Italy: the rise of utility-scale energy storage technologies

Tiziana Fiorella

Ughi e Nunziante Studio Legale, Milan

t.fiorella@unlaw.it

Introduction

Energy transition is one of the pillars of European Union policy with the ambitious goal of achieving progressive and complete decarbonisation by 2050.

The challenging energy crisis caused by Russia’s invasion of Ukraine has greatly accelerated the decarbonisation path and led to the elaboration of a single energy policy scenario for 2030, envisaging:

• a 55 per cent reduction in EU emissions;
• a substantial increase in energy production from renewable sources, which must cover more than 65 per cent of national demand in Italy; and
• an increase in gross consumption of renewable energy, which is expected to reach 40 per cent of consumption.[1]

This implies the construction of approximately 130 GW of renewable energy generation capacity – solar, wind and hydro, together with a significant expansion of the associated utility-scale storage capacity (around 71 GWh).[2]

The simultaneous deployment of utility-scale energy storage is in fact functional for the management of the electricity system, specifically to ensure the security, flexibility and integration of renewable energy sources into the national electricity system through time shifting and dispatching services.

Italy’s laws for the development of utility-scale energy storage

The Italian legislator has intervened, specifically in the development of storage capacity, by introducing a long-term procurement system of utility-scale storage capacity based on competitive, transparent and non-discriminatory auctions. This process is known as the Mechanism for the Acquisition of Storage Capacity (MACSE).

The legislator intends to guarantee new storage capacity requesting utility companies to enter into long-term supply contracts to be awarded as a result of periodic auctions organised by the manager of the national transmission system (ie, Terna SpA), applying criteria of technological neutrality and contracting technologies of proven reliability.

Each winning auction bidder will receive an annual fee for the entire term of the agreement in return for making capacity available to third parties for participation in electricity markets and related services.

The Italian legislator has implemented MACSE.[3] This requires Terna to prepare: (1) a proposal of temporal evolution of the need for storage capacity, broken down geographically and by type of storage; (2) a proposal for MACSE regulation to be submitted to the Ministry of Ecological Transition for approval.

On 1 August 2022, Terna published the Study on Reference Technologies for Electricity Storage (the Study) which reviewed electricity storage technologies and the related development potential.

The outline of the proposed MACSE regulation was published by Terna in October 2023 and submitted for public consultation, which ended on 30 November 2023. The draft is currently under revision for consideration of the operators’ comments and is expected to be submitted to the Ministry of Ecological Transition for approval in early 2024.

Results of the Study

The following technologies can be distinguished according to the Study: electrochemical storage (lithium-ion and non-lithium-ion), pumped hydro energy storage, mechanical storage using air or other gases, power-to-gas-to-power and other types such as electrostatic and mechanical, electromechanical flywheel storage.

To date, 16GW of utility-scale lithium-ion electrochemical storage (Li-Ion) have been installed worldwide and the number is expected to increase to 63GW by 2026; pumped hydro energy storage (PHES) installations worldwide are 160GW and are expected to exceed 200GW by 2026. The other technologies appear to be much less widespread.

The study therefore considered Li-Ion and PHES to be the most mature and reliable technologies, both technologically and commercially, with relatively high efficiencies (around 70-75 per cent for PHES and over 80 per cent for Li-Ion) in terms of installed capacity.

Finally, the Study noted that Li-ion batteries have a useful life of 12-14 years, while PHES can last for up to 50 years.

The proposed MACSE Regulation

Terna also drafted the MACSE regulation scheme as a consequence of the results of the Study establishing the rules for the long-term procurement procedures for utility-scale storage capacity to be awarded through competitive auctions.

The first auction will focus on Li-Ion batteries and PHES storage taking into account the technological and commercial maturity.

The draft regulations envisage that:

• only owners of already authorised storage facilities will be allowed to participate;
• supply contracts will have a duration of 12-14 years for Li-ion and a maximum of 30 years for PHES;
• the auction will take place one-to-three years in advance of commissioning for Li-ion and five-to-seven years in advance for PHES;
• other storage technologies will be admitted to the auction up to ten per cent of the total tendered capacity; and
• the award criteria will take into account investment costs, operating costs of the different technologies and a fair return on invested capital.

The draft MACSE regulations provide for a financial support mechanism for the entire duration of the contract. The successful bidder has the right to receive an annual remuneration in exchange for the obligation of constructing the plant and making the awarded capacity available to third parties for use in the energy market through a centralised platform managed by the manager of energy market (Gestore dei Mercati Energetici – GME) or offered on the Dispatching Service Market.

The first auctions will be held within six months after the approval of the MACSE regulatory regime by the Ministry of Ecological Transition.