Italy’s electricity sector is responding to a new freedom: faster permitting of new generation, new entrants into the market, and increased customer choice.
Italy imports 90 per cent of its energy needs, either as fuel or electricity. Increasing unreliability in its system – particularly the blackouts of 2003 – and a volatile fuel market have magnified the need for Italy to increase its generation capacity. In response the government has introduced new legislation to reduce the time taken to get permits for new plants: now it should take no longer than six months to obtain the necessary permission.
In the year of the blackouts, demand reached 320.7 billion kWh, a rise of 3.2 per cent from 2002 and bucking the trend of demand mirroring the stagnant economy. This increase was caused by an exceptionally cold winter followed by an equally exceptionally warm summer. Without the extreme climactic conditions, demand was predicted to have grown by two per cent.
Although Italy has the fourth largest proven natural gas reserves in the EU, measured at 222.5 billion m3 in 2002, production is falling. It currently imports 56.6 billion m3 of the 70.8 billion m3 it annually consumes. Helping to quell security of supply fears, the December 2004 completion of the Bordano-Flaibano gas pipeline is one of the last links in the expansion of the gas pipeline network that imports gas from Russia.
Domestic coal production came to an end in 2001, leaving the country’s coal fired facilities entirely dependent on imported coal to generate 6 per cent of Italy’s energy demand.
Italy imported 11 per cent of all the electricity it consumed in 2002, rising from 8 per cent in 1997. In 2003, Italy purchased 50.5 per cent of total electricity imports from Switzerland, 35.2 per cent from France, 8.9 per cent from Slovenia, 3.2 per cent from Austria and 2.2 per cent from Greece, according to Italy’s network operator, Gestore Rete Trasmissione Nazionale (GRTN).
Although not operated directly by the state, shares in GRTN are held by the Ministry of Economy and Finance, who make decisions as shareholders in conjunction with the Ministry of Production Activities, which also issues strategic and operational guidelines for the transmission company.
Security of supply fears
After 2003 security became Italy’s greatest energy concern and GRTN unveiled plans to invest $544 million in expanding the country’s electricity network in 2004-2006. A further €1.25bn ($1.6 billion) has been promised for medium to long-term investment, including plans to add 1900 km of new lines and 51 new substations. All of this extra investment is to take place while the government tries to lower the price of energy.
The independent Regulatory Authority for Electricity and Gas, (Autorita per l’Energia Elettrica e il Gas – AEEG) has stated that Italy’s energy prices are among the highest in Europe, due in part to inadequate competition. In order to encourage competition the government created the Power Exchange market. It went live in 2004 and the general consensus is that it has enjoyed a smooth start, although the AEEG launched an investigation into the unexplained price hikes at the beginning of January 2005.
In order to further open the Italian electricity market to competition the Bersani Decree introduced competition to the supply sector, giving consumers the freedom to select their electricity supplier. Consumers with an annual consumption of more than 100 MW were allowed to choose their supplier from April 2003, representing 66 per cent of the market. By 1 July 2007 all households will be able to choose their electricity supplier, in order to comply with the European directives.
The Bersani Decree also required state-owned utility Enel to divest 15 GW of its 56 GW capacity by 2003. This led to the creation of three new generation companies: Elettrogen (5438 MW), Eurogen (7009 MW) and Interpower (2611 MW), which were soon bought by an Endesa-led consortium, an Edison-led consortium and a consortium of Energia Italia-Electrabel-Acea, respectively. The government is set to undertake a further sale of Enel and reduce its share from 50.6 per cent to 30 per cent.
While Italy lacks traditional fuel resources it has an abundance of renewable potential in the form of solar, biomass and geothermal. The government is encouraging renewable growth with national funding schemes such as Green Certificates in order to help it achieve its target of doubling the country’s renewable energy production by 2012.
Italy is one of the most important markets for wind energy development, and the Italian government has set a target of 2400 MW to be achieved by the end of 2008. Installed wind capacity at the end of 2003 stood at 922 MW.
The blackouts of 2003 have given the Italian government and energy industry a wake up call as to the frailty of its infrastructure and the vulnerability of being reliant on others for its energy needs. Generation expansion is set to continue, while proposals have been put forward for near, mid and long term investment in the transmission network as the state aims to ensure it never loses mass power again.