The launch marks the first step in the transition from a system based on mandatory provision of frequency response services toward a competitive market-based model under the TIDE framework.
FCR is one of the most critical ancillary services in the power system, acting as the first line of defense against frequency deviations. Historically, Terna has relied on mandatory and unpaid reserve obligations imposed on eligible generation units, ensuring a high level of system security but little in terms of economic efficiency. The new framework aims to replace this approach with a dedicated market through which Terna can procure the required reserve capacity competitively.
The initial phase will be experimental and will run for six months. During this period, existing mandatory reserve requirements will remain in place, while Terna procures additional FCR volumes through a new auction-based mechanism. Mandatory obligations will then be gradually reduced over a period of up to two years before a full transition to market-based procurement.
The new FCR market will operate as a day-ahead capacity auction. Market participants will submit sealed bids offering reserve capacity in EUR/MW, with successful providers committing to keep a portion of their capacity available to respond automatically to frequency deviations. The auction will take place on the day before delivery, with bids submitted between 10:00 and 16:20 and results published at 16:30. The new FCR market will use a system marginal pricing model, meaning all successful participants receive the price of the last accepted bid.
The launch is expected to create a new revenue stream in Italy’s BESS revenue stack, where ancillary services can account for between 60% and 75% of total revenues during the shoulder months of spring and autumn. This is because during these periods, high renewable generation and lower demand increase congestion, drive renewable curtailment, and raise the value of services needed to maintain system stability.
Market participants remain divided on the long-term revenue significance of the new product for BESS operators. One source described FCR as a potentially attractive opportunity to be added on top of existing secondary and tertiary reserve markets but cautioned that the relatively limited procurement volumes could leave the market vulnerable to rapid cannibalization as battery participation grows. The source pointed to Germany, where FCR initially represented a key revenue stream for BESS but became quickly saturated over time, causing revenues to decline and shifting market focus toward secondary reserve products. Another market participant characterized FCR as a “nice-to-have” revenue stream rather than a core investment driver, noting that while first movers could benefit from attractive returns during the early stages of the market, secondary and tertiary reserve products are still expected to represent the larger long-term opportunity for Italian storage assets.
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