Announced German offtake agreements have fixed 70-100% of capacity to a toll. Why so high?

Germany has one of the most attractive merchant cases in Europe. In 2025, day-ahead spreads averaged €85k/MW/year for a 2-hour battery - 85% above Great Britain.

But with no capacity market and no fixed revenue streams until this year, the volatile merchant cash flows are difficult to finance with debt.

Tolling solves this.

Fixing revenue unlocks more debt at cheaper rates, and this leverage often outweighs merchant upside potential.

This research explores:

• The tolling price level where leverage beats lost merchant upside
• How tolls convert volatile merchant revenue into bankable cashflow
• The value of flexibility to offtakers beyond merchant exposure

This analysis uses 2-hour tolls to demonstrate the impact of securing fixed revenues. But longer duration appetite is increasing as economics shift towards 4-hour systems.

Have questions on this topic? Contact the author at zach.williams@modoenergy.com

Model tolling structures with the calculator

Adjusting tolled share, toll price and gearing shows how each variable affects bankability and equity returns.

Above €100k, tolling beats merchant returns

The impact of fixing revenue on returns depends on the toll price.

At toll prices under €95k/MW/year, returns fall as more revenue is fixed. Merchant is the more lucrative structure.

At €100-110k/MW/year, returns rise with tolled percentage, and the curves steepen as projects unlock more leverage.

Above €115/MW/year the curves flatten above 80-90% tolling - the project can't support more debt beyond this point.

This is why German deals cluster at 80-100% tolled. Beyond 80% returns plateau. The final 20% is a risk preference.

Why gearing matters: cheaper debt, higher returns

A battery project raises capital from two sources: debt (bank loans) and equity (the asset owner's capital). The ratio is called gearing: 75% gearing means 75% debt, 25% equity.

Debt is cheaper than equity. Banks charge 4–6% interest. Equity investors may target 12–18% returns.

The more debt in the structure, the less equity absorbing returns, and the higher the return on each euro of equity deployed.

Higher gearing also improves capital efficiency. A developer with €30m can build one 100 MW project at 50% gearing, or two at 75% gearing, diversifying across locations and markets.

How debt structures maximise leverage

Debt is sized over the full warranty period – typically 15–20 years, minus a safety buffer for overcycling. Spreading the debt across the full term minimises annual principal payments and maximises leverage.

But lenders prefer not to commit beyond seven years. After that, the loan matures and must be refinanced – a structure called a mini-perm. Technology evolves, markets shift, and lenders want their exposure reduced before those risks compound.

This is why toll tenors cluster at 5–10 years, matching lender appetite. A 15-year toll would price in more uncertainty than lenders or offtakers want to carry; a 3-year toll wouldn't cover enough repayment to unlock meaningful leverage.

Lenders typically require at least 60% of the loan amount repaid by the seven-year maturity. The remaining 40% – called the balloon – is refinanced at that point.

This front-loads repayment. In year one, debt service is €63k/MW. By year seven, it falls to €52k/MW as the outstanding balance shrinks.

The toll locks in guaranteed cash flow when debt service is highest – providing a €40k/MW buffer throughout.

What happens when the toll expires

When the toll ends at year seven, the structure pays off. Debt service drops 42% – from €52k to €36k – because only the balloon remains, now spread over the remaining years.

The project shifts to merchant revenue, but the burden has already shrunk. Even low-case revenues of €61–74k/MW clear the reduced payments by 1.8x.

This alignment is what makes tolling bankable. Lenders retrieve most of their capital while cash flow is guaranteed. Sponsors retain merchant exposure for the remaining years, when debt service is lower and seven years of performance make refinancing straightforward.

Why merchant batteries can't reach the same high gearing

Modo Energy's sensitivity studies show merchant revenues can vary by €50–100k/MW/year between high- and low-case scenarios.

Lenders size debt to the downside; if merchant revenue could fall to €65k/MW/year, that's the number they use.