The M5BAT system will have a capacity of 5MW and combines a number of different technologies with the aim of optimising its performance, said E.on.
It uses high-output lithium ion batteries for short-duration discharge, high-temperature batteries for medium-duration discharge, and lead-acid batteries for short- and medium-duration discharge.
The project has been developed in order to aid better integration of renewable energy into the grid by storing energy during times of high production and releasing it when demand peaks, thereby smoothing supply.
"The growth of renewables in Germany is making smart grids and large-scale energy storage technologies increasingly important," said Leonard Birnbaum E.on's director of technology.
"Battery storage systems are particularly interesting because, unlike compressed-air storage or pumped-storage hydro, they aren't subject to narrow geographic constraints and don't require long planning cycles."
Working alongside the E.on Energy Research Centre at Aachen University are battery manufacturers Exide Technologies and Beta-Motion, and inverter manufacturer SMA Technology.
Construction is expected to begin in the third quarter of 2014, with a utility-scale storage system due to enter service in 2015.
The project has received EUR 6.5 million in funding from Germany's economic affairs and energy ministry.
In August last year, German utuility E.on started operating its power-to-gas unit in Falkenhagen, in the state of Brandenburg in eastern Germany, which is aimed at capturing wind power when the local grid is congested.
The unit uses wind power to run electrolysis equipment that transforms water into hydrogen. This is then injected into the regional gas transmission system as part of the natural gas mix.
Separately, Areva and Schneider Electric have teamed up to work on the development of a hydrogen fuel-cell energy storage system to compliment renewable energy generation.
Under the agreement, the companies will work together to propose and design new systems to smooth the power from wind and solar.
The system will be based on Areva's existing Greenergy Box, which can store energy through hydrogen- and oxygen-generating electrolysis.