Italy – The potential of the storage system market

​In a nutshell:

All experts agree that Italy is one of the most attractive storage system markets. Among other things, this is due to the consolidation of the legal framework, the clarification of previously ambiguous issues regarding the possibility of using tax advantages, as well as due to the wide-spread interest in new technologies, and customer demand for environmentally sustainable electricity. Italy‘s great potential is also confirmed by the fact that renowned storage system manufacturers have already expanded to Italy in recent past.

​All studies which deal with the topic of storage systems consider Italy to be one of the most attractive locations for the sale and marketing of storage systems and the related innovative electricity supply models.

In its last year‘s report entitled „Electricity Storage and Renewables – Costs and Markets to 2030“, the International Renewable Energy Agency (IRENA) emphasises that the general interest in new technologies and an increase in demand for environmentally sustainable electricity have encouraged many people to invest in storage systems even if it is not entirely profitable now strictly from the business perspective. Besides Germany, where, according to IRENA, over 55,000 battery systems with a total capacity of approx. 300 MWh were installed between 2013 and 2016, also Australia, the USA and specifically also Italy are regarded as the key markets of the future, which in turn has encouraged many storage system manufacturers to establish their production lines in these markets.

At the same time, in late 2016, the Energy Strategy Group of Politecnico di Milano estimated that the expected potential of the Italian market for storage systems in residential housing facilities would reach approx. EUR 150 million by 2025, while the theoretical potential, also subject to a significant reduction in purchase costs and the creation of appropriate state incentives for subsidising storage systems, such as those in the region of Lombardy, is expected to be much over this value in the range of up to a billion euros.

Retrofit (Installation of storage systems in existing power plants)

 Small-scale storage systems (3kW – 5kW) Mid-scale storage systems (>6kW)
Number of power plants 250,000 50,000
Theoretical market potential EUR 850 – 1,000 million EUR 200 – 400
million
Expected market potential EUR 40 – 50 million EUR 20 – 40 million

Ex novo (installation of storage systems together with a new PV power plant)

Source: Energy Storage Report 2016, Energy Strategy Group – Politecnico di Milano

 Small-scale storage systems (3kW – 5kW) Mid-scale storage systems (>6kW)
Number of power plants 20,000 per year 15,000 per year
Theoretical market potential EUR 500 – 700
million EUR 75 – 100
million
Expected market potential EUR 50 – 70 million EUR 11 – 20 million

Source: Energy Storage Report 2016, Energy Strategy Group – Politecnico di Milano

The attractiveness of the Italian storage system market has increased also due to the consolidation of the regulatory framework, a process which began a few years ago and has now laid solid foundations for the development and offering of innovative business models and for making appropriate investments.

While, for example a few years ago, there was still legal uncertainty as to whether and on what conditions storage systems could be installed in existing power plants that already received state funding (mainly due to Conto Energia regulations concerning PV power plants), the GSE (the authority managing the payment of incentives) not only confirmed in its framework for the installation of storage systems, last updated in June 2017, that the installation of a storage system in an existing PV power plant is allowed and does not result in the loss of the already awarded incentives, but also established regulatory procedures which must be complied with.

This was due to the decisions passed by the state authority responsible for electricity and gas, ARERA, No. 574/2014/R/eel and No. 642/2014/R/eel, which, together with the technical regulations of the Italian Electrotechnical Committee CEI 0-16 (medium voltage) and CEI 0-21 (low voltage), constitute the regulatory framework for the installation and operation of storage systems in Italy. In particular, these regulations prescribe technical requirements which storage systems must meet to be integrated into the grid and set out the appropriate certification modalities which manufacturers must observe to be allowed to import and sell storage systems in Italy.

In addition to the now definitively confirmed compatibility of storage systems subsequently installed in existing power plants with the funding tariffs set out in the Conto Energia regulations, the Italian tax authority has also clarified another issue which has been of utmost importance for end consumers in deciding whether to invest in storage systems or not.

End consumers who install a PV power plant in their residential property have the option – based on the Presidential Decree no. 917/1986 and the Circular Letter No. 22/E of 2 April 2013– to deduct the respective costs for tax purposes.

According to the said regulations (whose applicability has been so far confirmed by the legislator year after year), private individuals can currently still deduct expenses incurred in 2018 for the installation of PV power plants, at up to 50% of the costs but maximally EUR 96,000.00, from personal income tax. The expenses can be deducted from the personal income tax in the year of mounting or of the first payment and over the subsequent nine years in the same amount.

Previously, however, it wasn‘t clear whether also the costs incurred for the installation of storage systems –irrespective of whether such storage systems were installed along with or after the installation of the power plant–  should be treated as deductible within this framework; this caused considerable uncertainty on the market as regards the calculation of the economic benefit of buying a storage system.

This aspect has recently been clarified by the Italian tax authority in the Circular Letter No. 7/E of 27 April 2018 where the tax authority confirms that the installation of a storage system does allow deducting the appropriate costs for tax purposes and this is irrespective of the fact whether the storage system was installed together with the PV power plant or afterwards.

The attractiveness of Italy in terms of energy storage is also reflected in the statistics concerning the installation of this technology, recently published by GSE. According to GSE‘s 2017 report, as of 31/12/2017, the authority received a total of 1,445 registrations regarding the installation of storage systems in PV power plants already subsidised by GSE, 942 of which related to the year 2017 and the other related to other batteries installed in prior years.
 

Source: GSE

If you consider the fact that these reports only related to storage systems installed in PV power plants subsidised by GSE, while non-subsidised PV power plants are not subject to such a registration obligation, and that the regulatory framework has been consolidated only in the last two years, then the increase in new installations in 2017 (nearly +100% on the previous year) confirms the enormous potential of the Italian storage system market, predicted by all international studies.

In this context, it should also be taken into account that PV power plant owners currently have the option to sell any excess electricity that they generated but did not consume to GSE on favourable conditions through the so-called Scambio sul Posto as part of a net metering procedure which is easy to navigate for end consumers. Thus, the public electricity grid serves as a kind of a virtual storage system, which currently makes the installation of a storage system less attractive. However, if –as many market observers have already speculated– the Scambio sul Posto, which is financed from a surcharge added to electricity bills, is abolished, this will encourage even more PV power plant owners to specifically opt for the installation of a storage system.

Thus, all indications are that the Italian storage system market will develop favourably and, finally, this has also been confirmed by the fact that many renowned German and international storage system manufacturers have already expanded to Italy to seize the opportunities there and to gain a competitive advantage before other competitors decide to enter this market.