Italy’s Energy Transition: Navigating Regulation, Financing, and Battery Storage
Viola Caon
At the beginning of the month [1 October 2024], Bird & Bird hosted the Italian Briefing and Ice-Breaker Drinks event in the firm's Milan offices ahead of inspiratia's Investing in the Energy Transition event.
Attended by around 100 key industry players from across the energy transition spectrum, the event was an occasion for local as well as international market participants to convene and learn about various aspects of the Italian investment landscape.
Read a full account of the day in our PDF report - available now:
Regulatory arena
- Federico Cardini, Country Manager - Uniper Renewables Italy, Uniper
- Elena Macchi, Team Head Legal Italy, Aquila Capital
- Salvatore Casa, Partner, Elemens
- Alessandro Ceschiat, General Manager, Italy, Enfinity Global
- Moderator: Simone Cadeddu, Partner, Bird & Bird
One of the key features that is attracting international interest in the Italian market is the evolution of regulatory frameworks and upcoming auctions that are aimed at rolling out renewables as well as new technologies, in particular energy storage.
This summer, the FER 2 decree allocated a total of 3.8GW capacity to offshore wind, while the industry is in waiting mode for the announcement of both the FER X decree and the Mechanism for the Acquisition of Storage Capacity (MACSE).
The regulatory panel opened by stating the importance of taking an innovative approach to renewables investing in the lead-up to net-zero targets in order to avoid taking a commodity-like approach to it.
While the objectives laid out by the Italian government are an encouraging signal for the industry, at times they are contradictory, the panel noted. According to panellists' estimates, in order to reach the 55% emission reduction target by 2030 and the net-zero target by 2050 set by the authorities, a rollout of 57GW of solar PV and roughly 17GW of wind are needed every year.
At present, volumes stand at around 1GW and 600-700MW, respectively, panellists reported.
A discrepancy between frameworks being implemented at national versus regional level is also a significant hurdle for both local and international investors, the panel pointed out.
The Suitable Areas (Aree Idonee) decree, which came into effect this summer [2024], for instance, gave regions wide autonomy to decide what areas are or are not suitable for solar PV development.
In some regions, this meant that the authorities declared large agricultural areas no longer suitable for solar development to satisfy local landowners' requests.
The disconnection between national and regional often leaves developers and investors to do the legwork of explaining to stakeholders why the energy transition is important to achieve from an investment perspective.
On the other hand, regulation and development processes for battery energy storage systems (BESS) seem to be smoother and faster. Part of the reason is that, while the regulatory framework has a long way to go to be as stable as possible, adequate incentives are in place, the panel agreed.
Financing the Energy Transition: Italy
- Francesco Lucarini, Associate Director, Rabobank
- Teresa Gaglio, Project Finance, Banco BPM
- Raffaele Ciotta, Investment Director Southern Europe, Foresight
- Moderator: Pierpaolo Mastromarini, Partner, Bird & Bird
Financing models are in need of a revamp as new technologies, bearing new risks, are becoming increasingly key to supporting the rollout of traditional renewables at scale to achieve net zero.
While the panel noted that the perception of investment risk varies significantly between local and international lenders, players across the board have become more creative in coming up with financing structures that are suitable for emerging technologies.
A macroeconomic context characterised by high interest rates, high inflation and high volatility has pushed lenders to move away from traditional project finance structures.
Most importantly, some noticed, growing geopolitical risks in commodities that are essential to the transition to net zero are leading to a deglobalisation trend where volatility remains high.
In the resulting context of persistent volatility, CapEx for most projects is unlikely to return to pre-Covid levels. Lower gearing and returns will progressively push funds to use, for instance, non-recourse financing.
As a result, corporate finance, mini-perms, mezzanine, bridge-to-project finance, and construction financing are all gaining grounds to support the transition, in Italy as well as in wider Europe.
The evolving asset class: Battery storage
- Giovanni Paolo Di Giovanni, Senior Director, JLL
- Fabrizio Ciaccia, Vice President EMEA, NHOA Energy
- Roberto Jimenez, Executive Director, BW ESS
- Francesco Oppici, Co-Founder & CPO, Energy Dome
- Moderator: Andrea Semmola, Partner, Bird & Bird
Italy is a key market for BESS in Europe, the panel unanimously agreed. Market participants across the board have high expectations of the upcoming MACSE auction, which is expected to be particularly lucrative.
Some participants shared their experience as first movers in the sector in the Italian market and, while sounding enthusiastic about the opportunities, pointed out that the challenges are plenty and ever evolving.
Some players approached the sector by investing in microgrids first, and many highlighted how time constraints remain the biggest hurdle to the rollout of BESS projects in the country.
Echoing remarks about the evolving nature of project financing, the panel debated the features that would make BESS eligible for infrastructure or project financing-adjacent structures.
While fully merchant is broadly seen as being a few years away, projects that are being prepared in view of the MACSE auction feature large clubs of commercial lenders. Panellists highlighted that while BESS is different from solar PV, especially from a risk profile perspective, and therefore requires different structures, the presence of a solid capacity market is an encouraging sign for anyone considering investing in the local market.
The panel concluded that, overall, Italy is at present a safer market compared with the UK, especially thanks to MACSE, which means investors – unlike in the UK - can enter without having to take on more risk through merchant deals to obtain healthy returns.
