Electricity for Sale
Italian GDP has stagnated for a number of years, and the Italian demand for electricity is languishing. With respect to the first three quarters of 2007, in 2014 there was a -8.7% contraction in the Italian demand for electrical power.
But if you disaggregate the industry by energy sources, you can see that the crisis has not hit all actors with the same impact. While the production of electricity from renewable sources went up by 69%, power generation from fossil fuels (gas, coal, oil) posted a 38% drop. Renewables, since they enjoy priority access to the Italian electrical grid and have a zero marginal cost, are crowding out traditional power plants that burn hydrocarbons.
This transition is not only a byproduct of the Great Recession. European liberalization of power generation has also played a role. The Directive 96/92/CE, which liberalized the electrical energy market, made explicit that the industry had to be open to market competition, so much that Italy was compelled to shrink its national champion – ENEL – by legislative decree in 1999.
In early 2000s, electrical consumption surged and forced the Italian government to adopt emergency measures to build new power plants fast. But even this could not avert the power crisis that hit the Italian electrical industry in the summer of 2003.
On that extremely hot day of June 26, 2003, peak demand for power hit the mark of 53,200 megawatts, high but not unexpected, due to a sudden acceleration in the diffusion of air conditioners in Italian homes. For a number of causes, while theoretical installed capacity for electricity generation was 76,950 megawatts, immediately available peak capacity was only 48,950 megawatts and imports proved unable to bridge the gap. Several portions of the grid had to be disconnected, in a partial blackout that affected six million people.
After that day, a rush to invest into additional power capacity ensued, and 19,600 megawatts were added to Italy's capacity for electricity generation, mostly new combined cycle power plants fueled by natural gas. The problem is that 5,600 megawatts of this increment were put in place between 2007 and 2012, i.e. as the economic crisis unfolded, and while a large number of renewable power stations were being added to the mix.
In 2008, wind power and photovoltaic solar energy contributed only 3,970 megawatts to national installed power. In a few years, their weight has grown by a factor of ten, due to government subsidies introduced by the Conto Energia system, which from 2006 to May 2013 led to the installation of photovoltaic panels adding more than 18,000 megawatts to the grid, and production from renewables has kept growing. In addition to the effect of renewable energy, the effects of the policies favoring energy efficiency and conservation have to be taken into account.
The consequence of this veritable energy bubble has been excess production capacity (often financed by banking credit). It is a problem that is being addressed only now. ENEL's chief executive recently stated before that Italian Parliament that many of its power plants are at risk of closure: 11,000 out the 23,000 megawatts installed by the public utility. This translates into 23 electricity power plants employing 700 people who will have to be reallocated or sent to early retirement. We are thus facing an energy equation for which we have yet to find a solution. However, it could have gone worse. For instance, Italy could have embarked on a plan build nuclear power stations, as the Berlusconi government proposed to do in the late 2000s.