Energy storage is one of the key elements in advancing towards the energy transition. According to sector specialists, Europe is currently divided between mature markets and those where interest in the technology is starting to grow.

Italy has a significant photovoltaic and wind energy resource, but its geographical distribution makes the integration of renewable energy challenging. The obstacles to interconnection create difficulties for system management, which is why flexibility sources play an important role in renewable energy penetration.

In this context, Chema Zabala, Managing Director of Alantra Energy Transition, points out that there is “a lot of appetite for developing storage projects” in Italy, which could position itself as one of the mature markets, with 4 GW of installed capacity and an ambitious auction scheme plan.

“The storage flexibility needs are what have led Terna, the system operator, to launch the MACSE auction with a capacity of 70 GWh by 2030, which is very ambitious,” says Jose Manuel Menéndez, Energy Transition Advisory at Alantra, in a conversation with Energía Estratégica España.

The Italian market is developing the Storage Capacity Acquisition Mechanism (MACSE), a system based on competitive auctions. It is currently in the regulatory development phase, with the approval of the “Fabbisogni document” still pending, which defines the amount of electricity production capacity that can be allocated to each zone of the power grid, as defined by TERNA. According to Alantra Energy Transition, the first auction with this mechanism is expected to be launched in the first months of 2025.

Regarding the scheme, Menéndez explains: “What MACSE establishes is that, in the case of batteries, there will be a bidding process for a fixed payment per installed MWh of storage. It will be a competitive auction where you will receive the offered price for those 14 years with high certainty. Those projects awarded the MACSE for those 14 years will have around 80% of their revenues determined by the auction price. The rest, 20%, will be subject to some optimization in the merchant market.”

“Even if storage is awarded under MACSE, if it is very optimal in balancing services, it could capture some additional revenues, but it is always clear that 80% or 90% of the revenues will be secured. With that, we expect high leverage levels, which will allow developers to go for somewhat higher returns,” he adds.

He emphasizes that there is a very high appetite from developers and investors because of the merchant scheme, where you can benefit from capacity payments, and the short-term MACSE scheme, which will allow a guaranteed income for most of the project’s life cycle.

One point that the MACSE highlights is the geographical elements, as Terna, the system operator, expects to auction capacity mainly in Sicily and the southern region of Italy, which will greatly influence the competitiveness of the auction.

On her part, Elena Marabini, Energy Transition Analyst at Alantra, points out that the mechanism will be a very important measure for Italy and will help incentivize residential, commercial, and utility-scale systems, as “we really need to reach the European goals for 2030.”

One of the critical points in the Italian electricity system, according to Alantra consultants, is the development of the grid and interconnection between different zones.

“The most critical point is the development of the grid, if Terna can increase interconnection between the different areas of the Italian market. Because electricity is consumed mainly in the north, where the network’s electricity levels are higher, and consumption is higher due to the concentration of industry. So, I think the most critical part here is the interconnection between the different zones, rather than the development of renewables,” explains Elena.

“It shouldn’t go slow, because the permitting process for BESS (Battery Energy Storage Systems) is separate from renewables when they are standalone. So, there’s a guide and an opposed system, and it’s a simplified process, making it easier to get permits for batteries,” she adds.

FER Decree and Other Regulations

The Italian market is awaiting the definition of the MACSE regulation and the FER X decree, which are expected to develop in parallel, as BESS storage systems are needed to integrate renewable energy sources like wind and solar into the Italian electricity grid.

“In Italy, we have the MACSE system and the FER X system for renewables. What Italy wants to do is push for the development of renewables and add 62 GW of renewables to the grid by 2030,” explains Elena Marabini.

She notes that all projects can participate in the FER X system, but the difference lies in their size, as smaller projects can access it directly without an auction process, while medium and large projects must go through an auction process, which varies depending on the offers.

“There are two possibilities for remuneration for incentives. GSE, the market operator, will pay the auction remuneration for projects under 0.2 MW. GSE directly manages the sale of electricity and pays the auction remuneration with a comprehensive tariff, which is like participating in the market, but the entity will be the Manager of Energy Services,” explains the Alantra consultant.

For large projects above 0.2 MW, participants are free to operate in the market with their own strategies and optimize the use of the energy produced, as Elena explains.

“There’s a contract-for-difference mechanism for these types of plans. There’s a tariff, with assumptions of 85 EUR/MW for photovoltaic plants, 80 EUR/MW for wind, and 110 EUR/MW for hydropower, but these parameters could change according to the development of other national regulations like the agricultural decree or the suitable areas decree,” she adds.

In recent months, the Italian government has approved other regulations, such as the Agriculture decree and the Suitable Areas decree.

Marabini points out that one of the main limitations of the decree relates to the ‘inappropriate areas,’ those zones that are not suitable for renewable energy installations. These are areas subject to landscape limitations, extending up to 3 km for wind power plants and up to 500 meters for photovoltaic plants, extendable to 7 km, which significantly reduces the usable national territory for renewable energy development.

She emphasizes that this regulation is creating some doubts and blocks for both national and international investors, who are somewhat “scared of the development of these policies” because it leaves room for regions to define which areas can host renewable energy projects.

“The industry is a little scared of the fact that this decree could cause more and more delays. Also in the acquisition of the permitting process, which has been a known issue in Italy for a long time,” she adds.

Another change she points out is in the regulation of existing projects. It used to allow modifications, hybridizing with storage systems without needing permits. This allowed for more efficient improvement and expansion of system capacities.

Now the new regulation requires permits again, and according to Marabini, this will cause further delays in the development process.

“There’s a bit of contradiction between the upcoming FER-X decree and these other national decrees that try to block renewable energy development, especially in Sardinia. We can see that there’s now an ongoing moratorium, so the region doesn’t want more renewables, more storage systems, but this does not align with the European Union’s requirements,” she concludes.