Europe Mandates Grid-Forming for New Energy Storage >1MW

The European Network of Transmission System Operators for Electricity (ENTSO-E) has released a 79-page Phase 2 report on grid-forming technical requirements, specifying that power-generating modules, including inverter-based energy storage systems, will be required to have grid-stabilizing capabilities. This report represents a key revision for the upcoming update to the Network Code on Requirements for Generators (NC RfG 2.0) and will impose binding grid-forming obligations on new energy storage projects and renewable energy power plants exceeding 1MW. Crucially, this requirement applies only to new grid-connected projects and major retrofits of existing facilities. Once the European Commission adopts the report in finalizing NC RfG 2.0, ENTSO-E will promptly issue an Implementation Guidance Document (IGD) to support national regulatory authorities and grid operators. Each country will then implement the regulations according to its own procedures and timeline.

For battery energy storage developers, the implications are immediate. The report formally specifies that energy storage systems and their associated Power Conversion Systems (PCS) must, through grid-forming inverter functionality, deliver voltage control, inertial response, and frequency regulation comparable to synchronous generators, and must maintain these functions during grid disturbances. Unlike grid-following inverters, which merely track the grid's state, grid-forming equipment must proactively create the grid's operating conditions. Furthermore, as EU member states roll out these new rules, transition periods may be established to ensure a smooth implementation, allowing both industry expertise and the technology itself to evolve in step with regulatory requirements.

The report's technical definition of energy storage systems as virtual generators provides clear guidance for the industry: these systems must maintain voltage stability during grid frequency or phase shifts, provide reactive current almost instantaneously, and sustain synchronous operation without an external reference. Compliance testing will verify whether an energy storage plant can remain stable and connected to the grid during voltage dips, step changes, and phase angle jumps. The report stipulates a current response time of less than 10 milliseconds and a power oscillation damping ratio of at least 5%. These requirements are technology-agnostic, but ENTSO-E has set maximum impedance values and will raise the standards for requirements beyond droop control and frequency-power functions.

The new regulations may favor technological solutions capable of rapid bidirectional power changes—a profile well-suited to high C-rate lithium-based batteries and more modular power converters, which could also benefit DC-coupled hybrid systems. However, battery technology is evolving quickly. ENTSO-E has also adopted the definition of virtual inertia, using mechanical starting time as the compliance metric—a value calculated via a specific formula, comparable to the inertia constant of a synchronous generator. For energy storage systems, this requires reserving sufficient energy to provide millisecond-level frequency support, though as grid operators have noted, the specific reserve capacity will depend on multiple factors.

Next Steps

The Phase 2 report is a significant step in the EU's standard grid code development process. While not yet binding, its framework is largely established. The standard builds on related progress and project experience in the United Kingdom and Australia, which have already demonstrated that grid-forming battery energy storage systems can significantly enhance system strength. The next step, once NC RfG 2.0 is adopted, is that these standards will be integrated into national grid codes via regulatory approvals and grid operator frameworks. As previously mentioned, depending on the type of power plant, some requirements may be subject to transitional arrangements.

Impact Analysis

🔄 Profound Changes in the Value Chain and Business Models

• Value Chain Restructuring: The policy will shift the industry's value proposition from batteries toward the PCS and system integration segments. In the past, the industry concentrated heavily on battery capacity, cost, and lifespan; in the future, the grid-forming performance of the PCS will be the key determinant of a system's value and competitiveness. System integrators will need to develop a deep understanding of grid operational needs and tightly integrate the PCS, batteries, and Energy Management System (EMS) to unlock the full potential of grid-forming energy storage.
• Emergence of New Business Models: Grid-forming energy storage is no longer just a "power bank" but is evolving into a "grid stabilizer." This means its revenue streams will become more diversified. In addition to traditional peak-valley arbitrage, it can generate income by providing grid ancillary services such as inertial support, voltage regulation, and black start capabilities. In pioneering markets like Australia, grid companies have already begun directly procuring these services, providing projects with stable and predictable revenue from sources outside traditional energy markets.

🛠️ The Path Forward for Companies

In the face of this industry transformation, energy storage companies need to respond proactively:

• Technology: Companies must increase R&D investment in advanced grid-forming PCS, focusing on their stable operation under very weak grid conditions, wide-band oscillation suppression, and rapid response capabilities. Concurrently, they should explore the synergistic design of batteries and PCS to optimize battery C-rate performance and cycle life to support the high-intensity, rapid charge-discharge cycles required for grid-forming functions.
• Industry Collaboration: Battery companies, PCS manufacturers, system integrators, and even grid operators need to collaborate more closely to jointly build technical standards and an industrial ecosystem centered on grid-forming capabilities.
• Market Strategy: Companies can prioritize deployment and demonstration projects in regional markets with clear policy direction, such as Europe, Australia, and China's large-scale renewable energy hubs, to accumulate engineering experience and establish benchmark cases.

Some representative companies include CNCOB Sungrow, GoodWe, CATL, Kehua Data, NARI-RELAYS, GreenVoltis, and Konflux Kapital International (KKI), among others.