Navigating the Energy Transition: Strategic Investments in Fossil-Fuel Backup and Storage Amid European Market Volatility

The European energy transition, once hailed as a blueprint for decarbonization, is now grappling with a paradox: the very renewables driving the shift are destabilizing markets. In Germany, plunging wind output in 2025 has forced a resurgence in fossil fuel use, pushing electricity prices to multi-year highs and exposing critical gaps in energy storage and flexibility. For investors, this volatility underscores a pivotal opportunity: strategic investments in fossil-fuel backup and energy storage solutions to stabilize supply chains and hedge against price shocks.

The Crisis of Renewable Intermittency

Germany’s wind energy output plummeted by 31% in 2025 compared to 2024, its lowest since 2017, due to historically weak wind speeds [1]. This decline reduced the share of renewables in electricity consumption to 54.5% in the first half of 2025, with onshore and offshore wind volumes dropping by 18.3% and 17.0%, respectively [2]. The shortfall forced a 10% increase in fossil fuel-based generation, with coal-fired plants producing 40 terawatt-hours (TWh) in the first four months of 2025—a 16% annual increase and the highest since 2023 [1]. Gas-fired generation, though down 9% due to high prices, saw a 79% surge in November 2024 alone as wind output fell by 25% [3].

This volatility has pushed Germany’s electricity prices to record levels. In Q1 2025, average daily price volatility reached 56.39 EUR/MWh, driven by oversupply during peak renewable output and inflexible conventional generation [4]. Negative prices, occurring when renewables exceed demand, now account for 5% of trading hours—up from 3% in 2024 [5].

Fossil Fuel Resurgence and Market Implications

The resurgence of coal and gas has reignited concerns about Germany’s climate goals. Coal’s 40 TWh contribution in early 2025 alone increased carbon emissions by 9% year-to-date, pushing the electricity sector’s CO₂ output to 297 million tons [6]. Meanwhile, gas prices remain tethered to the merit-order principle, where the most expensive (gas-fired) power sets the price for all electricity. With gas prices still elevated, this mechanism ensures high electricity prices persist, even as renewables expand [7].

Investors must recognize that fossil fuels are not merely a temporary fix but a transitional necessity. Germany’s 25 GW of fossil fuel backup capacity—7.5 GW fixed, 17.5 GW variable—is increasingly strained by renewable intermittency [8]. The government’s plan to auction hydrogen-fired plants further highlights the need for dispatchable resources to bridge gaps during “Dunkelflaute” (dark doldrums) periods of low wind and solar output [9].

Energy Storage: The Missing Link

Germany’s grid-scale battery energy storage system (BESS) capacity stands at 1.5 GW in 2025, with projections to reach 12 GW by 2030 [10]. This growth is driven by policy frameworks like the Electricity Storage Strategy and the country’s 80% renewables-by-2030 target. BESS operators are capitalizing on Germany’s volatile intraday markets, where arbitrage and ancillary services (e.g., frequency regulation) offer lucrative revenue streams [10].

However, even advanced storage cannot fully offset the intermittency of renewables. A 2025 study notes that Germany’s 82% renewable share now requires 70% fossil fuel backup during extended wind and solar lulls [8]. This “flexibility gap” demands a diversified approach: combining BESS with hydrogen storage, demand-side management, and AI-driven trading systems to optimize grid stability [11].

Strategic Investment Opportunities

1. Fossil-Fuel Backup Capacity:
2. Gas Turbines: General Electric’s dominance in the global gas turbine market (2016–2025) reflects growing demand for flexible, dispatchable power [12]. Investors should target companies supplying turbines and hydrogen-ready plants.

3. Coal-to-Hydrogen Transition: Germany’s 2025 auctions for hydrogen-fired plants signal a shift toward decarbonized fossil fuels. Early movers in blue hydrogen (CO₂ capture) and green hydrogen infrastructure stand to benefit.

4. Energy Storage Solutions:

5. Grid-Scale BESS: With 12 GW of projected capacity by 2030, Germany’s BESS market is set to grow at a 14.8% CAGR, reaching USD 97.2 billion by 2035 [13]. Firms specializing in lithium-ion and flow batteries, as well as AI-driven grid management, are prime targets.

6. Hydrogen Storage: Long-duration storage is critical for balancing seasonal renewable gaps. Investments in electrolyzer capacity and hydrogen transport networks align with Germany’s 2030 hydrogen strategy.

7. Market Design Innovations:

8. Dynamic Tariffs and AI Trading: Germany’s exploration of AI-powered trading systems and dynamic electricity tariffs offers opportunities for fintech and energy-tech firms to monetize renewable intermittency [11].

Conclusion

The European energy transition is at a crossroads. While renewables remain central to decarbonization, their intermittency has exposed vulnerabilities in grid stability and pricing. For investors, the path forward lies in strategic bets on fossil-fuel backup and energy storage solutions. By hedging against price shocks and ensuring reliable baseload power, these investments not only address immediate market needs but also align with long-term climate goals. As Germany’s experience shows, the future of energy is not a binary choice between renewables and fossils—it’s a hybrid system where flexibility and innovation reign supreme.

Source:
[1] Germany's clean energy output hits decade low in 2025 [https://www.energymonitor.ai/news/germany-clean-energy-sources-2025/]
[2] German renewable energy share is reduced by slow wind speeds [https://energynews.oedigital.com/renewable-energy/2025/07/15/german-renewable-energy-share-is-reduced-by-slow-wind-speeds]
[3] Germany's weak winds trigger record surge in gas-fired power [https://www.reuters.com/business/energy/germanys-weak-winds-trigger-record-surge-gas-fired-power-maguire-2024-12-04/]
[4] Renewable Energy and Price Stability [https://www.mdpi.com/2076-3417/15/12/6397]
[5] Prices – Electricity 2025 – Analysis - IEA [https://www.iea.org/reports/electricity-2025/prices]
[6] EU Increases Fossil Fuel Power Generation as Renewables Falter [https://energynewsbeat.co/eu-increases-fossil-fuel-power-generation-as-renewables-falter/]
[7] High electricity price despite expansion in renewables [https://www.sciencedirect.com/science/article/pii/S0301421524004683]
[8] Implications of Battery and Gas Storage for Germany's Energy Transition [https://www.mdpi.com/2071-1050/17/12/5295]
[9] War in Ukraine: Tracking the Impacts on German Energy and Climate Policy [https://www.cleanenergywire.org/news/ukraine-war-tracking-impacts-german-energy-and-climate-policy]
[10] Revenue potential in the German BESS market [https://www.rabobank.com/knowledge/d011485293-backup-power-for-europe-part-5-revenue-potential-in-the-german-bess-market]
[11] Energy market outlook – Europe and Germany [https://carlsquare.com/energy-and-power-market-outlook-2025/]
[12] Gas Turbine Statistics and Facts (2025) [https://www.news.market.us/gas-turbine-statistics/]
[13] Europe Renewable Energy Storage Market Size Analysis [https://www.prophecymarketinsights.com/market_insight/europe-renewable-energy-storage-market-5886]