Energy storage trends - Spotlight on Italy

Energy storage systems play a crucial role in Italy’s decarbonisation and energy security. On 21 January 2020, the Ministry of Economic Development published the Integrated National Energy and Climate Plan (“Piano Nazionale Integrato per l’Energia e il Clima”- “PNIEC”), setting targets for energy efficiency, development of renewable sources, and CO₂ emissions reduction. These targets cannot be achieved without implementing an efficient energy storage system in Italy.

Italy’s growing need for storage systems is particularly evident in Central and Southern Italy, where a large number of renewable energy plants have been installed. The integration of storage systems with renewable plants would make energy production from renewable sources more efficient and, at the same time, the transmission and distribution system more stable and secure. Terna, the Italian TSO who monitors energy storage installation trends in Italy, has recently confirmed this growing demand for storage systems.

Terna have published statistics relating to the type and frequency of storage systems being constructed. As of 31 March 2022, most Italian energy storage facilities have been built in connection with small-scale solar power plants, while medium to large-scale storage systems are less commonplace. Storage systems combined with thermoelectric power plants, fuel cells and wind power plants are still very rare.

Although today the most vibrant market segment concerns small-scale storage facilities, the same growing demand is expected in the future for the installation and development of large-scale storage systems. The Italian Government recently implemented a new legislative framework regulating procedures for energy storage systems aimed at simplifying and fostering their development.

Below, we provide an overview of the legislative framework and some of the issues that should be considered by operators interested in investing in the energy storage sector in Italy.

Energy law and regulation

The Italian regulatory framework concerning energy storage facilities has been evolving rapidly in recent years. However, the legislation is relatively fragmented, given the high number of laws governing different aspects of energy storage facilities.

The Italian Regulatory Authority for Energy, Networks and Environment (ARERA) in resolution no. 574/2014/R/eel define “storage system” as a set of devices and equipment, whose function is to absorb and release electrical energy, and is designed to operate in the electricity grid in order to feed into or withdraw electricity from the grid. Moreover, the resolution specifies that storage systems: (i) may be connected to an electricity power production plant, including renewable energy sources plants or (ii) may stand alone with no connection to any renewable plant. The definition of storage systems does not include the so called “Uninterruptible Power Supplies” or “UPS”, which are electricity storage facilities whose main function is to feed emergency power into the grid in case of failure.

The ARERA also states that storage systems shall be regarded in the same way as electricity production plants, given their ability to exchange electricity with the grid. Therefore, as a general rule, the same provisions that apply to energy production plants on construction, connection and operation, apply to storage facilities too. More specifically, the installation of storage systems and their integration with the electricity grid must be carried out in compliance with various rules on metering, transmissions, dispatching and distribution services. These are: specific ARERA resolutions, the Italian Unified Text for Active Connections or TICA (Testo Integrato delle Connessioni Attive – issued in 2008 by the same ARERA), and other regional and national laws regulating storage facilities. One of the most important laws regarding the latter has been Law-Decree 7 February 2002, n. 7 (the “Decree”), which was converted into Law 9 April 2002, n. 55, and has been amended and supplemented over time. This Law-Decree specifically regulates the authorisation procedures for the installation and operation of storage system facilities.

According to Article 2-quater of the Decree, specific authorisation procedures occur depending on (i) the area where the construction of the storage facility is envisaged, (ii) the power capacity of the production plant to which the storage facility is connected and (iii) the type of energy source (fossil or renewable) powering such production plant. Based on these principles, in general terms, the construction of a new storage facility may be subject to:

1. the so-called “Sole Authorization” (Autorizzazione Unica) granted by the Ministry of the Ecological Transition, or by the competent regions or, if applicable, by the provinces duly delegated by the regions, following an administrative procedure in which all public entities involved shall participate; or
2. a simplified procedure called “PAS” (Procedura Abilitativa Semplificata) pursuant to Legislative Decree 3 March 2011, n. 28.

Storage systems subject to Sole Authorization are, among others, those:

• to be built within the same areas where fossil fuel-fired power generation plants with a capacity higher than or equal to 300 MW are located;
• to be built as stand-alone over non-industrial areas; and
• to be connected to renewable plants yet to be built.

On the contrary, storage systems subject to PAS are, among others, those:

• to be built in quarries or industrial areas;
• to be built within the same areas where fossil fuel-fired power generation plants or renewable plants with a capacity of less than 300 MW are located;
• connected to renewable plants already built or authorised, provided that the construction of the storage facility does not occupy larger areas then those of the relevant renewable plant.

Finally, storage systems with a capacity less than 10 MW do not require any building permit/authorisation. However, they may still require environmental, landscape and/or connection authorisations, where applicable.

Contract design and corporate law issues

The integration of energy storage systems with power production plants, especially renewable plants, has been growing rapidly in recent years. This is because the installation of storage systems maximises the efficiency of renewable plants by regulating electricity flow and reducing energy waste and costs.

The integration of an energy storage facility to an existing renewable energy plant, or one under development, entails regulating its building, use and maintenance through the same contractual mechanisms normally used for the development and operation of the energy production plant (e.g., EPC and O&M contracts). Since the operation of the energy storage facility is strictly linked to the performance of the electricity production plant to which it is connected, the rules and technical prescriptions governing the storage systems should be coordinated with those regulating the power production plant in order to maximise their integration.

Environmental and planning law

Like any other energy production plant, in addition to the relevant building permits, the construction of energy storage facilities may also require environmental and/or landscape permits, clearances or nihil obstat. Such permits are normally required if the installation of the energy storage facility is likely to have significant impact on the environment.

The Legislative Decree 3 April 2006, n. 152 (the “Environmental Code”) lays out the requirements for environmental permits, and the Legislative Decree 22 January 2004, n. 42 (the “Code of the Cultural and Landscape Heritage”) details the same for landscape permits.

In general terms, if the storage facility is built together with a new power production plant, all environmental and landscape aspects relating to both the storage facility and the production plant will be screened in the context of the same administrative procedure. In that respect, it is worth noting that Law Decree 31 May 2021, n. 77, which was brought into effect by Law 29 July 2021, n. 108, introduced measures which simplified environmental permits for stand-alone storage facilities. Among others, this Law Decree provides that the building of stand-alone storage facilities is not subject to any environmental permits, unless these are required for carrying out the relevant connection works.

Site acquisition

Normally, the first step in the development of a new storage system facility is securing the land where the installation of such facility is envisaged. Under Italian law, various options are available to do this.

Usually plots of land are secured either through surface right agreements (“diritto di superficie”) or through sale and purchase agreements.

The surface right grants to the grantee (“superficiario”) an in rem right allowing him to become, throughout the term of the surface right, the owner of all the constructions that will be built on the relevant area. Title to the land remains with the property owner (“proprietario”). On the contrary, the acquisition of the land through sale and purchase agreements grants the purchaser the full title over the land.

The process for the acquisition of land or the surface right is normally a two-step process consisting of the execution of a preliminary agreement and a final agreement. Typically, in renewable energy projects, the final agreement is executed when the relevant authorisations to build and operate the energy storage facility have been obtained. Moreover, it is worth noting that if the project is financed by banking institutions, it may later require a mortgage over the areas occupied by the storage facility.

Public Procurement law

When implementing an energy storage project, it is also necessary to carefully consider the public procurement regulations set out in Legislative Decree No. 50/2016 (the “Public Procurement Code”), which has been amended and supplemented over time.

The Public Procurement Code requires that contracting authorities (i.e. State administrations; public territorial entities; other non-economic public entities; bodies governed by public law; associations, unions, consortia, however named, formed by the aforementioned entities, jointly the “Contracting Authorities”) and contracting entities (public and private entities operating in the so-called "special" sectors: i.e., gas, thermal energy; electricity; water; transport services; ports and airports; postal services; extraction of oil and gas and exploration for, or extraction of, coal or other solid fuels) are bound to carry out public evidence procedures when engaging in the acquisition of services, supplies, works or projects.

Consequently, the Public Procurement Code also applies to private entities that carry out their activities (inter alia) in the energy sector on the basis of special or exclusive rights (e.g., State concessionaires) or private entities over which a Contracting Authority exercises "direct" or "indirect" control.

Therefore, in case of an energy storage project, the various services contracted out by the Contracting Authority throughout the project may be subject to the Public Procurement Code (e.g., construction of a battery storage plant, services).

The basic requirement for the application of the Public Procurement Code is that the value of the works, services, supplies (i.e., special sectors) given to a third party exceeds the so-called European thresholds. As of 1 January 2022, these are:

• EUR 5,382,000 for work contracts;
• EUR 431,000 for supply and service contracts.

As for contracts below the above-mentioned thresholds (i.e., the "sub-threshold contracts”), Contracting Authorities are required to comply with the Public Procurement Code. In comparison, public companies or State concessionaires shall comply with specific rules laid down in their internal regulations concerning sub-threshold contracts.

In addition, the Public Procurement Code also applies to the award of works contracts (above EUR 1 million), or service contracts (in excess of the above listed EU thresholds) subsidised by more than 50% by Contracting Authorities. Thus, if the energy storage project is subsidised by 'public' funds/sources, the private company is subject to the application of public procurement rules.

To view the articles in this series, click here.