‘Italy is a natural market for batteries’: Greenvolt Power on its MACSE-winning project

Energy-Storage.news: Talk us through how Greenvolt approached the MACSE auction and the Italian market?

Antonio Montoto Rojo: We were aware the price was going to be low, and our analysis was close to the final results. 

There were a few factors that would condition the results. Some companies have a lot of projects concentrated in it, we expected this would work to reduce the price as people tried to capture the volumes. Greenvolt only presented one project and we obtained a contract for its whole capacity. 

Our strategy is to work in a global way in terms of procurement and in auctions, where being competitive is critical. We are working in several European markets, trying to make a good global price for the product and having tools to decide internally what is the best price locally too. 

One of our partners asked if the capex for the Italy project is achievable, as some BESS players in the auction with a lot of experience didn’t win contracts. It’s important to emphasise the local team you have, as that gives you an understanding of the local dynamics and companies. Most companies who were from outside didn’t have all those details, which gives you the ability to read between the lines. 

Why do you think lots of people were taken by surprise regarding the final prices that came out of the auction? 

First thing to say is that the auction conditions are very interesting in that they give you bankable and fully insured projects in terms of the revenues. But the auction wasn’t one that was appropriate for ambitious, high-profitability objectives. It’s more about having an asset that will be reliable in terms of operations in the long-term. 

But after MACSE’s 17 years [ends], there are a few years of merchant, so you need an understanding of other revenues, and a good relationship with suppliers, to make some more profits after the contract ends. 

It was really important to have one project in Italy. It’s a message that we are betting to be seriously a long-term player in the BESS market. 

A lot of people have talked about the strict operational requirements, can you talk a little about that? 

It’s not necessarily strict, but it is very clear. Also, it is one of the first auctions I’ve seen where the parameters are basically in the megawatt hours (MWh) and not in the megawatts (MW). 

Because of the way it’s structured, for 4-hour systems MACSE is in effect in competition with other revenue streams, while for 8-hour ones it’s a very singular opportunity to start a project. 

I think Terna and ARERA did a good job in aligning the penalties with what the system can provide. The risk of not aligning with those is low, the operational conditions are reasonable, but we obviously still need to take care. 

In our case, we decided to just go all in on MACSE because our project size of 75MW, that relatively limits the ability to stack revenues, based on our analysis. 

I think most players also bid all of the projects’ capacity into the auction. Some projects only won part of their capacity bid in, but I’m not aware of projects that planned. There might be, but I’m not aware of them. 

But, you need to manage correctly the project construction and costs. We didn’t use any incredible ambitious numbers in the capex. We never use the lowest potential capex we can achieve, we always have a margin. There could be risks in taxes, logistics, raw materials, you can’t go to the lowest scenario. 

In our scenario, the revenues are acceptable for us in these conditions and in this context. 

What kind of optimisation is needed for a MACSE project, how exactly does it work? Are you just handing over control to Terna?

Terna is creating a unit to manage all these MACSE contracts but they also need aggregators as they don’t want to have public direct management of the facilities. They want to cover the needs for the electricity, you need to manage the electricity system world in the best way. 

You need to implement a serious asset management strategy according to the commands you get from Terna.

And there is a variable part of MACSE, which is the secondary market, the balancing market. In this part, you need to do your best capturing this variable revenue.

If you have a 2-hour project, there’s a variety in the number of cycles you would do. With an 8-hour system, you can do 1-1.2 cycles a day maximum because there just aren’t that many hours in the day, so the extra revenues are not so dynamic. It’s bulk energy management. 

We will need to have strict rules, and have traders in the conventional way as with merchant. But we effectively have a power purchase agreement (PPA) contract, which we need to follow. You have a requirement of one cycle per day in the energy market as part of MACSE. You need to follow this. 

It’s not really a tolling agreement, but it’s the same philosophy, as it caps the maximum revenues you can achieve by making you follow its prescriptions. It’s not clear yet how high the revenues could be in the merchant space, but the revenues would not be competitive for an 8-hour solution. You’d really need to justify an 8-hour solution in the merchant market, maybe with lots of agreements with PV projects. In this sense, the MACSE mechanism is a smart way for solving the imbalance. 

The project has a 75MW capacity contract. The contract levelises the capacity according to some conditions, it’s about 70MW for charging from the grid and 62MW charging to the grid. The project is 600MWh. 

What about the IRR you are targeting? 

I can’t give a number but it is according to our strategic plan, this market entry is not a shift in our policy. 

Can you talk me through your choice in supplier and EPCs for the project? 

One advantage is we have a local team that has done projects in mainly PV and wind, but also our main people in Iberia and Warsaw who have experience in other Italian companies. So we dont arrive from scratch, we have good knowledge of the local partners we can use, so we can manage numbers with lower risk than companies who come from scratch. 

At the end, you need to manage this budget. But in general, the battery price has been reducing a lot in the last 3 years. In fact, from the first moment MACSE started to be published to today, there was a further variation in the price but also increasingly dynamic changes on the integration technologies and performance. 

We have solid partners and we will announce them in the next weeks. 

For the Italy project, will you take it into operation yourself or sell it at a later stage? In Poland, for the projects you won capacity market (CM) contracts for you’ve sold some of them but are taking some of them into operation yourself. 

Sometimes we sell previous to construction but we still build the project ourselves. We are working to have the Italy project built by Greenvolt, we select all the suppliers for the projects. We’re doing that in Poland too, whether we’ve sold the project or not. 

The commercial office decides if, at a particular point in time, it makes sense to sell.

But the default operation and philosophy is to build and operate the project ourselves, this is the best way to make a project profitable for other parties. All the business case is done considering the full lifetime of a project.

So selling is more of an opportunistic option? 

Yep, the company decides based on the asset value, but it’s another team, separate from me, that decides. And that set-up is better for my own health! 

Can you talk about Italy as a market in terms of developing projects and the grid? 

Italy and the UK are two countries where they’ve made the more serious efforts to include BESS from the beginning. Its ultra-fast response auction was also very interesting and now also with this MACSE mechanism. But there is a very interesting merchant market too, especially at the medium-voltage level. Many operators from Europe and UK are moving fast into Italy. 

The market is solid. The most important thing is that there is a real need for storage in Italy, because of the electrical topology of asymmetric production and consumption in the South and North, and the diversity of energies Italy wants to achieve in the next 20 years, makes batteries very important. It is not an artificial support, it is a natural market for batteries. 

For us it is top 3-4 market in Europe. There is a diversity of opportunities, both public and private in Italy, it makes you more relaxed regarding your strategy. You do not need to strictly depend on the MACSE result to make a project profitable, there are other options. 

Terna’s grid infrastructure still needs to grow its nodes and capacity, they have an ambitious plan. The routes to market are very defined.