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noviembre 7, 2024

Italy is Projected to Surpass 7 GW of New Installed Capacity by 2024

Italy is on track to break its record, reaching 7 GW of new renewable energy installations in 2024 despite the uncertainty generated by the government’s support scheme, according to Francesco Marghella, an energy systems specialist. Additionally, he notes that the MACSE will play a crucial role in the market but expresses concerns over the competitiveness of the initial auction.
By Emilia Lardizabal

By Emilia Lardizabal

noviembre 7, 2024
Italia GW Italy GW

The renewable energy sector in Italy is experiencing a context of uncertainty due to regulatory changes and new decrees. However, Francesco Marghella, Ph.D., energy system modeler and consultant, indicates that the sector is going through a phase of “unexpected growth” and estimates that the new installed capacity in 2024 will reach 7 GW, surpassing the 5.8 GW peak established in 2023.

“Although some see the market as sluggish due to the government’s decision to introduce a new support scheme for competitive renewable energies in the summer of 2023, these numbers are unexpected to me,” Marghella states in dialogue with Energía Estratégica España.

“Despite the chance posed by the draft ‘FER X’ decree, it is remarkable that investors are still pursuing business opportunities, as shown by the modest results of the current policy providing Contracts for Difference (CfD) under the 2019 ‘FER 1’ decree, in contrast to the recent capacity growth,” he adds.

The consultant highlights that market prices remain high due to the elevated costs of gas and carbon permits, which incentivizes investment in renewables.

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Market Instability and Regulatory Changes

Since 2021, energy market instability has driven an increase in large-scale renewable projects in Italy, and according to the consultant, many of these are expected to begin operations soon. However, Marghella warns that recent policies have also generated tensions in the sector. The decree regarding suitable areas for installations and the ban on solar projects on agricultural land are some of the measures that, according to him, have “shaken the sector.”

This restrictive regulation creates uncertainty, discouraging certain investors while attracting those interested in storage solutions, as the specialist points out.

Italy, on the other hand, has not yet faced negative prices in the power exchange, a situation frequently observed in neighboring European markets. According to Marghella, the country would need to reach a threshold of renewable energy capacity to experience similar market conditions, which could generate uncertainty among renewable investors and open opportunities for the development of storage technologies.

“Currently, policymakers feel no immediate pressure to implement ‘FER X’ CfDs, as market dynamics are driving new renewable installations towards meeting the objectives of the National Energy and Climate Plan (PNIEC),” the specialist notes.

“This delay could benefit consumers if the expected reduction in the cost of capital lowers the leveled cost of renewable technologies. The detachment from Russian gas supplies and the long-term outlook for high gas prices appear to have accelerated these investments. This geopolitical context has become a key driver of the energy transition in Italy,” he adds.

Future of Renewable Energy in Italy

According to the consultant, Italy’s renewable energy market shows high expansion potential in the coming years, provided that combined cycle costs remain elevated. However, there are inherent risks along the way, such as a potential drop in gas prices or community opposition to large-scale projects, especially in regions like Sardinia, where environmental concerns have mobilized opposition. Marghella notes that “regional laws on suitable areas could hinder the robust deployment of renewable technologies and significantly increase land leasing costs.”

Regarding the development of new technologies, Marghella expects offshore wind and floating photovoltaic systems to gain ground in the coming years, supported by favorable reserve prices in upcoming auctions under the ‘FER 2’ decree.

MACSE: A Boost for Storage but with Some Challenges

A key topic in the expansion of renewable energy in Italy is the role of MACSE (Capacity Acquisition Mechanism for Storage). This system seeks to securely integrate variable renewable energy sources, promoting the installation of large-scale battery storage systems (BESS) and supporting the installation of the first 50 GWh of storage capacity by 2030. The first MACSE auction is scheduled for 2025, focusing on lithium-ion battery storage technologies, followed by additional auctions for pumped hydro storage projects. “MACSE is expected to play a crucial role in shaping the energy storage market in Italy,” Marghella states, adding that it represents a significant milestone in the energy transition and an innovative support scheme.

However, the specialist points out that MACSE also represents certain risks for the sector. He warns that if the competitiveness of the first auction reduces reference prices, it could discourage participation in future rounds. Additionally, the mechanism could end up stifling commercial initiatives, especially in co-located BESS storage projects. According to Marghella, “MACSE requires mandatory participation for the selected capacity, which must adhere to a profit-sharing rule with the transmission system operator. Interestingly, while limiting the attractiveness of the ancillary services market for other operators, this might not be entirely negative for electricity consumers.”

Another critical point Marghella highlights is the upcoming “time-shifting market” that will operate alongside MACSE. “This market is expected to be highly competitive, primarily involving renewable energy generators and traders. As overproduction increases year after year, volumes in this market should grow,” he explains.

And he concludes, “However, prices will depend on the storage capacity that Terna makes available through MACSE, effectively positioning the transmission system operator in a significant influence over market dynamics.”

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