Electricity storage and state aid

1. Introduction

It is well known that the European Green Deal (EGD) represents a significant challenge for the European Union and its Member States, requiring substantial investments and innovation in clean technologies. ¹ In this context, state aid policy is critical in enabling the EU to meet the EGD's objectives, which is why the Commission has revised the state aid framework. More recently, the Commission has called for a further revision of state aid rules through the Clean Industrial Deal (CID), which aims to foster innovation and growth in the clean industry sector. ² This strategy is intended to strengthen Europe's competitiveness in global markets by supporting a stronger European industrial base, all while advancing the decarbonization of industry in line with climate targets. The energy-intensive industries and the clean-tech sector are the main priorities of the strategy. ³ The CID does not replace the EGD, whose long-term objective of climate neutrality by 2050, together with the intermediate target of a 55% reduction in greenhouse gas emissions by 2030, remains in place. ⁴

Yet these ambitious strategies also raise important questions. Financing the decarbonization of the capital-intensive energy sector requires significant private investments, but such investments also depend on predictable and stable legal frameworks. At the same time, the green transition demands constant revision of the legal framework to reflect evolving realities, which can discourage private investors. State aid policy is not exempt from this dynamic. The need for a more permanent state aid framework to foster the development of a clean industry in Europe has been constantly emphasized. ⁵ Moreover, state aid rules need to be carefully designed and fully aligned with EGD goals to support its effective implementation. ⁶

This paper focuses on electricity storage systems, one example of the clean technologies whose development and deployment are crucial for achieving the Green Deal's objectives, and examines how the recent revision of state aid rules can enable investments in such technologies. In 2020, the European Parliament called for a revision of the Commission's guidelines on state aid for environmental protection and energy to address electricity storage, as the previous guidelines contained only a single, indirect reference to such technologies and very few state aid measures had been notified. ⁷ Since then, the state aid framework has undergone a profound transformation, reflecting a broader reassessment of electricity storage systems within EU strategies.

Electricity storage technologies have long been considered among ‘the most complicated and least well-understood low-carbon technologies’, ⁸ yet they are essential for implementing the green transition. The promotion of these technologies has become one of the EU strategic priorities in recent years, and it is gradually emerging as an essential component of energy systems. ⁹ This is driven by the need to meet the ambitious decarbonization targets, which call for a significant increase in the share of renewable energy sources in the energy mix. This shift necessitates the search for new solutions to integrate renewable generation into the electricity system without compromising its reliability. Photovoltaic and wind generation are in fact inherently intermittent and cannot consistently meet electricity demand: electricity storage systems thus play a pivotal role, as they can store electricity during times of excess generation and release it into the electricity system when needed. In short, electrical energy can be converted into another form of energy and later reconverted into electrical energy. ¹⁰ The main methods for storing large amounts of energy using electricity include mechanical (pumped hydro, compressed air, flywheels), thermal (molten salt), electrochemical (batteries), and electrical (supercapacitors). ¹¹

Nowadays, the technologies most widely used in Europe are batteries and pumped hydro. Batteries convert the chemical energy contained in their active materials into electrical energy through electrochemical reactions, while pumped hydro uses off-peak electricity to pump water uphill into a reservoir, which is then released back downhill through a turbine to generate electricity during periods of higher demand. ¹²

The benefits of electricity storage go beyond simply shifting renewables generation in time, enabling its use at different times from when it is produced. These technologies can also provide additional services to the electricity system, which can further contribute to its security. For example, they can reduce the effects of network congestion during times of significant imbalance and enable the avoidance or at least the deferral of network upgrade costs, among other services. ¹³ In other words, they can relieve stress on the grid when there is too much generation or demand at the same time, keeping the electricity system more stable, and postpone or avoid costly investments needed to expand or reinforce the electricity network.

Electricity storage systems, furthermore, have a variety of applications. It is useful to distinguish between stand-alone and behind-the-meter storage systems. The vast majority of storage systems worldwide are stand-alone: this means that they are not paired with any generator and are generally deployed to provide services to the broader electricity network, such as supplying additional capacity during periods of system stress. ¹⁴ Behind-the-meter storage systems, on the other hand, are generally small-scale and installed on customers’ premises, whether residential, industrial or commercial: they can store electricity from an on-site generator, the grid or both. ¹⁵

The EU legal literature ¹⁶ on the subject is still very limited, mainly focused on the regulatory barriers for the development of these technologies. This paper aims at contributing to the legal discussion by investigating how state aid rules address the role of electricity storage. For the first time, Directive 2019/944 provided a definition of ‘energy storage’ at the European level. This definition, however, is quite broad, as it includes also the reconversion of stored energy not necessarily into electricity but also for ‘use as another energy carrier’ ¹⁷ such as for heating, cooling or for the production of gas and other derivatives. In principle, the energy storage services shall be carried out as market-based and competitive activities. ¹⁸ In a recent Working Document, the Commission has emphasized the importance of public funding for the financing of these systems to overcome investment barriers, while also acknowledging the need for tailored support specific to these technologies. ¹⁹ The high costs and the lack of remuneration mechanisms are among the barriers for the wider deployment of energy storage. ²⁰

In recent years, several Member States have introduced schemes specifically aimed at promoting electricity storage, that have been notified and approved by the Commission as state aids under Article 107(3), point (c), TFEU. Some have been assessed under the Temporary Crisis and Transition Framework (TCTF) ²¹ and under the Climate, Energy and Environmental State Aid Guidelines (CEEAG). ²² In particular, Italy has developed a highly innovative mechanism for promoting electricity storage, known as MACSE, which is very different from the conventional schemes implemented in the other Member States. ²³ The mechanism is aimed at promoting the large-scale deployment of stand-alone storage systems, ²⁴ which is necessary to ensure the ‘flexibility’ of the electricity system. ²⁵ As previously stated, the increasing share of renewable energy sources, particularly wind and solar, poses challenges to the security of the electricity system. In fact, because these sources are inherently intermittent and non-programmable, sudden fluctuations in their generation can compromise the stability of the electricity system. ²⁶ Thus, an important storage capacity is necessary to provide the electricity system with ‘flexibility’; that is, the ability to cope with the variability of electricity flows (changes in generation and consumption) due, for example, to intermittent renewable generation or unexpected events. ²⁷ The ‘flexibility’ of the electricity system is therefore essential to ensuring its security. In the absence of ‘flexibility’, the combination of increasing intermittent renewable energy sources (wind and solar) and the phase-out of programmable fossil-fuel plants (such as coal-fired stations) can cause instability, potentially leading to large-scale blackouts. ²⁸ This mechanism is also referenced in the recent EY report on the ‘Renewable Energy Country Attractiveness Index’, which identifies Italy as one of the top 10 countries – sixth worldwide – for the ‘most attractive [battery energy storage systems] investment opportunities’. ²⁹ Also, the MACSE has been notified to the Commission and approved under Article 107(3), point (c), TFEU and assessed under the CEEAG.

This paper addresses the following research questions. How do EU state aid rules address electricity storage technologies, and are they effective in fostering their deployment? Could MACSE have been considered as providing compensation for the performance of a service of general economic interest (SGEI) in line with the Altmark conditions, thereby escaping the classification as state aid?

This paper aims first to describe the main traits of the support schemes implemented in many Member States targeting electricity storage technologies (section 2). Then, it will assess the state aid framework surrounding the approval of the recent schemes, highlighting some innovative aspects and addressing specific shortcomings (section 3). Moreover, it will examine the functioning of the MACSE, which is regarded as highly innovative compared to the other support schemes (section 4). It will question whether MACSE remuneration qualifies as state aid, in light of the Altmark conditions and the Commission's practice (section 5).

2. An uncoordinated approach

In recent years, several Member States have notified the Commission of support schemes for electricity storage. These schemes differ significantly in their design, reflecting the absence of a coordinated strategy among Member States for the promotion of electricity storage. First of all, the typology of aid granted is very different. These schemes have included investment aid in the form of direct grants, ³⁰ operational supports in the form of a two-way contract for difference (CfD), ³¹ or a combination of both ³² as well as investment aid in the form of direct grants and repayable loans. ³³ Also, the scope of the notified schemes varies considerably. Some schemes target specific technologies, such as batteries ³⁴ – sometimes focusing only on li-ion while excluding others like redox flow – or broader categories like batteries and pumped hydro storage, as these are considered sufficiently mature. ³⁵ Others are in principle targeted to all electricity storage technologies, provided that specific technical requirements are met. ³⁶ Furthermore, many foster specific applications, such as stand-alone systems, ³⁷ while others have developed schemes promoting electricity storage technologies together with renewable-related projects. ³⁸ Moreover, the source of funding varies considerably. Some schemes have received funds under the Recovery and Resiliency Facility, ³⁹ as specific reforms and investments connected to electricity storage were introduced in many Recovery and Resilience Plans. Others have received funds from other EU instruments, such as the Modernisation Fund, ⁴⁰ that are addressed to specific Member States. Revenue from mandatory levies imposed on electricity users or state budget can also contribute to financing these measures. Moreover, not in all schemes will the beneficiaries of the financial support be selected through a competitive tendering process. ⁴¹ One important issue that has been raised is the problem of cross-border participation. The Hungarian scheme, for example, limits the participation to the tender for the financial support to foreign capacity; nevertheless, this has not been considered a barrier to the approval of the aid, as this was justified by the lack of specific technical connections that can affect the participation of installations from other Member States. ⁴²

3. More flexible state aid rules

These support schemes targeting electricity storage technologies have been approved under Article 107(3) TFEU. In fact, state aid, while in principle prohibited, can nonetheless be deemed compatible with the internal market under Article 107(2) and Article 107(3) TFEU. Member States must notify the Commission of any planned state aid measures, unless these measures meet the conditions outlined in the General Block Exemption Regulation (GBER). ⁴³ In order to promote the green transition, the Commission has sought to simplify the granting of state aid by taking two main approaches: on the one hand, it has revised the GBER to expand the exemptions from notification requirement; on the other hand, it has worked to create legal certainty in the exercise of its discretionary powers when applying Article 107(3)(c). This second approach has been implemented through the revision of the CEEAG. As is well known, the CEEAG outlines the common assessment principles guiding the Commission in evaluating aid that facilitates the development of economic activities promoting environmental protection or energy sector activities, as long as aid falls within the guidelines’ specific categories. ⁴⁴ Furthermore, in March 2023 the Commission adopted the TCTF to offer more flexibility under state aid rules for the additional support granted to companies affected by the rise in energy prices as a result of the energy crisis. The adoption of the TCTF was also deemed necessary to address the potential negative impact of the U.S. Inflation Reduction Act on the EU. The Act provided significant incentives for companies with key expertise in green technologies to move their production facilities to the United States, with a consequent risk for the EU to lose critical know-how; nevertheless, the Trump administration is expected to prioritize dismantling it. ⁴⁵ The TCTF was set to expire in 2025, and as a temporary framework, it was generally considered insufficient to foster the development of a clean industry in Europe. ⁴⁶ Building on the experience gained from the TCTF, the Commission thus introduced the Framework for State aid measures to support the Clean Industrial Deal (CISAF) as a more stable, long-term instrument, designed to remain in force until 2030.

All these acts extensively mention electricity storage technologies, demonstrating the central role of these systems in the achievement of the green transition. Furthermore, these acts provide further clarifications on the storage activities. As previously stated, Directive 2019/944 initially defined ‘energy storage’ very broadly, encompassing energy storage systems that convert energy for purposes other than electricity, such as heating or hydrogen. In the TCTF, the revised GBER and now the CISAF, the Commission makes further distinctions, distinguishing ‘electricity storage’ from ‘thermal storage’. These terms, differently from the CEEAG, are clearly defined: only ‘electricity storage’ refers to the systems that convert stored energy back into electricity, while ‘thermal storage’ concerns systems that convert energy into heat or cooling for final use. ⁴⁷ While some rules apply only to ‘electricity storage’, others are specific to ‘thermal storage’. The introduction of the definitions in the TCTF, GBER and CISAF thus has the benefit of bringing additional clarity in the EU framework of energy storage activities.

It is useful to underline the role of electricity storage in these acts, in order to grasp the enhanced flexibility that the recent changes have granted to schemes in support of electricity storage. Under the CEEAG, the Commission assesses a positive and a negative condition to determine the compatibility of aid measures with the internal market under Article 107(3). ⁴⁸ On the one hand, the positive condition requires that the aid facilitates the development of an economic activity. ⁴⁹ This assessment is carried out through an identification of the economic activity and its positive effects for the society, ⁵⁰ the incentive effect of the measure ⁵¹ as well as the verification of the absence of breach of relevant provisions of EU law. ⁵² On the other hand, the negative condition requires that ‘the aid measure must not unduly affect trading conditions to an extent contrary to the common interest’. ⁵³ This assessment is divided in two steps: the ‘minimisation of distortions of competition and trade’, ⁵⁴ and the ‘avoidance of undue negative effects on competition and trade and balancing’. ⁵⁵ The first step, in turn, requires the Commission to consider the necessity of the aid, ⁵⁶ its appropriateness, ⁵⁷ proportionality ⁵⁸ and transparency. ⁵⁹ The Commission then weighs the positive effects with the negative ones on competition and trade. ⁶⁰ Electricity storage supports may be assessed under different categories of aid. ⁶¹ Many schemes, such as MACSE, ⁶² have been approved under the category of ‘aid for energy infrastructure’ (section 4.9). The improvement of the energy infrastructure is considered necessary to achieve ‘system stability, resource adequacy, integration of different energy sources and energy supply in under-developed networks’. ⁶³ Not all aid granted for electricity storage facilities fits into this category – only aid for stand-alone ⁶⁴ electricity storage facilities (irrespective of the voltage levels) granted before the end of 2023, ⁶⁵ as well as storage assets selected as projects of common interest. ⁶⁶ The general rules on necessity and appropriateness ⁶⁷ as well as on avoidance of undue negative effects on competition and trade ⁶⁸ do not apply in these cases. The Commission, however, may request the Member State to demonstrate a specific market failure in the development of the electricity storage facilities, ⁶⁹ and will assess the risks of distortion of competition that might arise in the energy markets. ⁷⁰ Aid to electricity storage can also fit under the category of ‘Aid for the reduction and removal of greenhouse gas emissions including through support for renewable energy and energy efficiency’ (section 4.1) when aimed at the reduction of emissions. It is unclear, however, in which cases electricity storage contributes to emissions reduction and whether also stand-alone technologies may fit into this category. ⁷¹ As a general rule, these types of aid shall be granted through a competitive bidding process ⁷² and after a public consultation, ⁷³ unless an exception applies. Finally, support for electricity storage may also be approved under the category of ‘aid for the security of electricity supply’ (section 4.8): ⁷⁴ also in this case, however, the Member States shall perform a mandatory public consultation to assess the proportionality and competition effects of the aid. ⁷⁵

The Commission's practice reveals that schemes promoting the production of electricity storage technologies, in particular batteries, can also be considered under other guidelines, namely the Regional Aid Guidelines (RAG). ⁷⁶ Unlike the CEEAG, these guidelines do not aim at the environmental protection in a broad sense; instead, they cover aid aimed to territorial cohesion and economic development in specific ‘assisted’ regions, that shall be notified and approved as such by the Commission before the aid is granted. ⁷⁷ For instance, a Romanian scheme that provides direct grants for the manufacturing, assembly and recycling of batteries as well as photovoltaic cells and panels in a specific ‘assisted’ area of the country has been approved under these guidelines. ⁷⁸ These guidelines also cover ad hoc aid. In particular, individual aid for supporting the production of electricity storage technologies – especially batteries – has been more commonly approved under this framework. ⁷⁹

The most important innovation, as mentioned before, was, however, the introduction of the TCTF, which set out the criteria for the Commission's assessment of aid measures and provided that such measures would be approved if those conditions were met. In the TCTF electricity storage was addressed in a specific section (section 2.5), dedicated to the acceleration of the deployment of renewable energy and energy storage. The section distinguished between ‘investment aid’ (section 2.5.1) and ‘operating aid’ (section 2.5.2). Both types of aid were considered compatible with the internal market if granted by the end of 2025 ⁸⁰ to electricity storage and thermal storage systems, provided that certain circumstances are met. It was a positive aspect that there were no restrictions on the systems’ applications that could be incentivized, thus state aid targeting stand-alone storage could have also been assessed under this category. In light of these provisions, for example, the Hungarian scheme addressed to all energy storage technologies was approved providing for both direct investments grants, covering the projects’ capital expenditure, and annual operating supports in the form of a two-way contract for difference for the first 10 operation years. ⁸¹

The TCTF's genuine novel feature was the possibility of the Commission to approve – in addition to schemes ⁸² granted by the end of 2025 ⁸³ – individual aid ⁸⁴ aimed at incentivizing, under certain conditions, ⁸⁵ the production of equipment for the transition to a net-zero economy. Investment projects in the production of this equipment were of ‘strategic importance’, ⁸⁶ given the risk that investments could be diverted to third countries, such as the United States following the adoption of the Inflation Reduction Act. The beneficiary of the aid, however, should have complied with some conditions: for example, the beneficiary could not apply before the start of works, and should have submitted ‘solid evidence of subsidies it would credibly receive in a non-EEA jurisdiction for a similar project and must demonstrate that without the aid the planned investment would not take place in the EEA’. ⁸⁷ This provision, however, included batteries but no other electricity storage technologies. ⁸⁸ This exclusion created a gap, as the provision had been particularly useful. For example, it has enabled Germany to grant aid in the form of cash grant and guarantee to the subsidiary of a Swedish battery developer (Northvolt) for the establishment of a mass production facility for advanced lithium-ion battery cells in Germany; in the absence of the support, Northvolt would have constructed its plant in the United States. ⁸⁹ Northvolt, however, filed for bankruptcy protection in November 2024, and its assets in Germany and Sweden were recently acquired by Lyten, a U.S.-based battery start-up.

On 25 June 2025, the Commission adopted the CISAF, ⁹⁰ which replaces the TCTF and will remain in force until the end of 2030. The CISAF introduces a set of ‘off-the-shelf’ options that allow Member States to demonstrate compatibility more easily and use simplified methods to determine aid amounts. ⁹¹ The focus on electricity storage is even stronger than under the CEEAG and TCTF. Numerous provisions refer to these technologies, and there are specific ‘off-the-shelf’ options ⁹² designed to demonstrate compatibility for electricity storage support schemes. The objective is to facilitate the adoption of schemes supporting storage technologies within national frameworks that promote their integration into electricity markets, by addressing the barriers to their deployment identified in the most recent EU directives and regulations. For example, Member States are expected to confirm that storage systems are allowed to buy and sell electricity on energy markets, as well as to provide specific services that ensure the efficient and reliable operation of the electricity system. ⁹³ There is also a section on ‘aid to ensure sufficient manufacturing capacity in clean technologies’, that draws inspiration from section 2.8 of the TCTF and supports the establishment or expansion of factories dedicated to large-scale production of equipment crucial for the transition to a carbon-neutral economy. The supported equipment shall fall within the catalogue of clean technologies listed in the CISAF, which is derived from the Net Zero Industry Act. Aid may also be granted for the production of the main specific components used in such equipment, as well as for the critical raw materials needed for their manufacturing, including that of essential components. ⁹⁴ Similarly to section 2.8 of the TCTF, the CISAF allows the granting of ad hoc aid for investment projects, but only under exceptional circumstances: for example, if the investment could receive a subsidy outside the European Economic Area (EEA), if there is a funding gap between the investment scenarios inside and outside the EEA and if the planned investment would not take place without the aid. ⁹⁵ What is particularly innovative is that the scope of aid has now been broadened to cover other electricity storage technologies beyond batteries, addressing a gap of the previous TCTF framework.

In addition, the GBER was also revised in 2023 to include, among other provisions, measures for electricity storage projects, ⁹⁶ and that a further revision is expected as part of the CID. As previously highlighted, under the GBER, many supports are exempt from notification and Commission's approval requirements; however, the scope of the exemptions has been considered as being quite limited and particularly restricted by thresholds on aid amounts. ⁹⁷ On the one hand, the GBER loosens the state aid rules for behind-the-meter electricity storage co-located with renewable generation. ⁹⁸ In particular, investment aid for electricity storage is exempt from the notification requirement if granted to ‘combined renewable and storage projects (behind-the-meter), where both elements are components of a single investment or where storage is connected to an existing renewable generation installation’. ⁹⁹ The storage component has to charge at least 75% of its energy from directly connected renewable installations annually. ¹⁰⁰ Newly installed or repowered installations are eligible for the aid. ¹⁰¹ Moreover, operational aid granted for small electricity storage projects of 1MW or lower installed capacity is exempted from the notification requirement. ¹⁰²

To conclude this analysis, it should be noted that the Commission has approved as compatible state aid the public financing for the implementation of two important projects of common European interest (IPCEIs) consisting of research and investment in the development of new-generation, sustainable and innovative batteries. Article 107(3), point (b), provides that the Commission may consider compatible with the internal market aid aimed at promoting the execution of IPCEIs. These are large-scale projects, which provide significant benefits to the Union and are ‘designed to overcome important market or systemic failures, preventing the project from being carried out to the same extent or in the same manner in the absence of the aid, or societal challenges, which would not otherwise be adequately addressed or remedied’. ¹⁰³ In 2019, seven Member States decided to support the first IPCEI on batteries (2019–2031), involving 17 companies, with funding of up to 3.2 billion euros; in 2021, 12 Member States decided to provide up to 2.9 billion euros for the implementation of a second IPCEI (2021–2028), which involves 42 companies. ¹⁰⁴

4. The Italian mechanism for the promotion of electricity storage capacity (MACSE)

While sections 2 and 3 of this article have shown, respectively, the heterogeneity of Member States’ approaches and the Commission's move towards a more permissive and articulated state aid framework for electricity storage, the analysis now focuses on the Italian mechanism for the promotion of electricity storage capacity (MACSE), and examines whether it could be argued that it might escape classification as state aid, despite having been approved as such and assessed under the CEEAG. As previously stated in the introduction, MACSE promotes the large-scale deployment of stand-alone electricity storage systems, which is needed to ensure the ‘flexibility’ of the electricity system. ¹⁰⁵ This ‘flexibility’ is essential to manage the variability of intermittent renewable sources, like wind and solar, and to maintain system stability, especially as programmable fossil-fuel plants are phased out. In other words, without sufficient storage capacity, fluctuations in generation could compromise security and risk large-scale blackouts. ¹⁰⁶ MACSE combines both market-based elements and command and control instruments. ¹⁰⁷ Beneficiaries are selected through competitive, transparent and non-discriminatory bidding processes organized periodically by the Italian transmission system operator (Terna S.p.A., hereinafter ‘TSO’), ¹⁰⁸ which is indirectly controlled by the State and is responsible for the efficient and secure operation and maintenance of the electricity transmission system. Once selected, beneficiaries sign a standard contract with Terna S.p.A. and commit to providing storage capacity to the TSO in exchange for regular MWh-based payments (premiums) over a predefined period, ¹⁰⁹ thereby fulfilling legislative and regulatory duties. ¹¹⁰ Selection of the beneficiaries takes place under a ‘pay-as-bid’ ¹¹¹ auction mechanism: this means that if an offer is accepted, the selected operator is remunerated on the basis of the premium requested.

The contracted storage capacity is then made available to third parties via a new trading platform managed by the electricity market operator, also indirectly controlled by the State (Gestore dei mercati energetici S.p.A., hereinafter ‘GME’). ¹¹² On this platform, participants can purchase a form of ‘virtual’ storage, that allows them to store and sell electricity when most convenient; ¹¹³ however, they do not gain ownership or direct control of the physical storage facilities.

Any ‘residual’ storage capacity not purchased on the new trading platform is offered by the selected storage operators on the ancillary services market. ¹¹⁴ In this market, the TSO procures services essential for the efficient and secure operation of the electricity system, such as those to resolve the congestion of the electricity grid. This provides selected operators with the opportunity to earn additional revenues when their storage capacity is not fully purchased through the GME trading platform. However, the TSO reclaims a large share of these revenues (‘clawback clause’). ¹¹⁵ In addition, beneficiaries must pay the TSO the difference between a reference price and a strike price (‘payback obligation’). ¹¹⁶ These restrictions significantly limit the additional revenue beneficiaries can generate in the ancillary services market, raising doubts about the attractiveness of the scheme. ¹¹⁷ Only lithium-ion batteries and pumped hydro storage are eligible to participate in MACSE, as these are considered the most commercially and technologically mature technologies, ¹¹⁸ based on a market study prepared by the TSO and updated every two years. ¹¹⁹ Other technologies may only bid for a small portion of Terna's planned storage capacity, provided they meet specific technical requirements.

5. MACSE and its qualification as state aid

As is well known, four cumulative conditions are to be met for a measure to be classified as state aid. Pursuant to Article 107(1) TFEU, there shall be (i) an economic advantage, favouring certain goods or sectors, (ii) funded by or through state resources, which (iii) distorts competition and (iv) adversely affects trade within the internal market. According to the Court of Justice, cause, objective and form of the measures are irrelevant, as Article 107(1) TFEU is an ‘effect-based test’. ¹²⁰ Therefore, to argue that MACSE does not constitute state aid necessarily entails contesting the presence of at least one of these cumulative conditions. Given that the distortion of competition and the negative impact on internal market trade are typically deemed readily satisfied in a liberalized market, ¹²¹ attention will shift to the other requirements. A potential claim on the lack of the second requirement – namely, the absence of involvement of state resources – appears unconvincing. MACSE will be financed mainly from the revenues collected from the sale on the trading platform of the ‘virtual’ storage, the revenues collected from the payment obligation and clawback of revenues; ¹²² while the residual cost will be financed by a compulsory levy on electricity consumption. ¹²³ The funding via a mandatory charge removes any doubt on the involvement of state resources, obviating the necessity to investigate the fulfillment of this criterion further.

This then leaves the question of whether or not an economic advantage is conferred. To put it more clearly – could it be claimed that the selected operators are entrusted with an obligation to provide storage capacity and are compensated for carrying out a service of general economic interest? Thus, are all the four Altmark conditions met? In fact, if MACSE remuneration qualifies as a compensation for the performance of a service of general economic interest, this compensation does not constitute state aid, provided that the other cumulative Altmark conditions are met. It is worth noting, however, that the Court of Justice has made it very challenging for the compensation to avoid being qualified as state aid, through the detailed refinement of the four Altmark requirements. ¹²⁴ First, the beneficiaries shall have valid and clearly defined public service obligations to discharge. ¹²⁵ Second, the parameters for calculating the compensation must be determined in advance ‘in an objective and transparent manner’. ¹²⁶ Third, the compensation shall not exceed what is necessary to cover all or part of the costs incurred by the beneficiaries in the performance of public service obligations, taking also into account a reasonable profit. ¹²⁷ The fourth condition concerns the cases where the beneficiaries are not selected through a public procurement procedure that ensures the choice of the tenderer capable of delivering the services ‘at the least cost to the community’; ¹²⁸ in these cases, the level of compensation shall be calculated based on an analysis of the costs that ‘a typical undertaking, well run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations’. ¹²⁹ The Commission has issued additional guidance on the application of these criteria through the so-called ‘Almunia Package’, and in particular in Communication 8/02, ¹³⁰ which outlines the circumstances under which public service compensation does not constitute state aid.

There could be valid arguments to hold that the second and third criterion are met in the present case. The rules on the concrete functioning of the mechanism ¹³¹ clearly outline the compensation parameters, to be calculated on the basis of specific formulas. ¹³² Moreover, each tender procedure will have a bid cap determined on the basis of the investment and operating costs of each technology, together with the expected remuneration of capital. ¹³³ Bid caps on each tender as well as clawback clauses and payback obligations prevent any risk of overcompensation. After all, the Commission has placed significant emphasis on clawback clauses in its decision-making practice on the fulfillment of the third Altmark requirement. ¹³⁴

This then leaves the question of whether the first Altmark condition could have been met; in other words, whether or not valid and clearly defined public service obligations for the performance of an SGEI are at stake. The first Altmark condition requires the definition of an SGEI task and coincides with the requirement of Article 106(2) TFEU: ¹³⁵ pursuant to this Article, ‘undertakings entrusted with the operation of’ services of general economic interest carry out ‘a particular task’. ¹³⁶ These services shall be ‘in the interest of society as a whole’. ¹³⁷ There shall be an ‘act of entrustment’ of the ‘special task’ by the State; ¹³⁸ this act could have the form of a legislative or regulatory act or a contract, ¹³⁹ delineating inter alia the arrangements for avoiding any overcompensation. MACSE contains two clear and well-defined obligations. First, the beneficiaries of the compensation undertake to make the storage capacity available to the TSO for the duration of the contract, so that it can be used as ‘virtual’ storage. Second, they commit to make available the ‘residual’ storage capacity on the ancillary services market. ¹⁴⁰ These obligations have regulatory foundations in Article 18 of the Legislative Decree no. 210/2021 ¹⁴¹ and in the rules approved by decree of the Minister of Environment and Energy Security on 10 October 2024. ¹⁴² These latest rules also set forth penalties in case of non-compliance, ¹⁴³ thus emphasizing the compulsory nature of the entrusted obligations.

The critical question is whether the activity of providing storage capacity could have been considered an SGEI. It is well established that Member States enjoy a considerable margin of discretion in both defining a service as an SGEI and in determining the compensation for the service provider, ¹⁴⁴ whereas the Commission's role is limited to checking for a ‘manifest error’. ¹⁴⁵ The Commission's practice and the EU Courts have progressively reduced the ‘wide discretion’ enjoyed by Member States, setting the boundaries of an acceptable EU-wide SGEI notion. ¹⁴⁶ There are no doubts that the energy storage services are economic, as they shall be developed as market-based and competitive activities according to the EU electricity design. ¹⁴⁷ The deployment of electricity storage is affected by a market failure which is considered as a prerequisite for the designation of an activity as an SGEI according to Commission practice ¹⁴⁸ and a certain jurisprudential ¹⁴⁹ approach. ¹⁵⁰ In Hinkley Point C, the Commission pointed out that nuclear energy was impacted by a significant market failure, specifically that investments in technology face large risks due to high initial capital costs, long construction times and lengthy operation periods needed to recoup expenses. ¹⁵¹ Also, merchant investments in electricity storage carry an exceptionally high level of risks, due to significant fixed costs, and reliance on unpredictable external variables, such as the level of renewable energy penetration or grid developments progress. ¹⁵² As the Commission's MACSE decision reveals, battery storage systems and pumped hydro storage plants would not be economically viable in the absence of the measure, according to an estimate of their net present value. ¹⁵³ In other words, the market would not deliver the service by itself without State intervention.

In addition, it has been emphasized that in the energy sector, the designation of an activity as an SGEI is often grounded – and endorsed by the Commission and EU Courts – on its connection with the security of supply, ¹⁵⁴ mentioned in Directive 2009/72/EC and in the currently in force Directive 2019/944. ¹⁵⁵ As previously stated, the large-scale deployment of stand-alone storage systems addresses a crucial demand of the electricity system: ensuring its ‘flexibility’. ¹⁵⁶ This demand has arisen as a result of the increasing share of intermittent and non-programmable wind and solar power, as well as the phase-out of programmable fossil-fuel plants, which pose security issues to the electricity system. Thus, significant storage capacity is required to provide ‘flexibility’ to the electricity system, hence avoiding the risk of large-scale blackouts. ¹⁵⁷ Electricity storage is thus provided ‘in the interest of society as a whole’, ¹⁵⁸ and thus indirectly provided to energy consumers.

The ‘flexibility’ need addressed by MACSE differs from that targeted by capacity mechanisms, ¹⁵⁹ which are policy instruments that ensure the ‘adequacy’ of the electricity system. ¹⁶⁰ ‘Adequacy’ concerns the availability of sufficient resources to ensure that the expected electricity demand is met at all times. ¹⁶¹ Capacity mechanisms support this by providing compensation to electricity producers and other resource providers (including energy storage) ¹⁶² for ensuring the availability of their resources to produce electricity or reduce their demand. ¹⁶³ The functioning of MACSE, on the other hand, is similar to that of capacity mechanisms, which were initially assessed under the Altmark conditions. However, in more recent decisions, the Commission found that capacity mechanisms did not meet one or more Altmark criteria, yet still considered the capacity payments compatible with the internal market. ¹⁶⁴

In its first decisions after the Altmark judgment, the Commission concluded that some capacity mechanisms did not constitute state aid. This was the case, for example, of an Irish capacity mechanism implemented in 2003 with the purpose of introducing 531 MW of new capacity into the national market, funded by a levy on electricity consumers. A bidding process was launched to select the generators responsible for the construction of this new capacity, who would then be subject to 10-year capacity and difference agreements; ¹⁶⁵ according to these agreements, generators were entitled to capacity payments based on their capacity availability. ¹⁶⁶ The Commission was of the opinion that the schemes aimed to ensure the performance of an SGEI related to security of supply. A similar conclusion was reached regarding a Slovenian scheme aimed at introducing a purchase obligation in favour of ‘qualified’ producers. These producers had the right to have the entire production purchased by the network operator at a fixed price. They could also choose to sell the electricity directly on the market; in that case they would receive a premium payment ¹⁶⁷ from the State. ¹⁶⁸ The ‘qualified’ producers included the Trbovlje power plant. According to the Slovenian authorities, the support granted to the Trbovlje power plant was not state aid, because it was a mere compensation for the costs of an SGEI related to the security of electricity supply from indigenous primary energy fuel sources. ¹⁶⁹ The Commission concluded that the Altmark conditions were satisfied, including the fourth criterion: although the Trbovlje plant was not selected through a public procurement procedure, the Slovenian authorities demonstrated that in this way the SGEI was provided ‘at the least cost to the community’.

In subsequent decisions, as previously noted, the Commission found that not all of the Altmark criteria were met, yet approved the capacity payments as compatible with the internal market. In 2010, the Commission examined a Spanish scheme that introduced a preferential dispatch mechanism with compensation and a production obligation. Under this scheme, 10 electricity producers were granted, for a limited period, a priority dispatch over other power plants in exchange for an obligation to generate a certain amount of electricity using indigenous coal. ¹⁷⁰ Although Spain did not dispute that the support constitutes state aid, the Commission still assessed whether the Altmark conditions were met. The production obligation imposed on indigenous coal plants could have been linked to an SGEI related to security of supply. ¹⁷¹ The Commission, however, concluded that the fourth Altmark condition was not satisfied, as there was no open tender and Spain failed to provide an analysis of the costs that a typical well-run and adequately equipped operator would have incurred. ¹⁷² While the Commission did not dispute the genuine existence of public service obligations in the Spanish case, it did challenge the fulfillment of the first Altmark criterion in the recent French cases. In its decision to initiate the formal investigation procedure on the French capacity mechanism, ¹⁷³ the Commission examined whether the Altmark conditions were met. Electricity suppliers ¹⁷⁴ had a legal obligation to contribute to the security of supply based on their customers’ demand. Specifically, every year, suppliers had to procure a certain amount of capacity guarantees linked to their customers’ consumption during peak periods. ¹⁷⁵ They could obtain capacity guarantees directly from their own generation plants or demand-side response capacities; alternatively, they could purchase these guarantees on a decentralized market from other holders, such as capacity operators. ¹⁷⁶ The capacity operators, which were operators of generation or demand-response capacities, were required to have their capacity certified by the TSO. ¹⁷⁷ According to the French authorities, the remuneration received from the sale of capacity guarantees would serve only as compensation for availability. ¹⁷⁸ In its examination, the Commission rejected this argument, stating instead that there was no clearly defined public service obligation (PSO) and no uniform obligations imposed on the various parties involved. ¹⁷⁹ The Commission pointed out, first, that suppliers were obliged to procure capacity guarantees, without any advantage for them. ¹⁸⁰ Second, the capacity operators were required to be certified; however, this obligation did not apply to demand-response capacities, which could participate in the market on a voluntary basis. ¹⁸¹ Third, existing generation producers had the flexibility to choose the volume of capacity they wished to certify. ¹⁸² Finally, the Commission underlined that capacity operators would receive payments that they would not have obtained without the market. ¹⁸³ The existence of a genuine PSO was also disputed in the German capacity reserves. ¹⁸⁴ In the German capacity reserve case, a capacity mechanism was introduced to ensure security of electricity supply: ¹⁸⁵ capacity providers were selected through a tender for yearly remuneration in exchange for maintaining their capacity available. ¹⁸⁶ The Commission argued that the scheme did not comply with Article 3(2) of Directive 2009/72/EC, which required obligations to be non-discriminatory, as the mechanism was not open to demand-response or foreign capacity providers. ¹⁸⁷ Moreover, it expressed doubts about whether the scheme was necessary to ensure electricity supply and questioned the appropriateness of designating an activity as an SGEI, given that it could have been provided under normal market conditions. ¹⁸⁸

The examination of the Commission's practice regarding the assessment of the Altmark conditions in relation to capacity mechanisms could provide additional guidance on evaluating MACSE in light of the Altmark conditions. The Italian situation appears similar to the Irish capacity mechanism, where the selected generators for the construction of new capacity would then be subject to long-term agreements for their capacity availability. The reasons that led the Commission to rule out the existence of PSOs in the French case, where different parties required to hold capacity guarantees were not subject to uniform supply obligations, may not be entirely relevant in the MACSE case: in the Italian case, the obligations seem more clearly defined, as outlined above, and appear to be imposed on the selected operators receiving the remuneration. Similarly, the arguments raised in the capacity reserve case do not appear to pose a significant issue. Potential discrimination seems absent in MACSE, given that Italy has clarified that storage facilities located in other Member States, as well as in neighbouring countries, could also be eligible to participate in MACSE's bidding process. ¹⁸⁹ The law providing for the introduction of MACSE also suggests that technological neutrality is intended as a binding principle in the design of the mechanism. ¹⁹⁰ Furthermore, it appears that the market alone would not ensure an adequate deployment of electricity storage technologies without State intervention.

The above analysis, however, underscores that the fourth Altmark condition is often challenging to meet, especially when no open tender procedure is used and an assessment of the level of compensation is required. ¹⁹¹ This may pose a potential obstacle to fulfilling the Altmark test, given that MACSE operates under a ‘pay-as-bid’ auction system, whereby beneficiaries are compensated on the basis of the price specified in their offer.

6. Conclusion

This article has sought to examine how state aid rules address electricity storage. The gradual advancement of the promotion of electricity storage within the scope of the EU strategic objectives has resulted in a gradual reassessment of its role within the state aid framework. In the Commission's view, public support is critical for overcoming investment hurdles for a wider deployment of electricity storage. Unlike in the past, the CEEAG, the GBER, the TCTF and now the CISAF contain multiple references to storage, providing Member States with additional freedom in adopting support schemes. Many of these schemes, in fact, have been approved under the TCTF, which has thus proven to be an appropriate instrument for granting flexibility. Another advantage of the Commission's instruments is that, unlike some countries’ policies, ¹⁹² they do not foster solely support for electricity storage paired with renewable energy sources. Some scholars have in fact criticized policies that exclusively promote storage combined with renewable generation as being too narrow and ‘fall[ing] short of providing effective incentives for socially desirable outcomes’. ¹⁹³ The analysis, however, has also highlighted some ambiguities in the Commission's instruments. The TCTF, for instance, allowed under specific conditions the granting of individual aid to batteries but not to other electricity storage technologies (such as supercapacitors or flywheels). This practice could have raised questions about the Commission's approach to technological neutrality, concerns that appear to have been addressed in the current CISAF. Finally, the article has examined the highly innovative Italian mechanism for the promotion of electricity storage. This paper has questioned whether the scheme could be regarded as not constituting state aid, and thus not subject to the Commission's scrutiny. MACSE could be considered linked to an SGEI, as a unique solution addressing the electricity system's ‘flexibility’ needs in the context of an increasing share of renewables. Its introduction thus reflects the necessity of state intervention to ensure an adequate deployment of stand-alone storage systems for system security. The main potential barrier, however, that could prevent the scheme from meeting the Altmark criteria is the design of the auction procedure.