M&A activity in the Italian energy and utilities market remained particularly prolific in 2024, not only thanks to European (so-called Green Deal) and national (PNIEC) decarbonization goals, but also due to energy security objectives imposed by the changed geopolitical framework. The year 2024 saw a remarkable volume of M&A deals in the energy and utilities sector, including both electric and gaseous renewables.
Looking in detail at the evolution of the market in the past year and in the first quarter of 2025, it was certainly possible to see that the ongoing transition process is now no longer only about generating energy from renewable sources and reducing emissions, but more generically about diversifying generation sources and prospectively modernizing grid infrastructure, given the growing need for flexibility, resulting from the diversification of non-programmable generation sources-along with the integration of digital infrastructure into the grids, which is also likely to play a significant role in improving the grids management.
New directions for growth: storage and biomethane.
In this general framework, alongside major operations in the electricity and methane and LNG sectors, the attention of investors has therefore gradually turned to the electrochemical storage market (storage, BESS) and the development and/or conversion of projects dedicated to the production of biomethane from organic waste and agricultural wastes/by-products, the latter supported of the MASE Decree September 15, 2022, which has been able to benefit from the European resources made available by the National Recovery and Resilience Plan, while the approaching of the related terms of entry into operation is reducing the prospects of return on investment and therefore the valorizations.
In the first case, an element supporting investment was the favorable regulatory framework that introduced the new mechanism "MACSE" (Mechanism for the Supply of Electric Storage Capacity) to regulate the supply of storage capacity by Terna whose first auction will be held on September 30, 2025, but sources of cash flow could also be constituted by off take contracts, tolling agreements as well as Capacity Market also combined with each other as well as with a merchant approach thanks to the expected spread of optimization agrements.
At the same time, in 2024 biomethane emerged as a strategic carrier thanks to the economic support offered by National Recovery and Resilience Plan, which provided about 1.7 billion euros to support renewable gas production, triggering investments on numerous industrial-scale projects, supported by incentive tariffs-the first two of which expire at the very end of 2024 in the first quarter priority access to the grid.
Last June 7, the amount of resources was, moreover, increased thanks to the Commission's approval of the Italian request to proceed with the reallocation of 640 million euros from the measure originally dedicated to hydrogen in hard-to-abate industrial sectors toward the development of the biomethane market, with an expiration date of June 2026. This is a significant measure which may not, however, achieve its goals in view of the challenging deadline for the commissioning of the plants.
When determining the cash flows of investments in biomethane production facilities, it should also be taken into account that Article 5-bis of DL Agricoltura introduced extension of the definition of self-consumed biomethane also to biomethane consumed, at a site other than the production site, by an end customer active in the so-called "hard to abate" sectors who has signed with the producer a special contract of purchase and sale of biomethane, i.e., a so-called corporate BPA or CBPA, and that on May 16, 2025, the GSE published the new DM Biomethane application rules, which better detail the main terms and conditions of CBPAs, the main objective requirements to be met by the relevant biomethane plant from time to time, and the subjective requirements of the parties involved in signing a CBPA. These regulations have created the preconditions for a growing market that could result in a different valuation of assets in M&A transactions involving such assets.
The regulatory framework and additional tools to support renewable energy
The current regulatory framework, although complex, offers significant opportunities for industry players. Among the most relevant instruments are the FER X Transitional mechanism for incentivizing mature RES solar (wind, hydro and residual gas plants) and the expected definitive FER X, thus fostering the bankability of more projects hitherto based substantially only on poor access to FER 1 in addition to Long Term Trader PPAs and physical and virtual Long Term Corporate PPAs meeting specific requirements.
Regarding RES 2 - which aims to support the realization of 4.6 GW in total between 2024 and 2028 - just at the beginning of 2025 the operating rules were published disciplining the competitive procedures that will determine its allocation to vary between €100/MWh and €300/MWh depending on the technology and power and an obvious favorable regime for offshore wind with 3.8 GW. However, the great anticipation for the launch of tenders dedicated to off-shore wind is likely to persist pending an adequate number of projects that can participate in truly competitive auctions.
On the other hand, the Transitional FER X - whose approval decree dates back to last February - allocated 9.7 billion euros to a temporary mechanism designed to promote the construction of new plants whose notice will be published on July 14, 2025, as stated by GSE's head of regulatory affairs Davide Valenzano at a conference held at ADVANT Nctm's Milan office. This pending the definitive FER-X mechanism that is expected to be approved by the fall of 2025 and encourage the construction of additional plants for the period 2026 - 2029.
Equally focused on the mechanism of Contracts for Difference (CfDs) is the so-called Energy Release 2.0 mechanism, introduced by Decree Law No. 11 of December 9, 2023, as subsequently amended, for which we remain awaiting the definition of the rules at the outcome of the pending discussions between MASE and the European Commission
Moreover, the aforementioned measures are part of a general regulatory framework reorganized by the Consolidated Text on Renewables, also adopted last year-which, on the input of European legislation, finally brought procedural simplifications and rationalization in the field of authorizations, simplifying processes and clarifying interpretative uncertainties, and for which further developments are awaited that will be included in the corrective decree expected by the end of the year.
Compared to forecasts, Italy will continue to be an attractive market for traditional and infrastructure fund investments due in part to the bankability of projects supported by incentive schemes and the significant number of route-to-markers made available by the MASE.
This attractiveness will also affect sectors serving new installations such as EPC Contractors and O&M Operators in addition to ESCOs and operators generically active in energy efficiency, but market fragmentation appears to be an obstacle.
Risks related to virtual grid saturation
Given the early stage status of many RES plant development initiatives for which the capacity of grid has been booked (and the related project not yet validated), it is likely that many of these projects will never be implemented.
In this context, in recent months the MASE and Terna have initiated the preparation of strategies to avert potential risks of virtual grid congestion related to the considerable amount of connection requests related to these embryonic projects.
By the end of the year, therefore, an almost revolutionized grid connection regulatory framework compared to the current one is expected to be approved, which could have a major impact on current and future investments in the renewables sector.
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