Italy is increasingly reliant on ever-more expensive natural gas imports for its power production, but there are alternatives. The country has the largest geothermal reserves in Western Europe, while hydro, wind and solar, as well as developments in clean coal technology are all economically viable.

Italy has limited reserves of fossil fuels and has to rely on high levels of imports for energy use. Oil reserves in 2007 were estimated to be 600 million bbl. Crude production is 110 000 bbl /day, while consumption was 1.7 million bbl/day, or over ten times higher. Oil accounts for around 45 per cent of primary energy consumption. The main sources of imports, 1.7 million bbl/day of crude oil in 2006, are Libya, Russia and Saudi Arabia.

Italy’s major oil and gas company is Eni. Formerly state-owned, it was privatized during the 1990s, but the government still retains around one-third of the shares. Natural gas reserves in Italy were 164 billion m3 at the beginning of 2007.

Italy’s annual power production 2000-2007 Source: Autorit per l’energia elettrica e il gas
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Natural gas production in 2005 was 11.5 billion m3, while consumption was 82.6 billion m3. The difference was imported. The primary sources of imported gas are Algeria, Russia and the Netherlands. Among European countries, Italy is the fourth largest oil consumer after Germany, the UK and France, and the third largest natural gas consumer after Germany and the UK.

Italy’s coal reserves are around 37 million tonnes. There are no active mines, but the use of coal is increasing, particularly for power generation, and mining is expected to restart. Consumption in 2004 was 25.7 million tonnes.

Huge potential for renewables

According to the World Energy Congress, Italy has a technically exploitable hydropower potential of 105 TWh/year, of which 65 TWh/year is economically exploitable. The country also has the largest geothermal reserves in Western Europe. Output in 2005 was 5324 GWh for electricity production and 8916 TJ for direct use. There are significant wind energy resources, which are being exploited and the country has one of the best solar regimes in the European Union.

Liberalization progress

Liberalization of Italy’s electricity sector began in 1999. Since then, the sector has been largely privatized, although ENEL, the former state-owned power company, still controls close to half the total generating capacity and a much larger proportion of peaking capacity. There has been criticism of ENEL’s dominant position, including a report by the AEEG, the Italian competition authority, published in 2005.

In 2007, the AEEG recommended that ENEL be forced to sell or lease some of its power plants to market entrants in order to increase competition.

The national grid is now wholly owned by TERNA, a company that was part of Enel. The sector is overseen by the Italian Regulatory Authority for Gas and Electricity. Gestore Mercato Elettrico (formerly GRTN) manages the electricity market.

The national installed capacity is 88.345 GW, with Enel’s generating capacity accounting for 41.558 GW. It dwarfs all of the next largest generating companies: Edipower with 8477 MW, Gruppo Edison with 7934 MW, Endesa Italia with 6653 MW and Gruppo ENI with 5484 MW.

Over-reliance on fossil fuels

The major part part of Italy’s electricity is generated by burning fossil fuels, and these are largely imported, creating a severe energy security problem. The county banned nuclear power after a referendum in 1987 following the Chernobyl accident, and its four nuclear power plants are mothballed and awaiting decommissioning. However, the country does import significant quantities of electricity generated in nuclear plants in neighbouring countries, and Enel owns shares in a nuclear generator.

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Of the 310 TWh total electricity generated in Italy in 2006, 51 per cent was generated from natural gas, 14 per cent from coal, 11 per cent from oil, 12 per cent from hydropower, two per cent from biomass and waste, two per cent from geothermal plants and one per cent from wind power. In all, fossil fuel fired output contributed 83 per cent of the total.

Lack of investment in the Italian electricity sector in the latter years of the 20th century resulted in a reduction in the margin of capacity over demand, which led to severe power cuts in 2003. Since then, capacity and production have both risen, but there are bottlenecks in the transmission and distribution system that restrict delivery to some areas. Peak demand on the TERNA grid was 56.589 GW in 2007.

Even with increased generating capacity, Italy still relies on electricity imports for a significant part of its supply. Consumption is nine per cent higher than annual production and when losses are taken into account, imports are significantly above ten per cent. The Italian grid has 18 interconnections with other countries, including five with France, nine with Switzerland, one with Austria, two with Slovenia and one with Greece.

Italy has historically depended heavily on oil for electricity generation, and its dependence remains higher than the OECD norm. However, it has in recent years been switching to gas-fired generation. As the figures above show, this is now the largest single source of electricity. Much of this comes from new combined cycle plants. The government has indicated that it wishes to increase generation from coal too, with a target of 22 per cent of production from coal by 2010.

Italy’s annual peak demand 2000-2007 Source: Autorit per l’energia elettrica e il gas
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In general, Italian electricity prices remain relatively high compared with those in much of Europe. In 2005, domestic consumers who used 3500 kWh a year or more paid 43-44 per cent more than the European average. Consumers who used less than 1200 kWh a year paid 40-50 per cent less than the European average.

These figures suggest that significant subsidies exist. Industrial customers paid 15-36 per cent above the European average, depending on the level of consumption.

Investment in Infrastructure

According to Enel, Italy’s short and medium-term energy strategy involves a significant increase in the use of coal. Italy is a signatory of the Kyoto Convention and expects to meet its national emissions target as well as EU emissions targets, so any increase in coal use will require low or zero-emission technologies.

In the short term, as part of this policy, Enel is converting nine oil-fired units at three power plants (total capacity 5260 MW) to coal. It is also planning limited use of co-firing with biomass and refuse-derived fuel (RDF). Over the longer term, the company is looking to new technologies for clean coal utilization. These include hydrogen production and carbon dioxide capture.

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Renewable energy use is growing too. Wind capacity was expected to reach 2600 MW at the end of 2007. This exceeds the government’s original target of 2500 MW by 2012. The current target is 6600 MW by 2010 and 12 000 MW by 2020.

The Italian transmission and distribution system requires expansion to reduce bottlenecks, particularly in the southern half of the nation. TERNA is planning to invest €2.1 billion ($3.3 billion) between 2007 and 2011 and a further €2.8 billion between 2011 and 2016. The length of high-voltage lines is to be increased, and cross-border interconnection capacity is to be raised by between 3000 MW and 6000 MW. The reserve margin is also to increase from five per cent to 15 per cent of peak demand.

Italy’s heavy reliance on natural gas for power generation is likely to put the electricity supply industry under increasing pressure. European gas supplies look likely to become tight over the next decade, and prices are likely to rise. Increased use of coal and the development of renewable sources will help ease the pressure, but there is also a renewed debate about nuclear.

In the immediate future, wind energy looks set to be the main new renewable source of electricity. There are signs of increased interest in solar thermal and solar voltaic projects too, and Italy’s geothermal resources could probably be further exploited.

Over the long term, Italy needs to develop a clear energy strategy if it is not to be forced to rely on imports of electricity to balance supply and demand. How this is to be achieved today is not clear.