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Italy: Fast Reserve Pilot Consultation

  • Italy
  • Energy and infrastructure - Clean energy

03-03-2020

Highlights

  • Period for comments from stakeholders under the consultation ended on 24 January 2020, comments from industry stakeholders may lead to a second consultation
  • Pilot project aims to open auction for up to 230MW in aggregate of nominal capacity from storage or other projects
  • Expected pricing for providing fast reserve services is between 78,000 EUR/MW and 108,000 EUR/MW
  • Permitting timetable expected to start shortly and to be concluded by Q2 2020
  • Limited scope for private stakeholders to take part in auction

What is the consultation about?

The consultation relates to the proposed roll out of up to 230MW in aggregate of Fast Reserve Unit (FRU) pilot projects. 100MW is to be located in the North and Centre-North of Italy and 100MW is to be located in the Centre-South (including Sicily) and 30MW in Sardinia. FRU, together with other ancillary services under consideration by Terna, is intended to help with:

  1. Keeping frequency and voltage within defined safe limits
  2. Reducing grid inertia caused by an increase in renewables power plants
  3. Addressing increasing steepness of the evening ramp up in the power curve
  4. Addressing over-generation from RES power plants at noon
  5. Grid congestion caused, amongst other things, by renewables power plants being distant from where energy is used

FRU is distinct from primary reserve but works alongside it. FRU provides a continuous and automatic response proportional to the frequency error within 1 second after the event triggering the requirement for fast reserve. Power has to be maintained for 30 seconds after being triggered and decreases to zero within 5 minutes.

When does the consultation end?

Following the launch of its consultation on Fast Reserve Units on 20 November 2019, Terna’s consultation is coming to a close but following observations from industry stakeholders, a second consultation may be required. According to Terna’s website, the consultation ended on 24 January 2020.

What sort of device/generator can take part in the envisaged auction?

The FRU service can be provided by stand-alone devices/generators connected to a single grid connection or by an aggregate of devices/generators. Storage, demand response, stand-alone or aggregated generators can apply to take part in the Fast Reserve service. Fast reserve works on the low, medium and high voltage grids.

A FRU has to be at least 5MW but not more than 25MW – this is to guarantee a sufficient response but also to enable countrywide distribution of the FRUs. Terna intends to pay out in EUR/MW hour using a forward contract with a 3 to 4 year term.

Every FRU has to guarantee 1,000 hours of availability a year and Terna shall give 7 days' notice to FRUs of when availability is required. For non-contracted capacity, FRUs can participate in other ancillary services markets and the wholesale energy market (revenue stacking).

How do you take part in the pilot project auction?

There will be a competitive reverse auction for two regions of Italy – Mainland Italy (including Sicily) and Sardinia. 200MW will be contracted for Mainland Italy and Sicily and 30MW for Sardinia. This amount has been determined for the purposes of the pilot porject.

Without Fast Reserve renewables generation would need to be curtailed; by not curtailing, there is an economic benefit of circa €18 million to €25 million per year (saved costs). On that basis the price for the auction is to be set at 78,000 EUR/MW to 108,000 EUR/MW per year for both areas referred to above.

A pre-auction guarantee has to be paid in 10 business days in advance of the auction date. If a unit has taken part in the capacity market, it cannot tender for the FRU auction.

Timings for the auction

FRU projects will need to be ready in short order. The permitting process is very short and permits are expected to be procured by mid-2020. In Eversheds Sutherland’s view, in practice this means it is likely that only a small number of stakeholders (i.e. utilities or large scale developers) will be able to meet the timetable for participation in the auction.

Overall this is a positive sign that Terna is moving in the right direction to adapt the grid to the increasing percentage of renewables generators in Italy’s energy mix. It is expected that other ancillary services may be promoted by Terna in the coming year.

If you would like to discuss clean energy opportunities, or the market generally, please contact the team below.

For more information contact

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