As renewables become more prevalent in the Italian power mix, market participants support the buildout of battery energy storage systems (Bess) to replace gas-fired generation as a source of flexibility, Argus heard on the sidelines of the KEY25 Energy Transition Expo in Rimini last week.
Italy has some of the highest electricity prices in Europe owing to the country's heavy reliance on gas-fired generation, with the single national price (Pun) averaging €107.75/MWh over 2024. While there has been a decrease in gas burn and an increase in renewables output since 2022, gas-fired generation still accounted for slightly over 40pc of the power mix on average last year, compared with combined solar and wind generation at 21pc.
The Italian government has set ambitious renewable targets under the country's national energy and climate plan, aiming to reach 131.3GW — including solar, wind and hydro capacity — by 2030 from 77GW in January under Italy's climate and energy plan.
There is general agreement among market participants that reducing gas burn in favour of renewable energy sources will lower electricity prices, but some gas-fired capacity may never be removed from the Italian power mix without having another technology that can provide the same flexibility at scale. Residual demand in Italy is falling, but thermal output remains essential to cover demand peaks during critical summer and winter periods, according to Italian transmission system operator (TSO) Terna's latest system adequacy report.
But as renewables cover an increasing share of electricity demand — estimated to reach 335TWh in 2028 — thermal plants will become less economically viable and are likely to be decommissioned unless they are kept operating through ancillary services.
"The more renewable generation we have, the less gas-fired plants will have to cover residual electricity demand. Only the most efficient — hence the cheapest — gas-fired plants will be accepted, and the others will be decommissioned," a power trader told Argus.
But turning on a gas-fired plant from cold and with a stop-start operation would lead to exaggerated costs and higher maintenance prices. "Morning and evening prices could be used to cover the maintenance of the plant, and the average price would risk being the same but with very marked price differences," the head of power origination of an Italian utility told Argus. "This would lead to investing a lot in batteries that could exploit the spreads and lower them a bit," he added.
Market participants attending the conference widely agreed that growing renewable capacity means there is a need to focus on the development of Bess, especially those with 6-8 hours duration to enable time shifting. Solar photovoltaic capacity is expected to grow by 6-8 GW/yr to 2030, according to industry body Italia Solare president Paolo Viscontini.
The Italian energy ministry has recently accepted Terna's view that the country will need an additional 10GWh of Bess capacity by 2028 to avoid the risk of the grid becoming congested in periods of overgeneration. As of January 2025, Italy had 13.3GWh of Bess capacity — mainly in the south of the country and on the islands — and is expected to reach 50GWh by 2030.
And Terna last week said it will hold its first auction for large-scale Bess with 2028 delivery on 30 September, for which it has already approved 9GWh, as reported by the operator's grid development manager Francesco Del Pizzo.
Connection requests for Bess projects more than tripled in 2024 to 253GW worth of capacity, mainly because of a significant reduction in capital expenditure for the assets, which has dropped by around 40pc since 2022 and is expected to stabilise at a competitive price in the next few years.
