Energy storage regulation in Italy

There are currently nineteen operational pumped hydro storage projects in Italy, mainly located in the Piedmont and Lombardy regions, with a capacity of over 7.7 GW. Originally these projects were developed by the then state-owned electricity companies, but after the liberalisation of the electricity market, most of them are owned by commercial companies. Enel, which is partially owned by the Italian government with 25.5% of the company’s shares, is the main operator in the field of pumped hydro storage.

Over the past few years, the Italian Government adopted legislative measures so that the transmission system operator (“TSO”), Terna S.p.A., and distribution system operators (“DSOs”) may develop and manage storage facilities by means of batteries on their own grids. Terna has developed an investment plan of more than EUR 200 million, testing new technologies in several areas of Italy, especially the Campania, Sicilia and Sardinia regions. The project, which operates with both sodium-sulphur and lithium-ion batteries, was approved by the Italian Ministry of Economic Development (“MiSE”) in 2012, and will secure the supply of electricity in the south of Italy with the installation of storage systems with a total capacity of 40 MW. Some of these technologies are still under construction.

As far as DSOs are concerned, no specific pilot projects have been adopted. Nevertheless, some distributors, above all Enel Distribuzione and ACEA, have installed batteries connected to their respective distribution grids.

Batteries have become an attractive technology for electricity storage projects lately; however, in Italy energy storage applications are traditionally represented by thermal storage at domestic or commercial levels, and by pumped hydro storage.

The main goal of the project which Terna is currently developing is to increase the security of electricity systems in the Italian islands of Sicily and Sardinia. The project is divided into two phases. Phase 1, called “Storage Lab”, which is still in progress, plans the installation of two multi-technology power plants (with different storage technologies) with a total 16 MW in Sicily and Sardinia. Based on the results of Phase 1, Phase 2 is anticipated to install an additional 24 MW using the most promising technologies. During the Storage Lab phase, batteries are being supplied both by Italian and foreign companies, and Italian and foreign universities and research centres will be able to participate.

Particular attention is paid to the integration of renewable energy in the Puglia region, where a project based on hydrogen storage is expected to match energy supply and demand and optimise the electricity generated by intermittent renewable energy sources while ensuring security and stability of the power distribution network. The project is being developed by a consortium, which will design, build, deploy and operate the 39 MWh facility.

Other anticipated projects concern the increase in the uptake of battery storage at a domestic level, and applications to reduce the demand charges of large energy users.

Even though the market of electricity storage is growing very fast in Italy, the legislative framework is fragmented and does not fully cover all the main features of this market.

Until a few years ago the legislation mentioned only pumped hydro and no other forms of energy storage. The unexpected boom in PV installation increased the stress and the risks faced by the Italian network, so Legislative Decree no. 28/2011 stated that the TSO may develop storage systems in order to increase the despatch of intermittent generation. Moreover, the TSO may develop and manage distributed storage facilities by means of batteries, and the same may be done by DSOs on their own grids. Terna undertook to develop its project in the south of Italy on the basis of such legislation. As of today the legislation described above is the main legislative framework in Italy as regards the electricity storage sector.

Ancillary legislation adopted by the Italian Regulatory Authority for Electricity Gas and Water (“AEEG”) provides the legal framework for storage solutions connected to the grid by non-regulated subjects, like energy producers or end-users.

The main challenges that energy storage projects are facing, as of today, and which may slow down the growth of the market, are:

1. the high revenue uncertainty; and
2. the high costs of batteries and relevant technologies involved in the storage.

Projects have to manage greater revenue uncertainty over their lifetime, and currently there are no government incentives which can increase profitability in the near future. Moreover batteries are still expensive, and according to producers and experts they could become cheaper only in the coming years.

To date, these challenges have been overcome by the use of the available research and development funding, also fostered by AEEG, which in the past few years has repeatedly stressed the importance of energy storage and its effects on the entire energy market.

The project of Terna on its grids and other projects concerning DSOs’ systems are also intended to develop new technologies and facilities that will be able to make Italy one of the most important and attractive markets in the energy storage field.

AEEG is the independent body which, inter alia, regulates, controls and monitors the electricity market, including energy storage, in Italy. It was established by Law No.481/95 with the purpose of protecting the interests of users and consumers, promoting competition and ensuring efficient, cost-effective and profitable nationwide services with satisfactory quality levels. AEEG’s mission includes defining and maintaining a reliable and transparent tariff system, reconciling the economic goals of operators with general social objectives, and promoting environmental protection and the efficient use of energy. It provides an advisory and reporting service to the Government and Parliament, and formulates observations and recommendations concerning issues in the regulated sectors of electricity, including energy storage.
Gestore Servizio Energetici (“GSE”) is the state-owned company which promotes and supports renewable energy in Italy. In particular, GSE fosters sustainable development by providing support for renewable electricity generation and renewable energy storage, and by taking actions to build awareness of environmentally-efficient energy uses.