Key to Energy sees need for 50 GWh more battery storage in Italy by 2040

Italy could need an additional 50 GWh of utility-scale battery energy storage by 2040 as solar capacity expands toward a projected 137 GW, according to energy consultancy Key to Energy. In an interview with pv magazine Italia, Senior Consultant Giorgio Perico discusses the role of merchant projects, the Macse and Capacity Market mechanisms, distributed storage, and the need for longer-duration flexibility.

Italy’s integration of additional renewable generation will require about 50 GWh of new utility-scale battery storage between 2024 and 2030, with a similar amount needed over the following decade, according to Key to Energy. The consultancy estimates that the country already has more than 20 GW of authorized battery energy storage system (BESS) projects, representing more than 130 GWh of potential capacity.

pv magazine Italia spoke with Giorgio Perico, senior consultant at Key to Energy, about the outlook for the Italian storage market, the role of support mechanisms such as the Mechanism for the Procurement of Electricity Storage Capacity (MACSE) and the Capacity Market, the growth of merchant projects and opportunities in commercial and industrial (C&I) applications.

Feasible target?

Integrating additional renewable generation will require about 50 GWh of new utility-scale storage between 2024 and 2030. That capacity is still being procured, as a substantial share is expected to come through upcoming Capacity Market and MACSE auctions, with delivery scheduled through 2030. A similar amount will be needed during the following decade.

The main constraint is not the availability of projects. Even when the assessment is limited to authorized BESS projects, more than 20 GW of developments can already be identified, corresponding to an estimated storage capacity of more than 130 GWh. This is sufficient to meet the 2040 target and potentially exceed it. A larger pipeline of projects undergoing permitting could further increase competition.

Market conditions also offer increasingly favorable signals for storage investment. Price volatility is becoming more structural, creating potentially attractive revenue opportunities. Deploying another 50 GWh by 2040 is therefore feasible, provided that the regulatory framework is clear about accessible revenue streams and available support mechanisms, market conditions remain stable, and financing becomes available for business models with greater exposure to market prices.

Merchant projects

Merchant projects can offer viable returns. Key to Energy’s scenario analysis indicates that achievable price spreads will increase over time. For a four-hour battery, the average captured spread is projected to rise from €30–40/MWh in 2030 to about €50/MWh in 2040 and €70–80/MWh by 2050.

Time-shifting electricity from lower-price to higher-price periods could therefore become increasingly remunerative, despite the effect that additional batteries themselves have on market volatility. Merchant projects could also earn significant revenues from intraday markets and ancillary services.

The main limitation is full exposure to market risk, which makes projects more difficult to finance. Mechanisms such as MACSE and the Capacity Market can initially provide greater revenue visibility and improve bankability.

However, the Capacity Market is increasingly functioning as a mechanism to retain existing generation capacity, with new capacity competing against existing assets. MACSE is also seeing intense competition, with supply exceeding demand by more than seven times. Over the longer term, remuneration mechanisms will therefore need to be reconsidered and reformed to support a storage market increasingly driven by merchant investment.

Current market

In addition to its existing pumped hydro storage capacity, Italy has about 19 GWh of electrochemical storage capacity, including 7 GWh of utility-scale systems that entered the market through Capacity Market auctions.

Another 14 GWh is expected to come online in the coming months. This capacity has already been contracted through the first MACSE auction, which covers 10 GWh for delivery by 2028, or through the Capacity Market, which accounts for another 4 GWh still awaiting delivery.

More than 30 GWh is still needed to reach the 2030 targets and will have to be procured through upcoming auctions. The next MACSE auction will offer a 16 GWh allocation for delivery in 2029.

Italy has received almost 300 GW of grid connection requests for storage projects. Perico said the connection reform introduced through the Bollette decree could reduce this volume by as much as 70%, although the remaining capacity would still exceed the system’s requirements. More than 20 GW of projects already have development authorization, potentially providing enough capacity to meet targets through 2040.

Project development will need to be coordinated with system requirements and grid expansion, including the geographical distribution of installations, their duration and their technical performance. This would help align storage deployment with the wider energy transition.

Industrial and residential

Distributed small-scale storage currently amounts to about 12 GWh. It developed even before large-scale applications and is already close to the 14 GWh that grid operator Terna estimated would be needed by 2030.

Key to Energy sees attractive business cases for storage paired with electricity consumption sites, particularly in the C&I sector and where renewable generation is also present. These systems can optimize electricity procurement costs by increasing self-consumption and reducing related charges. They can also lower imbalance costs and provide flexibility services.

Such services can be monetized through different mechanisms, including the balancing and redispatching markets and extraordinary modulation schemes. The dispatch reform introduced through the TIDE framework could create further revenue opportunities, including local flexibility markets that are currently being tested.

Regulatory developments and attractive returns could support further growth in distributed applications alongside utility-scale projects. Key to Energy’s reference scenario anticipates another 5 GWh of small-scale storage entering the market between 2030 and 2040.

Green hydrogen

Green hydrogen, like other power-to-X applications, can provide system flexibility over the longer term, but Perico does not see it as being in direct competition with BESS.

Batteries primarily address short-term flexibility requirements by managing intraday volatility and reducing hourly mismatches between electricity supply and demand. These mismatches are becoming more pronounced as solar generation accounts for a growing share of Italy’s electricity mix.

Power-to-X applications and other long-duration energy storage (LDES) technologies can instead help address flexibility requirements over seasonal timescales.

From 2040 onward, a substantial share of generation could remain unused even with electrochemical storage in place. Under some policy scenarios, this surplus could exceed 20% of generation and persist for extended periods, including during the second quarter of the year.

Seasonal storage applications will therefore need to complement batteries, providing the combination of flexibility required to integrate renewable generation more fully.

Other factors

The development of battery storage across different applications, from standalone projects to systems paired with generation or consumption sites, is moving the market away from a fit-and-forget model. That approach characterized an earlier phase of renewable energy investment, which was also supported by incentive schemes.

The market is moving toward a fit-and-operate model, in which the energy manager has a strategically important role after commissioning. Operators must optimize system performance and maximize value by responding to market signals and adapting to an evolving regulatory framework.

This transition requires significant changes in expertise, skills, practices, tools and operating methods to capture the value anticipated in project business models.

From pv magazine Italia