For many years the Italian electricity sector has been characterized by a high level of stability produced by a slow and constant growth in consumption, as evidenced by the statistical data of Terna, the high voltage spa which manages the national electricity grid, substantially in line with the GDP trend. The electricity sector - which in the last decade has witnessed a process of modernization and expansion, with huge investments both in the transmission grid, where Terna itself has invested 7 billion euros in concrete works, and in terms of generation, the whose central park has become the most modern on the continent – has however been subjected in the last five years to a series of external "stresses" that have changed its configuration:
1 – The economic crisis of the oldest industrialized countries has caused a strong and prolonged drop in consumption.
2 – The development of renewables has revolutionized the technological dynamics and market mechanisms that seemed by now consolidated.
3 – The massive penetration of distributed generation has changed production and consumption systems.
These three macro trends, and more, are causing a crisis for companies operating in the sector, especially those that have focused more on traditional technologies. The serious economic difficulties of even important realities must not be underestimated since they signal a picture of strong instability of the system.
The decline in consumption. The economic crisis that erupted in 2008 had significant repercussions on electricity consumption in Italy, albeit in different ways for households, industry and services. It is in particular for the latter two that the contraction was more significant. Energy efficiency certainly had an impact on the reduction in consumption, but it was the closure or transfer abroad of many companies that gave the "coup de grace". Despite declining demand and excess supply, energy prices are not going down but, on the contrary, going up. For many energy-intensive companies where energy weighs 40% on prime costs, the mix of "decrease in consumption-energy price stagnation" - added to the credit crunch - is causing countless cases of crisis.
The high price of electricity in Italy: the cost of gas. The transformations of the Italian electricity market are strongly influenced not only by the reduction in consumption, but also by energy prices, which are constantly higher than those in Europe. This dynamic is conditioned by various factors, first of all the fact that about half of Italian electricity is produced with gas-fired plants and in Italy gas costs among the most expensive in Europe. This is the sign that competition in the sector in Italy fails to bring benefits to final consumers. New regasification terminals and gas pipelines able to obtain supplies from new suppliers could be factors capable of changing the situation in Italy.
The high price of electricity in Italy: charges and subsidies. In addition to the high cost of gas, a series of important elements weigh on the high bill: the persistence of price differentials between the various geographical areas, the explosion of network charges, support for renewables, the reduction of system charges for energy-intensive companies, subsidies for fossil fuels and particular services such as instantaneous interruptibility and virtual importing. These are particularly "hot" topics on which important and opposing interests clash which unfortunately often lead to problems not being examined objectively. In particular, the charges linked to support for renewable sources (the weight in the energy bill and green certificates in September 2013 reached €11 billion) and the costs for managing the National Electricity System are at the center of the debate. If we think that system charges have increased by 46% for SMEs, going from 16,6 €/MWh in 2009 to 24,3 €/MWh in 2012, we can easily understand how high bills can have significant repercussions on entrepreneurial.
Renewables and the electricity market. Making the picture even more complicated is the increasingly massive weight of renewables which is putting the functioning of the electricity market in crisis. The large quantity of these sources, especially photovoltaics, has in fact overturned the traditional logic of energy generation and transmission, leading to some problems: above all an excess of production compared to consumption at the local level, and still the need of a high, and flexible, reserve level to balance the rapid variability of production levels, with burdens on the system. Terna, as grid manager, is directly involved in the renewable energy game, and has made a strong commitment by already investing 1,3 billion euros in concrete works - a further 2,5 billion euros are expected up to 2016 - to ensure that the electricity grid evolves in synchrony with the "new system", with interventions located in Southern Italy, where RES are becoming the main source of coverage of the demand. According to the data, in the last 5 years the RES power in dispatching priority has enormously more than doubled: from about 20 GW in 2007 (basically the old hydroelectric and geothermal plants) to 47 GW in 2012. Wind and above all photovoltaic are the sources grown more. In particular, PV closed 2012 with 16 GW of installed power. This means that in many moments of the day the RES are able to satisfy not only the entire basic demand but also increasing quotas of the peak needs. The quotas of off-market demand are putting many gas plants in crisis, forced to increasingly intermittent production during the day and to work "at full capacity" only at night. Furthermore, as the warmer months progress, there is a real collapse compared to other technologies, in particular PV. The effect on gas consumption is important: the average drop is of the order of 20%.
The situation under consideration seems destined not to change. Also following the reduction in costs especially in some technologies such as photovoltaic and wind energy which have recorded a drastic drop in prices in recent years (for panel prices, 2012 closed with a 44% reduction compared to 2010, while for wind turbines 2012 closed with a reduction of 34% compared to 2009). These dynamics affect not only large-scale RES plants, but also those for distributed generation, especially in PV. This dynamic is not only Italian but worldwide.
Conclusions. What possible strategies for electricity companies? In summary, the economic crisis, technological evolution and evolution of the regulatory framework are profoundly changing the Italian electricity sector (and beyond). After the collapse of 2008, demand will probably never return to pre-crisis levels. A number of elements converge towards this hypothesis:
1) Demographic stability
2) Stability/decrease of large energy-intensive industries
3) Development of energy efficiency.
The stability of demand, combined with a strong production overcapacity, have important effects on the development of competition for the players in the sector. Finally, technological evolution has profoundly changed the energy model: fewer large plants, more renewable sources and distributed generation, and ever more "intelligent" management of the networks. It is clear that all of this requires a "radical" change in the strategies of companies in the sector. To face a constantly evolving context, the need to:
– Abandon investment strategy in generation due to stagnant demand and production overcapacity.
– Focus on the downstream. Increasingly strong competition requires increasingly targeted and effective commercial and marketing policies. Customer acquisition and retention appears to be an objective of growing importance in company development policies.
– Reformulate and extend the offering. To strengthen the bond with the customer, it seems inevitable to provide services for energy efficiency and, in general, for improving the quality of life: let's think of home automation, after-meter repair services, energy saving goods such as TVs or high efficiency, sustainable mobility, etc
– Focus on internationalisation. Italy can no longer be the only reference market, it is necessary to look at the areas with the highest growth, without however neglecting careful risk management.
