Did you miss out on Italy's MACSE Auction? Here is why you shouldn’t give up

So, you've missed out on securing a contract in Italy's hyper-competitive first MACSE auction. The question now is: what should you do next when it comes to the Italian battery market?

Our recommendation is to push ahead, but with a critical strategic choice.

This first auction was not a one-off event; it marked the opening 10 GWh round of a 50 GWh marathon. With 2 more MACSE auctions needed to meet Italy's storage targets to 2030, the ‘dust yourself off and try again’ approach remains entirely valid – though undeniably it comes with its own challenges.

Developers now face a pivotal decision. Do you learn from these tough results, refine your bid, and compete fiercely in the next MACSE auction, or, pivot to a targeted merchant strategy, capturing value where subsidies won’t reach? What alternative routes-to-market exist beyond MACSE, and how do opportunities vary across the different market zones in Italy? 

What the First Auction Taught Us

The first MACSE auction was a watershed moment. As anticipated, it was heavily oversubscribed - by more than four times - and cleared at rock-bottom prices, averaging roughly €13,000/MWh/year. That’s 65% below the auction price cap of 37,000 €/MWh/year, and well below market expectations.

First MACSE auction clearing prices (source: Terna)

Through the auction, Terna, procured 9.9 GWh of new stand-alone, long-duration (6-8+ hour) battery capacity in the Centre South, South & Calabria, Sicily and Sardinia price zones. This is under 15-yearly contracts starting 2028 through 15 lithium-ion battery storage (BESS) projects, with an associated investment volume of around €1 billion.

Enel largely dominated the auction, securing two-thirds of total capacity and over 80% of the capacity awarded in the South. In total, Enel will control over 1 GW/ 6 GWh of capacity to be deployed across the South and Centre South market zones.

Clearing prices were very competitive. To stand a chance in the next rounds, your cost structure, supply chain, and bidding strategy must be ruthlessly optimised.

The cannibalisation paradox: a crowded gold rush

Investors are now facing a paradoxical pull to and push away from the Southern zones:

1. The ‘pull’: the Southern market zone and the islands are, according to Baringa’s market scenarios based on market fundamentals, the most attractive merchant battery markets in Italy. They combine the highest renewable penetration, the most significant grid constraints, and consistently deliver the largest energy arbitrage spreads across the Day-Ahead (MGP) and Intraday (MI) markets. This is where the highest merchant revenues exist today.
2. The ‘push’: MACSE has just injected 10 GWh of state-backed, long-duration capacity into these exact same zones, with another ~40 GWh to follow.
   While volumes for the first MACSE auction were known in advance and largely ‘priced in’ by investors and developers, the pressing question now is: to what extent will this new MACSE-backed capacity cannibalise revenues for merchant projects, especially in the shallower ancillary services market, and how many more MACSE auctions lie ahead? 

While volumes for the first MACSE auction were known in advance and largely ‘priced in’ by investors and developers, the pressing question now is: to what extent will this new MACSE-backed capacity cannibalise revenues for merchant projects, especially in the shallower ancillary services market, and how many more MACSE auctions lie ahead? 

The new longer duration (6-8 hours) batteries awarded MACSE contracts in the first auction are designed for solar load-shifting through time-shifting contracts. By absorbing daily volatility, they will inevitably compress energy and ancillary service revenues for merchant assets.

Against this backdrop, and with a substantial pipeline of authorised and pending BESS assets, what are the viable paths forward for investors? 

The two paths forward – MACSE or “hybrid merchant”?

Path 1: try again - participate in the next MACSE auctions

In 2026, two further MACSE auctions should take place: 

• One will have again lithium-ion BESS as a reference technology and will award capacity for 2029 delivery
• One will have pumped-hydro storage as a reference technology (this auction will, however, only go ahead if a minimum of two projects per zone participate)

Terna plans to allocate an additional 40 GWh of BESS capacity – subject to adjustment based on volumes awarded in the upcoming capacity market auction for 2028 delivery. This will split between the 2026 MACSE auction dedicated to lithium-ion BESS and a further auction in 2027 for delivery in 2030.

Terna might make some regulatory updates ahead of the next auction, and introduce some zonal limits for capacity to be allocated to a single participant. While not yet confirmed, such a change could curb the dominance of incumbent utilities, easing bidding pressure, and creating opportunities for more participants to succeed in the auction. From a merchant revenue perspective, this would also reduce concentration in the ancillary services and balancing markets (MSD) market, potentially supporting higher revenues for merchant assets.

Whether these regulatory changes materialise or not, MACSE success is reserved for those with ultra-lean cost structures. Winning isn’t just about a smart arbitrage model; it's about supply chain mastery and economies of scale. Operational excellence will be critical: invest in supply chain resilience, O&M optimisation, and digital tools to cut costs and boost bid competitiveness. Only then can auction participants submit bids that survive in a world of €13,000/MWh/year clearing prices. At those levels, most projects would fail to generate sufficient returns or cash flow to support project finance. Investors pursuing this path must also be willing to accept low IRRs - typically in the range of 5-6% unlevered. 

Path 2: pivot (the merchant and ‘hybrid merchant’ play) 

If competing in the 'MACSE race' isn't your strategy, the alternative is a merchant pivot. This path is about avoiding the MACSE crowd and finding value where they aren't. This pivot itself has two distinct variations:

1. The ‘overlooked’ North (North and Centre North market zones): while all eyes were on the MACSE auction in the Southern market zones and on the islands, Italy's other key support scheme, the Capacity Market (CM), has been awarding significant capacity to batteries in the North, Centre North and Sardinia. The North market zone has less subsidised competition and, as Italy's industrial heartland - where the bulk of industrial demand is located, the battery's value is less about solar arbitrage and more about grid stability, capacity for high-demand centres, and rapid-response ancillary services. Terna should hold one (or possibly two) new capacity market auctions in 2026 for 2028 (and possibly 2029) delivery. While capacity market auctions have historically allocated most new BESS capacity in the North and in Sardinia, in light of the 1st MACSE auction results we expect the next capacity market auction to be very competitive and may also support BESS projects in the South. Compared to MACSE, capacity market contracts offer the benefit of being fully stackable with other merchant revenue streams.
2. The South and the islands (Centre South, South, Calabria, Sicily and Sardinia): going merchant in the Southern and island market zones is now a high-stakes, high-skill game. The long-duration arbitrage play is gone, replaced by speed and agility. This strategy would use shorter-duration (e.g., 4-hour) assets to out-manoeuvre the slower, 8-hour MACSE assets. Success here is no longer about the Day-Ahead spread. It's about a sophisticated bidding strategy in the ancillary services and balancing markets (MSD), capturing value that the long-duration assets are not optimised for. Hybrid BESS projects, co-located with mainly solar assets could help merchant assets reduce the merchant risk, reduce development costs through shared infrastructure, and increase revenues from energy arbitrage. Moreover, installing BESS assets in co-location with its existing industrial sites could also help the deployment of new BESS capacity, by leveraging available land and pre-existing grid connections. However, the risk of policy overreach is also significantly higher in these market zones, and returns will hinge on the volumes of MACSE-backed capacity to be awarded – projects which benefit from a significantly lower cost of capital compared to merchant projects.

In addition, tolling agreements, revenue hedges, hybrid and corporate PPAs could also support merchant projects both in the Northern and Southern zones and on the islands. These financing structures can reduce the projects’ risks by providing stable and predictable revenue streams, making them more bankable and unlocking access to cheaper debt. 

In particular, tolling agreements have recently surged in the North of Italy, with over 3 GW of agreements signed. This trend is likely to accelerate as developers increasingly adopt a route-to-market strategy that combines capacity market participation with tolling agreements, and as the landscape of asset optimisers evolves in Italy. It is also reasonable to expect that tolling agreements offered by creditworthy utilities and traders - including those operating in Southern market zones - will emerge as a key alternative to MACSE in these zones.

The growth of tolling agreements and hybrid PPA structures shows how the Italian market is evolving beyond an pure ‘incentive’ or pure ‘merchant’ market, highlighting how combining different financing options and revenue streams can become a profitable and bankable ‘hybrid merchant’ strategy.

Furthermore, unsuccessful MACSE bidders looking for alternative routes-to-market for their ready to build BESS assets, should consider M&A activity, joint ventures and partnerships. These strategic alliances allow you to combine skillsets between for example local developers, asset owners and financial investors, reducing risks and helping to scale larger BESS projects.

Partnerships and acquisitions of projects with advanced permitting status is also a valuable strategy to overcome the challenges and bottlenecks posed by grid connection and general permitting. New BESS projects in Italy need first to receive gid connection approval by Terna, followed by a ministerial approval by the Energy Ministry (MASE) under the ‘Autorizzazione Unica’. Currently there are severe bottlenecks in the grid connection process - as Terna is facing several GWs of grid connection requests - and over 34 GW of BESS projects currently undergoing the ‘Autorizzazione Unica’ procedure, 45% of which are located in the South market zone. While this signals a very strong interest in the Italian BESS market by national and international investors and developers, grid connection security should become a priority for investors.