According to the most recent data collected by the Chamber of Commerce of Milan in collaboration with REF Ricerche, the prices of electricity on the free market in April 2013 decreased compared to last January. The fall in prices of new contracts is between 3–7%. The decrease does not only concern contracts signed in April. Over the past twelve months, prices have fallen steadily, recording the third consecutive quarterly contraction in April. Compared to a year ago, in fact, electricity prices have decreased, contracting by 7-15% depending on the type of contract. Even referring to a longer period of time, we observe a significant reduction in prices: in the last three years, the price of electricity fluctuated on average between 90 €/MWh and 95 €/MWh, to then undergo a sharp decline in the second half of 2012 and reach levels of around 2013 €/MWh in April 85.
A significant drop, considering that the costs of thermoelectric generation of electricity have increased steadily in recent years. The increase in production costs is due to the rise in the price of fossil fuels (derived from petroleum, natural gas and coal) used in thermoelectric plants to produce energy. The production cost of electricity is therefore correlated to the price trends of fuel sources, and in particular to oil prices, which in the first few months of 2013 reached peaks of $120 a barrel.
Despite the marked increase in fuel costs, the prices negotiated on the free electricity market have decreased, giving rise to the phenomenon of decoupling between the price of oil and that of electricity. While oil prices continue to rise, electricity prices are falling. This bifurcation can be attributed to an excess capacity of the supply of electricity supplied on the Italian market, which has caused a reduction in prices in the free market. Electricity generation has increased significantly in recent years. Two main factors have contributed to the increase in energy production capacity in Italy. The first concerns the entry into the Italian market of new natural gas combined cycle plants. The second concerns the development of renewable energy sources, particularly in the photovoltaic sector. However, the increase in energy supply was not absorbed by the weak Italian demand, compressed by the economic crisis which forced many companies to slow down or even close their production.
Recent changes in the Italian energy market have not only had an impact on electricity prices, but also on the structure and type of contracts provided to small and medium-sized enterprises in the free market.
The alignment between fixed and variable price
Over the last few months, the difference between the fixed price, where the consideration remains the same for the entire term of the contract, and the variable price of the raw material, where the consideration is updated from month to month according to the trends of the generation fuels. In the last twelve months, contracts with variable fees have recorded prices higher than those with fixed fees by around 2 or 3 €/MWh, as suppliers expected, as has subsequently occurred, a decrease in energy production costs.
The convergence of time slots
A further change that has affected the free market concerns the distribution of prices between time slots. The presence of bands with differentiated prices is linked to the different electricity generation costs throughout the day. In the hours of the day when the use of energy is more concentrated, i.e. in F1 (daytime slot), energy tends to be more expensive to reflect the higher generation costs, while in the lower consumption slots, such as F2 ( evening time slot) and F3 (night time slot), the price of electricity is lower.
An important observation can be made in this regard. The price difference between bands has significantly reduced over the last three years, going from a gap of more than 40 €/MWh between the high-load band F1 and the low-load band F3, to a gap of 30 €/ MWh. This reduction is due to two factors: the sharp drop in prices in the F1 band, which led to the alignment of prices in F1 with the F2 band in many contracts, and the increase in prices in the F2 and F3 bands.
The increase in prices in F2 and F3 is motivated by the evolution of fossil fuels, the price of which has gone hand in hand with the increase in oil prices. The evolution of prices in the F1 band, on the other hand, has another explanation linked to the recent transformation of the Italian energy market. Since new energy sources have entered the Italian market, the supply of energy has increased, especially during the day when the contribution of photovoltaic systems is greater.
The convergence of bands has had a differentiated impact on consumers. The small and medium-sized enterprises that operate on a day shift have benefited the most, such as, for example, craft enterprises or micro and small manufacturing enterprises. On the other hand, accommodation and catering companies that have a more uniform consumption profile along the three time slots are penalised.
The cost of the bill has risen
Although the price of electricity has decreased in the last twelve months, the final cost of the bill has increased for small and medium enterprises. The increase in the bill varies according to the type of contracts stipulated and the consumer profile. For a hotel, which distributes its consumption evenly between the three zones and is connected to low voltage, it is estimated that the annual cost increased by 35% between January 2010 and April 2013. For a manufacturing company, on the other hand, which concentrates own energy consumption in the high load range, the increase is smaller and equal to 25%, thanks to the reduction of prices in the F1 range.
The increase in the final costs sustained by small and medium enterprises is due to the increase in the costs of the regulated items of the bill, and in particular to a cost component: the parafiscal charges destined for renewable sources.
Increased parafiscal charges: the promotion of renewable sources
The costs that have contributed most to the increase in the bill are parafiscal charges, which today account for about a quarter of the bill. Almost all of the increases were recorded by the A3 component of the bill, intended to finance the costs of promoting the production of energy from renewable and assimilated sources. Compared to 2010, the cost of the A3 component has gone from just over 1 €/MWh to over 4 €/MWh, up by 300%, drastically increasing the cost of bills for small and medium-sized Italian businesses.
