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Italy accelerates the transition to renewable energy
Italy is stepping into a new energy era with the MACSE auction in early 2025. Underpinning MACSE, or Meccanismo di Assegnazione Centralizzata per la Sostenibilità Energetica, is an ambitious plan to boost renewable energy integration and support up to 50GWh of energy storage by 2030 – a move to ensure Italy’s energy security and sustainability.
First up is the lithium-ion battery energy storage systems (BESS) phase, launching in early 2025, with pumped hydro energy storage (PHES) projects following in a subsequent phase. The stakes are high – it’s about accelerating Italy’s renewable energy transition and opening major doors for developers in the electricity market. Announced October 11, 2024, the auction brings 15-year contracts for BESS and 30-year contracts for PHES to the table. The EU is backing this transformation with an impressive €17.7 billion package, targeting that 50GWh storage goal by 2030.
At stake is Italy’s ability to hit its 2030 renewable targets while boosting grid capacity and potentially bringing down electricity costs for consumers. It’s Italy’s chance to step up as a European leader in BESS.
Increasing our storage capacity is essential to achieve the objectives of the NECP.” … The approval of the regulation marks an important advancement in the new design of the electricity market, focused on the development and integration of renewable sources.
Italy’s Minister of the Environment and Energy Security, Gilberto Pichetto Fratin
(Developed by EU Member States, the National Energy and Climate Plans (NECPs) include a 42.5% share of renewable energy in final energy consumption by 2030.)
Breaking down changes
MACSE will bring some major updates that favour BESS merchants. They’ll now keep 20% of ancillary and balancing market margins, up from the previously announced 5%. This boost is set to create some exciting opportunities for investors and spark healthy market competition. What else is changing?
- Less stringent constraints: Gone are those tight caps and floors that used to sit at +/- 20/25% of the Day-Ahead price. Now there’s more room to match real market conditions.
- Smart market alignment: Caps and floors will follow the Italian Capacity Market strike prices, based on open-cycle gas turbine unit costs. This means more predictable, stable pricing.
- Long-term security: Those 15-year BESS and 30-year PHES contracts are exactly what’s needed for solid financing.
Market Impact
For renewable energy developers, this is a substantial opportunity to secure long-term revenue streams. The 15- and 30-year contracts provide a stable financial foundation, attractive to investors and financiers. This is particularly appealing in a market where securing funding can be challenging due to high upfront costs and regulatory complexities.
With relaxed constraints, we’re likely to see more players entering the field and fiercer competition among bidders. Projects are more bankable now, thanks to those long-term contracts providing steady revenue streams. This said, industry experts are suggesting operators keep a ‘merchant tranche’ up their sleeve to balance those stable, long-term contract returns with the chance to catch higher profits when market prices peak.
Despite these opportunities, developers may face several challenges. Project financing can be complex, especially in a volatile macroeconomic environment characterized by high interest rates and inflation. And integrating new storage technologies into the existing grid infrastructure poses technical challenges.
Getting in the game: Technologies and requirements
The auction is zeroing in on two proven performers: lithium-ion BESS and PHES. These are technological and commercial heavy hitters that can reliably integrate with the grid. There’s also a smaller pot for emerging technologies, we’re still waiting on the final criteria for those though.
Here’s what developers need to bring to the table for Terna (TERNA S.p.A. Rete Elettrica Nazionale), the Italian transmission system operator. Terna will evaluate bids based on their ability to meet technical and operational requirements:
- Solid bids for eligible storage projects
- Clear evidence that your project’s ready to roll
- Full alignment with technical specifications (final details still in the works)
Navigating the rules
Working in an evolving regulatory landscape needs careful planning and adaptation to new rules and standards. These include:
- The ‘PNRR ter Decree’, which extends ‘ex-lege suitable areas’ and amends the Single Authorisation procedure
- Italian Regulatory Authority for Energy, Networks and Environment’s (ARERAs) resolutions, including ARERA’s updated ‘Integrated Text on Simple Production and Consumption Systems’ (TISSPC)
- The FER 2 Decree, that provides incentives for renewable energy projects with high generation costs, introducing contracts-for-difference (CfDs) to reduce risk and attract investment
The big picture: EU and Italian goals
Italy’s aim is high – targeting 65% renewable electricity by 2030, pushing past their previous 55% goal. The plan is to expand renewable capacity to 131 GW by 2030, in line with their revised National Energy and Climate Plan. MACSE’s a crucial piece of this puzzle, helping manage the on-off nature of renewables like solar and wind while keeping the grid stable and capable.
In the broader EU landscape, where there’s a collective push for 42.5% renewables in energy consumption by 2030, Italy’s focus on advanced storage tech sets them apart from EU neighbours still heavily invested in traditional grid upgrades.
Preparing for success
Developers and stakeholders can prepare for MACSE by focusing on financing strategies, ensuring compliance, understanding zonal needs, and staying updated on regulatory changes:
- Gear up for competition – this opportunity is drawing plenty of attention
- Get your financing ducks in a row – those guaranteed revenues could help seal the deal
- Master the compliance requirements and technical specs
- Team up early with system integrators to nail your project design
- Know your zones – different areas need different storage solutions
- Stay sharp on regulatory updates that could shake up bidding strategies
The ripples from MACSE will spread far beyond developers and the electricity market. For everyday consumers, it could mean lower energy bills and a greener power supply. For the broader energy sector, we’re looking at a boost in innovation and competition that could drive exciting advances in storage technology.
