The novel Italian approach for the Target Capacity Assessment: main results and relevant sensitivity analyses

In 2017, the Italian Regulator (ARERA) tasked the Italian TSO (Terna) with determining the

“Target Capacity” [3] defined as the most economically advantageous transmission capacity to implement across internal market sections and at external borders of the Italian power system.

Since 2018 [4], Terna has developed and refined a dedicated methodology to assess the Target

Capacity values, with four editions of the specific Report, whose last one published in 2025 [5].

The report, relying on a consolidated methodology, is published biennially to be aligned with the updates of European and Italian energy scenarios, and undergoes public consultation and independent expert evaluation as required by the Regulator.

Recent literature [6]-[8] has extensively documented Terna assessment approach, which is a heuristic-based method designed to identify economically efficient additional transmission capacity: specifically, it evaluates capacity increases where the overall system benefits surpass the associated investment costs. This methodology has been applied to real-world medium- and long-term planning horizons for the Italian power system, considering divergent future energy scenarios to derive alternative development pathways.

Both the Regulator and the external reviewers selected have recognized the comprehensive nature of Terna’s analyses. Unlike similar assessments conducted by ENTSO-E in the Ten Year network Development Plan (TYNDP), which predominantly focus on Socio-Economic Welfare

(SEW) benefit, the Italian approach incorporates a broader spectrum of benefits, requiring zonal

Day Ahead Market (DAM) and Ancillary Service Market (ASM) simulations and nodal network simulations to cover all indicators evaluation. Furthermore, the robustness of results is tested by assessing the impact of input data variations. Consequently, the Target Capacity

(“TC”) outcomes directly support Italy’s output-based regulatory framework, which incentivizes increased transmission capacity and enables more efficient system development.

This paper presents the novel approach developed and outlines the methodological enhancements introduced in the 2025 Target Capacity Report, along with the findings derived from applying this updated framework to the Italian power system under the latest reference scenarios and their relevant sensitivities.

To examine result variability across time horizons, the analyses were performed for both the medium-term (2030) and long-term (2040) perspectives. The scenarios adopted in these assessments are detailed in the 2024 Scenario Description Document, underpinning the 2025

National Development Plan. For the 2030 horizon, the policy scenario aligned with the National

Energy and Climate Plan (NECP) was used, while for 2040, two contrasting pathways were analysed: the “Distributed Energy” (DE) scenario and the “NECP Slow” scenario. These scenarios reflect differing trajectories in terms of renewable energy deployment, storage installations, and electrolyser capacities.

Overall, Terna’s iterative TC assessment process contributes to strategic, evidence-based decisions for grid development, enabling Italy to meet its interconnection goals while managing planning uncertainties and ensuring system-wide cost-effectiveness and resilience.