In December 2023, the EU greenlit Italy's energy storage program, earmarking a hefty investment of €17.7 billion. This initiative is anticipated to facilitate the construction of over 9GW/71GWh of energy storage systems (ESS). Contact online >>
In December 2023, the EU greenlit Italy''s energy storage program, earmarking a hefty investment of €17.7 billion. This initiative is anticipated to facilitate the construction of over 9GW/71GWh of energy storage systems (ESS).
Italy will promote investments in utility scale electricity storage to reach at least 70 GWh, and worth over Euro 17 bn, in the next ten years. The new storage capacity will be acquired through tenders published by Terna, the manager of Italy''s high voltage grid. The next tender will be released in 2024.
Italy''s NECP targets between 7.5 GW and 8.5 GW of energy storage by 2030, of which 4.5 GW is expected to come from customer-sited storage systems.24 The remaining 3–4 GW is expected to come from utility-scale systems. By 2050, Italy aims to achieve 30-40 GW of storage capacity.
The Italian energy storage market is pivoting towards the utility-scale segment significantly, evident from the recent investment trends. Several gigawatts plus pipelines have emerged as a result, starting with Enel, which secured a contract from Terna in early 2022 to provide 1.6GW/6.6GWh of storage capacity slated to come online in 2024 (PV
The hybrid energy storage system will be deployed in 500-meter-deep mine shafts at a former coal mine. In another development, Renewable Power Capital and Altea Green Power had entered into a partnership to develop 1GW of battery energy storage in Italy. Other significant developments in the Italian storage market in the last year included:
The pickup in momentum in energy transition, revolving around a more than 3x growth in installed solar and wind capacities over the next 6-7 years, is likely to trigger further development of the energy storage market. The latter has been skewed towards residential rooftop solar-linked battery energy storage systems ("BESS"), and the market structure is expected to undergo a paradigm shift towards utility-scale storage.
Source: IMF, Fred Economic Data, S&P Global, Energy Storage News, Digital Object Identifier, The Energy Institute For pumped hydro storage: (Politecnico di Milano, 2018)
Italy''s grid capacity constraint has been a concern for the renewable power generation pipeline. Steps are underway to expand the capacity. Without systems to absorb the energy injected, the power market prices across Italy''s regional market zones may diverge to reflect the grid constraints (Reuters, 2023). Storage also assumes a critical role in capturing prices from high-demand conditions. In July 2023, Italy had the most significant increase in electricity demand on the grid due to prevalent high temperatures (REVE, 2023).
While the energy storage market has traditionally remained skewed towards the residential rooftop segment, there is growing evidence of a larger share of grid-scale capacity in new installations coming online.
Italy has ascended to a leading position among energy storage markets in Europe in the last twelve months and is currently considered a top investment destination along with the UK. There has been a marked shift towards utility-scale installations as electricity market rules were tweaked to accommodate battery storage operators. The transition commenced in early 2022 through Legislative Decree No. 210/2021, which allowed transmission system operator (TSO) Terna to procure new energy storage capacity in advance (Energy Storage News, 2023).
In February 2022, Terna awarded a 1GW capacity contract to Enel. This was followed by a more robust showing in the capacity auctions held in late 2022, where storage projects secured over 30% of the total capacity allocated, amounting to 1,121MW (E3 Analytics, 2023). The steep decline in battery costs has helped rationalise energy storage capex, making projects competitive in auctions. In June 2023, the regulator ARERA approved new criteria and conditions for large-scale energy storage capacity auctions to be run by Terna (Energy Storage News, 2023).
The development of the energy storage market in Italy has diverged from that of its British or German counterparts. While ancillary services represent a vital constituent of the revenue stack for energy storage projects elsewhere in Europe, the capacity market (15-year contracts), along with energy arbitrage, has driven the growth of the Italian market. The last fast reserve auction was held in late 2020 and saw 250MW of BESS projects on 5-year contracts being awarded to Enel and Engie, with projects slated to come online in 2023-27.
The revenue stack would also depend on geographic parameters as those located in the South, in conjunction with the bulk of the solar PV pipeline, would focus on load shifting while the ones in the North focus on grid balancing services. Consequently, Italy is poised to move to medium discharge durations of 4-8 hours, faster than the UK or German markets at similar points of the market trajectory. Terna envisions a requirement of 9GW of battery storage, having a long duration of 8 hours or more by 2030 (LinkedIn Pulse, 2023).
The scope of battery-based storage in the power market could be widened in the near term, with a pilot project underway on the first distribution network-based flexibility market. As of September 2023, the Italian Distribution System Operator (DSO) E-Distribuzione was in the process of executing a pilot on the flexibility market (in partnership with platform provider Piclo) to test ancillary service procurement (Smart Energy, 2023).
The recent spate of investment announcements follows from the previous year when the likes of Innovo Group and Aquila Capital made significant investment commitments in the Italian energy storage sector. In November 2022, the newly launched Innovo Energy announced targeting a 1.5GW/9GWh Li-ion BESS portfolio in the UK and Italy. Spain-based Powertis partnered with German investment firm Aquila Capital to co-develop 421MW solar PV and 90MW energy storage projects in Italy in January 2022 (PV Tech, 2022).
The project pipeline attests to Italy''s growing stature in the European energy storage market. As per Terna''s technological evaluation, Li-ion-based BESS and pumped hydroenergy storage (PHES) are the preferred storage technologies to be leveraged to reach the target capacity of 71GWh by 2030 (Energy Storage News, 2023). Volatility in wholesale gas prices and rapidly declining storage costs have provided an impetus to adding energy storage capacity, even though the former has eased considerably from its 2022 peak.
Broadening the revenue stack for battery project developers has been a critical objective of policymaking in Italy. As per Milan-based MBS Consultancy, an estimated 60-65% of a battery project''s capex is recovered by trading in the spot market, while the remaining 35-40% is sourced from ancillary services (LinkedIn Pulse, 2023). The recent uptick in capex costs has dampened investor enthusiasm, but Italian policymakers have been quick to reiterate their long-term commitment towards energy storage.
A minor slowdown in capacity addition is expected as the Superbonus incentive is progressively phased out. Still, the impact is likely to be limited to the residential and commercial & industrial (C&I) segments. This will be more than offset by the continued growth in the utility-scale segment. Overall, the fundamentals of the Italian energy storage market are robust enough to support the projection of Italy becoming Europe’s third-largest energy storage market by 2030 when the share of renewables in the country''s energy mix reaches 65% (Energy Storage News, 2023).
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