Industry

Batteries: why the heat is driving up usage costs

As the price of electricity rises, so too do the potential revenues from energy storage, and one buyer has already increased its bids for flexibility contracts by almost 10 per cent

by Gianluca Brazzioli

20 August 2026

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4' min read

Translated by AI

Versione italiana

Key points

The difference between the most expensive and least expensive hours
The sun brings prices down during the day
Less water and more gas
How important is battery flexibility?

4' min read

Translated by AI

Versione italiana

Buying electricity when it is cheap and reselling it a few hours later, when it costs much more. In July, this price differential widened in Italia, particularly in the north. For battery storage systems, this is the condition that can boost market revenues and, consequently, the price of contracts that provide access to their flexibility. This is according to Pexapark, a Zurich-based company specialising in the analysis of renewable energy prices, which reports that one buyer has already increased its bids by almost 10 per cent.

This development comes at a time when the Italian electricity market is exceptionally expensive. In July 2026, the GME Pun Index – the benchmark index for electricity traded on the market – averaged 157.04 euros per megawatt-hour. It stood at 132.50 in June and 113.13 in July 2025. Over the course of a year, the increase amounted to 38.8 per cent. The GME attributes the rise primarily to the rise in gas prices, increased purchases and the reduced presence of renewables on the market.

The difference between the most expensive and least expensive times

Energy prices have risen, but at certain times of the day they remain low. Pexapark calculates the four-hour daily spread: the difference between the sum of the prices for the four most expensive hours and that for the four cheapest hours. In northern Italia, the average for this indicator reached around 262 euros per megawatt-hour in July, compared with 175 a year earlier. This represents a 50 per cent increase. In the south, it rose from 232 to 289 euros, an increase of 25 per cent. The spread therefore remains wider in the south, but it is the north that has seen the sharpest rise.

This figure is not strictly speaking the revenue generated by a battery but – as well as providing an indication of the value of energy storage systems – it measures the maximum theoretical arbitrage that can be achieved by shifting electricity from the cheapest hours to the most expensive ones. In July, this opportunity was worth considerably more than it had been twelve months earlier.

The sun brings prices down during the day

Part of this effect is due to solar power. In July, Italian solar power generation reached 6.7 terawatt-hours, 20.6 per cent more than in the same month of 2025. During the same period, electricity demand reached 32.5 terawatt-hours, the highest monthly figure ever recorded in Italia and 8.3 per cent higher than a year earlier. The average temperature was 1.2 degrees higher than in July 2025 and almost two degrees higher than the average for the last decade.

However, heating and solar power operate at different times. During hours of solar generation, the supply of electricity increases and the price can fall significantly. On 5 July, the GME Pun Index reached as low as zero euros per megawatt-hour in some quarter-hourly intervals. After sunset, solar generation ceases, whilst consumption remains high. It is precisely during this gap that a battery can become highly profitable.

Less water, more gas

Gas has also become more expensive. In July, the IG Index Gme – the benchmark index for the Italian natural gas market – rose to 56.61 euros per megawatt-hour, 9.45 euros more than in June. This is the highest monthly figure since the GME began calculating it in July 2023.

In the north, a drought has also set in. On 30 July, the Po River Basin Authority raised the water severity level for the entire district to ‘high’. Two days earlier, the flow rate of the Po at Pontelagoscuro, in the Ferrara area, had fallen to 303 cubic metres per second, below the critical threshold of 450 due to the risk of salt intrusion.

According to Pexapark, this is one of the reasons why the spread has risen more rapidly in the north. The region relies more heavily on hydroelectric and gas-fired power stations than the south. Less water means less hydroelectric generation and can also cause problems for thermal power stations, which require it for cooling. Industry data cited by the company indicate that up to 20 gigawatts of Italian thermal power stations – around 32 per cent of the total – could be affected by these constraints. The most vulnerable plants are mainly located in the Po river basin and along its tributaries.

The problem is particularly acute when the sun goes down. If photovoltaic, hydroelectric and thermal power generation all fall at the same time whilst demand remains high, there is a greater likelihood of evening prices being significantly higher than those during the middle of the day. For a battery, this means more scope to profit from the difference.

How much is battery flexibility worth?

This expected increase in profitability is also beginning to be reflected in contracts. Owners of large-scale storage systems can enter into Flexibility Purchase Agreements (FPAs) – agreements with a buyer or a specialist operator who undertakes to utilise the battery’s flexibility on the market and guarantees the owner a more predictable source of revenue.

Agreements can take various forms. In tolling agreements, for example, the buyer guarantees a fixed payment – usually expressed in euros per megawatt per year – in exchange for the right to decide, in whole or in part, when to charge and discharge the plant. The owner receives more stable revenue; the purchaser assumes the market risk and seeks to profit from price fluctuations and other services that the battery can provide.

The more expected revenues rise, the higher the price of this flexibility may go. This is what Pexapark has observed in recent weeks: one buyer reported having increased the prices offered for battery-based FPAs by almost 10 per cent following the rise in forward prices linked to the heatwave and drought. The same operator expects the gap between solar hours and evening peaks to continue to widen in the coming years