The energy storage market in Italy has unique characteristics that mean more risk-averse investment funds will be able to enter, but upcoming auctions could be very competitive, driving down clearing prices, a director at consultancy Timera Energy has said.
Italy is ‘very different’
“Italy is one of the most exciting markets for battery investors. It provides a route into battery energy storage systems (BESS) for a lot of capital that is pretty excluded from other markets,” said Timera’s Steven Coppack, director for power market services. Coppack will speaking on Day Two of next week’s Energy Storage Summit 2025 in London, hosted by our publisher Solar Media.
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“Pension funds, infrastructure funds, the risk tolerance they have is too conservative for what is fundamentally a merchant technology. The revenues are good, but volatile. They want a more contracted revenue stream and Italy offers a very different model,” he said.
That contracted revenue stream will mainly be the capacity market (CM) in the north while in the south it will mainly be the new MACSE auction, which has been created by transmission system operator (TSO) Terna specifically for energy storage.
Coppack said that the CM is still “relatively merchant but does provide long-term guaranteed index-linked revenues and de-risks the overall revenue volatility, which is great for servicing debt,” because Italy’s northern price zones price in a similar way to continental Europe.
“MACSE meanwhile is essentially a long-term toll from the government. TSO Terna and electricity market operator GSE (Gestore dei Servizi Energetici) take over your full merchant exposure with the exception of some balancing revenues,” Coppack said.
“That is very different kind of revenue stream and business model to merchant dominated markets like GB (Great Britain), Belgium and Germany.”
‘Very competitive’ auctions expected
However, because of how attractive the opportunities are, both markets are likely to be very competitive which may lower the clearing prices. Many investors will have a low cost of capital.
That means that those hoping to be successful need to figure out how to get value from the market beyond the CM/MACSE schemes.
“One option is to combine a degree of merchant exposure alongside MACSE-backed capacity. For example, by putting 70-80% into MACSE and leaving 20-30% merchant, you may have enough revenue certainty to lever the project and increase project returns. It’s about working out the level of revenue certainty that investors require, work out their residual exposure, and potential returns under different structures,” Coppack said.
“That’s where we see people eking out additional value. For investors requiring a higher return than may be typical for RES investment, projects may target a degree of merchant exposure. Working out what the best duration is, what [the best] location is, building up a stronger investment case.”
Investors waiting for certainty before pushing FID button
Terna estimates Italy will need 71GWh of new grid-scale energy storage by 2030. While the opportunities there mean a lot of interest and project development activity—with numerous pipeline announcements in 2023 and 2024—relatively few companies have actually made final investment decisions (FID) and launched construction on large-scale BESS. Utility and generator Enel is one of the few to be building a substantial pipeline.
This could change in late 2025, Coppack explained, with final rules on MACSE expected by then.
“The CM auctions are not that regular while there have been repeated delays around the MACSE scheme. We were expecting it to happen mid-2025 but because of delays to finalising the rules, some think it now can’t happen before September or Q4 2025. There are fees that you need to pay to keep those projects in development so we need to see clarity on this soon,” he said.
“We expect to see a significant pace of buildout once the rules are clarified. Projects are being developed but FIDs are not being made until there is certainty around MACSE and around the CM timeline.”
“Some people will be looking at this and taking a view they want to be ready with an early mover advantage. There are high volatility events that storage could capitalise on, they do happen, so getting in early will help there.”
What exactly is MACSE?
MACSE stands for Meccanismo di Approvvigionamento di Capacità di Stoccaggio Elettrico, meaning ‘Electricity Storage Capacity Procurement Mechanism’. The scheme, part EU-funded, is designed to support the development of renewables, the growth of which is driving price fluctuations and curtailment, currently managed in the day-ahead market.
Under MACSE the TSO will purchase the flexibility of all the storage and create a daily product market, selling off the flex to bidders, Coppack said. Storage will come in and smooth out some of these fluctuations, in particular solar, in the south.
“We see a lot of solar developed against relatively low demand in the south, and there is no natural way to absorb that excess,” Coppack said.
“MACSE is designed for roughly 8-hour storage systems, a duration which hasn’t been supported by the merchant market historically. This is incentivising developers to drift towards longer-duration storage compared to a market-only deployment.”
The northern zone is the vast majority of the Italian power market, while the southern zones have transmission constraints. Though the price spreads between the two have narrowed over recent years.
MACSE is primarily focused on those smaller zones, they expect the solar buildout to vastly exceed the transmission capacity.
Capacity market and ancillary services in Italy
The CM in Italy meanwhile is different to that of GB/UK, for example, Coppack said: “In the UK it is around specific events while in Italy it is a payment for capacity all year round. There is a lot of specific nuance on compliance as always.”
“The other key bit with the CM is the price cap, which creates an hourly revenue based on the short-run-marginal-cost of a peaking gas asset. Since the introduction of the cap, prices have only exceeded the cap on a handful of hours per year, effectively capping the market even for non-CM-backed assets.”
“People limit their electricity market price offers at or around the cap because of competitive pressure. The cap was introduced to prevent excess returns for flex assets across volatile market periods.”
Ancillary service volumes meanwhile have fallen substantially, going from a roughly 3TWh market in 2021 to around 1TWh in 2024. That had an impact on how valuable those ancillaries are as a business model, because of the reduction in the market size,” Coppack said.
“Ancillary services in Italy a different structure to rest of Europe -but will likely follow a similar trend of reducing value, as MACSE will put competitive pressure on pricing on ancillary services. Italy is moving more in line with rest of Continental Europe on day-ahead and balancing.”
