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Italy’s long-term capacity contracts under the Electricity Storage Capacity Procurement Mechanism (Meccanismo per l’Acquisizione di Capacità di Stoccaggio Elettrico – MACSE) are designed to support up to 50 GWh of new storage capacity, primarily in the south and the islands. The first auction launches shortly and will offer crucial bankability for large-scale BESS deployment. But recent performance data suggests significant value is being captured from diverse revenue streams beyond capacity payments. The best-performing 4-hour standalone assets in northern Italy, for example, have surged from struggling to reach €100/kW annualised margins in 2024 to regularly exceeding €200/kW in weekly performance peaks during spring 2025. With Italy’s renewable capacity set to double by 2030 and zonal price decoupling now occurring for almost 30% of total hours, multiple revenue opportunities exist in ancillary services, wholesale arbitrage, congestion management, and contracting models like tolling agreements.
- Grid stability services include ancillary markets like Frequency Containment Reserve (FCR), automatic Frequency Restoration Reserve (aFRR), and the Mercato dei Servizi di Dispacciamento (MSD). These compensate BESS operators and flexible assets for rapid frequency regulation and real-time balancing. These are complemented by congestion services, where grid operators pay to relieve local bottlenecks, and UVAM (Unità Virtuali Abilitate Miste) programmes, which allow aggregated small-scale assets to participate in flexibility markets.
- Energy trading opportunities include arbitrage between the day-ahead (Mercato del Giorno Prima, MGP) and intraday (Mercato Infragiornaliero, MI) markets allow assets to capitalise on price spreads.
- Contractual arrangements that de-risk investments include tolling agreements (where third parties operate storage for a fixed fee) and private Power Purchase Agreements (PPAs) that pair renewables with storage for optimised delivery. Short-term capacity contracts also provide backup power during system stress.
Ancillary services
Italy’s ancillary services market, Mercato dei Servizi di Dispacciamento (MSD), presents revenue opportunities for battery and aggregated assets. These assets can participate in three markets: Fast Reserve, Frequency Containment Reserve (FCR), and automatic Frequency Restoration Reserve (aFRR) by providing rapid frequency response and grid balancing services. These services are critical for stabilising Italy’s grid as renewables grow, with FCR and aFRR transitioning to EU-harmonised platforms (PICASSO/MARI) this year, unlocking cross-border trading opportunities. However, saturation in the MSD has squeezed margins, pushing participants toward hybrid strategies – stacking ancillary revenues with merchant trading or capacity market contracts.
TIDE reform has given rise to Unità Virtuali Abilitate Miste (UVAMs), which aggregate distributed resources to bid into ancillary markets. UVAMs, pioneered by Italian transmission operator Terna since 2018, now exceed 1,500 MW of qualified flexible capacity and are central to replacing fossil-fueled balancing services. Southern Italy, with solar abundance and grid constraints, favours fast-response UVAM participation, while the north capitalises on intraday volatility.
Wholesale market arbitrage and congestion services
Wholesale market arbitrage exploits price differences between the Day-Ahead Market (MGP) and the Intraday Market (MI). Southern Italy, especially, has significant zonal price volatility due to solar saturation during midday hours and transmission-grid bottlenecks. This creates opportunities for BESS to charge when prices are low and discharge during evening peak hours.
The TIDE reform introduced 15-minute settlement periods (transactions and prices are calculated and financially settled every 15 minutes instead of hourly) in the MI and mandates the application of zonal pricing instead of a national average price. This sharply increases price granularity and volatility between the renewable-rich south and the rest of the country, and it amplifies opportunities for wholesale market arbitrage where BESS can profit from charging in low-price, solar-saturated hours and discharging during high-demand evening peaks.
Volatility like this, with intensified grid bottlenecks, strengthens the business case for BESS to provide not only energy arbitrage but also congestion management and flexibility services by absorbing excess supply when prices turn negative and supporting supply during high-price hours.
Short-term capacity markets and tolling agreements
Terna organises annual capacity market auctions where power producers provide capacity two years ahead of delivery. Winning projects in late 2024 secured 15-year fixed contracts paying around €45,000 to €67,500/MW per year. This ensures grid stability by remunerating capacity availability beyond merchant energy market revenues. The capacity market attracts significant BESS investments (the majority of new contracted capacity in early 2025). These short-term (yearly) capacity contracts coexist with market-based revenues, allowing asset owners to participate in day-ahead and ancillary markets, although day-ahead prices are capped to prevent excessive profits on top of capacity payments.
Tolling agreements are contracts where the asset owner makes the facility (like a battery) available to a toller (operator), who controls the commercial operation, including market trading of stored electricity, without owning the asset. The asset owner remains responsible for construction, commissioning, and maintenance and receives fixed, stable revenue.
Private PPAs
Italian Private Power Purchase Agreements (PPAs) are on the increase in 2025. For example, METLEN signed a 10-year private PPA with Iliad Italia to supply solar energy from two solar farms with a combined capacity of 15 MW, delivering 20 GWh annually to Iliad. Despite interruption by the temporary suspension of Italy’s Energy Release scheme by the EU, the overall trend shows rising PPA activity driven by corporates and utilities, making Italy one of the leading European markets for these agreements.
Agile revenue stacking points the way
The business performance of storage assets in Italy needs close attention to revenue architecture. With MACSE providing essential project bankability for some, operators can also layer capacity payments with UVAM participation, intraday trading, and private PPAs to create resilient income streams. Revenue stacking like this reflects a maturing market where operational sophistication determines which projects capture the full value of Italy’s energy transition.
