Italy Power Market Size & Share Analysis - Growth Trends and Forecast (2026 - 2031)

Italy Power Market Trends and Insights

Accelerated Permitting Reforms Under Legislative Decree 199/2021

Legislative Decree 199/2021 cut solar and onshore wind approval cycles from more than two years to roughly six months for projects under 10 MW, while Decree 190/2024 extended the fast track to repowering and hybrid storage configurations. Over 15 GW of applications were filed between 2024 and early 2025, concentrated in Apulia, Sicily, and Calabria, where resource quality is strongest. Municipal veto power on landscape grounds continues to slow projects in heritage zones, creating regional disparities even as Italy aligns with its EU-wide 131 GW renewable target. Successful execution now depends on synchronized transmission upgrades that absorb intermittent inflows without driving up curtailment. Market participants who navigate local planning risks first can secure scarce grid nodes and lock in early-mover returns.

Grid-scale Battery Capacity Market Auctions (MACSE)

Terna’s 2024 MACSE auction awarded 2.3 GW of 10-year availability contracts, creating the first dedicated revenue stack for storage in the Italy power market. Winning projects, mainly 50 MW lithium-ion systems co-located with solar farms in Apulia and Sicily, address midday oversupply and evening peaks where price spreads topped EUR 100/MWh in summer 2025. The model sidelined pumped-hydro proposals that require multi-year construction and instead favored modular batteries deployable within 18 months. Terna’s 2026 auction is expected to introduce a six-to-eight-hour category, opening opportunities for flow batteries and compressed-air storage. Early project sponsors gain dual upside from arbitrage and capacity payments while shielding solar assets from curtailment, strengthening project bankability in a tight financing environment.

Coal Phase-Out by 2025 Creating Capacity Gap

Mainland coal plants totaling 5.7 GW will retire by end-2025, with Sardinian units following by 2029 once the Tyrrhenian Link is energized. The exit accelerates decarbonization: renewable generation hit 49% in 2024, but it tightens reserve margins during low-renewable spells, pushing Terna to procure 11.5 GW of capacity from Enel and others in the 2025 auction. Gas units will cover the gap, yet LNG price volatility remains a threat, underscoring the need for storage and demand-response scaling. Investors who can monetize flexibility services stand to benefit from rising peak-spread volatility until large-scale batteries reach critical mass after 2027.

REPowerEU-funded HVDC Projects (Tyrrhenian Link)

The EUR 3.7 billion, 1,000 MW Tyrrhenian Link broke ground in January 2025 with EUR 500 million in EU co-funding and is scheduled for commissioning in 2027-2028. Prysmian is manufacturing 480 km of XLPE submarine cable and will maintain the asset for 25 years, capturing long-run aftermarket revenue.^{[3]Prysmian Group, “Tyrrhenian Link Cable Contract,” prysmiangroup.com} Once online, the link lets Sardinia import surplus mainland renewables, enabling the island’s final coal units to close and reducing diesel peaker dispatch that peaked at 15% of summer demand in 2024. Long lead times illustrate why HVDC benefits materialize only beyond 2027, yet securing social acceptance early locks in strategic interconnection capacity critical for 2030 renewable targets.

Grid Congestion in Apulia & Sicily (≥36-Month Delays)

Apulia and Sicily host more than 40% of the renewable pipeline, yet 150 kV corridors designed for north-to-south flows now experience reverse overloads that triggered 8% curtailment in 2024, costing producers over EUR 200 million in lost revenue. Connection requests lodged in 2023 face ≥36-month delays as substations queue for reinforcement, forcing developers to accept interruptible agreements that shift curtailment risk onto project economics. Terna’s EUR 11 billion Hypergrid plan will reconductor southern lines and deploy dynamic-rating sensors by 2034, yet interim bottlenecks threaten to slow the forecast 8.9% renewable CAGR unless temporary capacity payments or grid-forming inverters mitigate risk.

Gas-Import Exposure to Geopolitical Shocks

Despite adding Algerian and Azerbaijani pipelines and floating LNG units in Piombino and Ravenna, Italy still imports about 90% of its gas, leaving power prices linked to TTF hub volatility that topped EUR 50/MWh during winter 2024-2025. Coal retirements deepen reliance on combined-cycle units, so any supply shortfall forces expensive LNG cargos into the merit order. Tariffs for unhedged households rose 15-20% in early 2025, and prolonged price spikes could dampen the 5.04% CAGR of the Italy power market.

Segment Analysis

By Power Source: Renewables Outpace Thermal Replacement

Renewables accounted for 56.1% of installed capacity in 2025, the largest slice of the Italy power market, and are projected to grow at an 8.9% CAGR through 2031. Solar capacity surged by 5.3 GW in 2023, pushing the Italy power market size for solar past 30 GW; utility-scale projects in Apulia and Sicily contributed more than 60% of that buildout. The coal retirement removes 5.7 GW by 2025, cementing solar and onshore wind as primary replacements, though grid bottlenecks could temper momentum. Offshore wind remains marginal until 2028, and hydro expansion is capped by the EU Water Framework Directives, limiting diversification options.

Hydro still contributes 19 GW of reservoir and run-of-river assets, geothermal adds about 800 MW in Tuscany, and biomass-plus-waste holds 4 GW, giving Italy one of Europe’s most diversified renewable stacks. Combined-cycle gas turbines, presently 50 GW, will increasingly swing-dispatch to cover renewable droughts. Open-cycle gas peakers are being phased into synchronous condensers, and no nuclear program is under discussion. Altogether, the renewable surge underpins long-run decarbonization but heightens the urgency of storage and HVDC delivery so that the Italy power market can accommodate variable inflows without systemic risk.

Note: Segment shares of all individual segments available upon report purchase

By End User: Utilities Consolidate but C&I PPAs Rise

Utilities held 66% of installed capacity and electricity off-take in 2025, the dominant share of the Italy power market. Their segment is expanding at a 6.7% CAGR as they procure grid-scale renewables and battery capacity-market contracts that stabilize cash flows. Utilities secured most of the 2.3 GW MACSE awards in 2024, pairing batteries with solar farms to mitigate the curtailment that undermines merchant revenues in southern Italy.

Commercial and industrial buyers are still a smaller slice of Italy's power market size but are growing rapidly through 10- to 50-MW corporate PPAs priced below EUR 60/MWh, outpacing retail tariffs during gas-price spikes. Luxury houses, FMCG companies, and data-center operators are anchoring multi-GW renewable pipelines and forcing utilities to evolve their retail business models. Residential demand, buoyed by the Superbonus solar-plus-storage boom, now contributes a distributed-generation layer that meets up to 70% of annual household consumption for participating homes, squeezing utility margins yet widening the pool of dispatchable virtual power plants as battery adoption spreads.

Note: Segment shares of all individual segments available upon report purchase

Geography Analysis

Southern regions, led by Apulia and Sicily, house more than 40% of renewable applications, reflecting superior solar irradiance and onshore-wind resource quality.^{[4]: Autorità di Regolazione per Energia Reti e Ambiente, “Regional Demand Statistics,” arera.it} These regions also bear the brunt of curtailment, underscoring why Terna has earmarked EUR 11 billion for Hypergrid reconductoring that will raise south-to-north transfer capacity by 50% once completed after 2030. The Italy power market size attributable to southern Italy is poised to grow fastest through 2031, provided congestion relief stays on schedule.

Northern industrial hubs, Lombardy, Veneto, and Emilia-Romagna, consume over 45% of national electricity, making them fertile ground for corporate PPAs that hedge volatile tariffs. Because local solar and wind resources are weaker, corporates import green power from the south, accepting basis risk on grid fees until north-bound HVDC reinforcements emerge. Distributed rooftop-PV adoption is highest here thanks to the Superbonus, flattening midday demand, and altering load-curve dynamics that utilities must price into retail tariffs.

Islands present distinct dynamics. Sardinia’s coal exit hinges on the Tyrrhenian Link energizing by 2028; until then, derogations allow limited coal burn to maintain grid stability. Sicily, already an export-oriented renewables hub, will gain interconnection redundancy via the link, enabling higher renewable penetration and reducing curtailment risk. Together, the islands showcase how HVDC and storage are core to balancing an archipelagic portion of the Italy power market without compromising reliability.