remain cautious. Traditional project finance tends to favor predictable revenue streams; historically, wind and solar projects have relied on feed-in tariffs, contracts for difference or long-term PPAs because lenders wanted visibility into cash flows.

Merchant batteries differ because their returns depend on uncertain future spreads between price hours, balancing outcomes and broader market conditions. That creates financing tension: infrastructure funds and trading-oriented investors may accept merchant exposure if they believe flexibility scarcity will rise, while commercial banks and conservative lenders often prefer partially contracted structures that reduce volatility risk.

The regulated-storage argument: preventing underinvestment

This is where regulated or semi-regulated storage models enter the debate. Under these structures, batteries receive some form of stable revenue support—such as capacity payments; ancillary-service contracts; TSO-backed procurement frameworks; or hybrid revenue guarantees—on the premise that storage delivers system stability benefits that are difficult to monetize fully through purely merchant revenues.

Supporters warn that without clearer long-term revenue certainty, SEE markets may underbuild storage precisely when renewable-driven volatility is accelerating.

Market maturity still uneven across SEE

A key constraint cited for pure merchant exposure is that South-East Europe still lacks fully mature balancing architecture. Intraday liquidity remains uneven; ancillary-service frameworks differ by country; TSO coordination is incomplete; revenue stacking can be unclear; and grid fees plus charging rules can materially affect project economics.

Against this backdrop, investors face a structural choice about what batteries should represent in each national system: infrastructure-like assets supporting stability or market-trading instruments monetizing volatility.

Europe offers examples—but SEE must decide under tighter conditions

The UK and parts of Germany have seen aggressive merchant battery deployment driven by balancing needs and intraday spreads. Other markets lean more heavily toward capacity mechanisms or regulated support structures. SEE now confronts a similar decision but with more fragile market conditions.

The outcome may differ by country: Greece’s volatility profile increasingly supports merchant economics due to already-large solar-driven spreads; Serbia may initially require hybrid frameworks while balancing markets mature; Romania’s diversified system could support mixed structures combining merchant optimization with ancillary-service contracts.

A likely compromise: hybrid revenue models

The strategic implication is substantial either way. Overreliance on regulated support could slow deployment while making storage more utility-centered; moving too quickly toward fully merchant models could keep financing costs high and lead to uneven build-out across regions.

An approach gaining traction among investors is hybridization—mixing merchant arbitrage with contracted balancing or ancillary-service components to reduce financing risk while preserving upside tied to expected volatility growth.

This logic also extends to hybrid renewable-storage platforms described in the article: solar-plus-storage portfolios can combine contracted renewable revenues with merchant battery optimization, while wind-storage portfolios can reduce imbalance costs while participating in balancing markets simultaneously—improving bankability compared with standalone merchant batteries.

Geography matters as much as rules

The financing debate also turns on where projects connect within regional networks. The Trans-Balkan Corridor linking Greece–Bulgaria—and wider SEE interconnections—can determine where storage becomes most valuable. A battery located near a strategic congestion node or interconnector may generate substantially higher revenues than a poorly positioned asset because it can monetize regional balancing spreads more effectively.

Hydropower adds layered flexibility

The article also points to hydropower as another variable shaping how much regulatory support may be needed in practice. Albania, Montenegro and Romania already have substantial reservoir-based flexibility through hydro systems. Batteries may complement rather than replace hydro balancing: together they can form layered flexibility systems where hydro manages longer-duration needs while batteries capture shorter-duration volatility—potentially reducing reliance on heavy regulated storage support in some markets where flexibility becomes structurally monetizable.

The risk ahead: not demand shortfalls but monetization clarity

The Energy Community’s latest data underscores how structural pressures are reshaping regional electricity economics: Q1 2026 saw commercial electricity exchanges between the EU and Western Balkans fall significantly despite substantial price differences, reflecting how carbon exposure, congestion constraints and balancing limits increasingly influence market behavior. The article argues this trend likely strengthens the case for storage as renewables rise further and cross-border flows become more volatile.

Yet it highlights that uncertainty around long-term revenue monetization remains a central risk for SEE markets—not insufficient demand for flexibility itself. Without clearer frameworks for how storage revenues will be realized over time, investors may hesitate even when the region most urgently needs new flexibility infrastructure.

Battery systems are therefore being positioned not merely as tools supporting renewables but as core market infrastructure determining whether renewable-heavy electricity systems remain stable, tradable and commercially functional—and whether South-East Europe’s entire electricity-market evolution over the next decade proceeds smoothly or stalls under financing uncertainty.Elevated by virt u.energy