On June 12th Ministers of Economic Development and of Environment launched a public consultation on the new Italy’s National Energy Strategy (NES). The final outcome will be an energy policy document setting out the main goals and establishing the priorities of action for 2030 and beyond.
The first Italy’s National Energy Strategy (NES) was published in 2013, and it was mainly focused on priorities of action and expected results by 2020, with some insights on the changes needed and perspective challenges in the long and very-long-term (2030-2050). 2017 NES document looks at 2030 EU framework for climate and energy, declining EU targets at the national level and then describing and analyzing possible paths and policy measures to meet those targets.
What is Italy’s NES?
Italy’s NES is a policy document jointly drawn up and published by the Ministry of Economic Development and the Ministry of Environment and meant to set up long-term guidelines on the development of national energy system, in order to give directions and show priorities to all direct and indirect stakeholders in the energy sector.
All the policy measures mentioned and described in the NES documents need to be included in further legislative documents in order to be finally approved and implemented.
2017 NES priorities and targets
Being a country poor of local fossil energy resources, Italy is heavily dependent on foreign supply, with a consequent huge energy bill and related competitiveness issues. Following this, the top priorities for the Italian energy system, and, at a broader level, for the Italian economy, are basically the following
- Implementing structural solutions to increase competitiveness by reducing the energy cost gap for consumers and businesses, bringing prices and costs in line with European levels;
- Defining and meeting 2030 climate and energy targets in coherence with the European framework, boosting renewables and energy efficiency measures
- Improving the security of energy supply and system flexibility, especially in the gas and power sectors, in order to properly integrate the increasing renewables, to manage natural gas changing flows and peak demands, and to diversify the supply sources for geopolitical risk reasons.
Based on these priorities some sector-specific targets and measures are proposed.
In the 2016-2020 period, a target of 5 Mtoe (1 Mtoe per year) of energy consumption reduction should be achieved, while from 2021 to 2030 the target is 9 Mtoe (0.9 Mtoe per year), and such reductions should mainly be focused on residential and transport sectors.
There currently are three incentive mechanisms in place in Italy to support energy efficiency interventions in the residential, tertiary and industry sectors: the most effective incentives in place are aimed at the industry sector, while for residential and tertiary incentives will have to be improved in order to become more cost effective. Transport sector lacks a proper incentive mechanism, and prospective measure should strengthen local urban mobility and support the renovation of vehicles fleet.
The proposed 2030 renewable on gross domestic consumptions targets, which are aligned with EU 2030 Energy Strategy, are reported in Table 1. Italy is doing well with renewables, with the 2020 targets already achieved for renewables in heating&cooling (RES-H, 19.2% on gross consumptions in 2015 vs a 17% 2020 target) and in electricity (RES-E, 33.5% on gross consumptions in 2015 vs a 26% 2020 target), while transport (RES-T) is lagging behind (6.4% on gross consumptions in 2015 vs a 10% 2020 target).
RES-E current incentives are based on auctions (for bigger plants) and registries (for smaller ones) with capacity quotas per source and technology set by Ministerial Decree, and tax deductions are granted to domestic size photovoltaic plants.
The SEN consultation document proposes the following to support RES-E after 2020:
- long-term power purchase contract for new big photovoltaic power plants
- simplification of authorization process with ad-hoc rules to support new wind power plants and repowering existing wind power plants
- update of bioenergies support mechanisms, granting new incentives only to very small installations (70 kW) and only to agricultural/industrial/urban wastes and non-primary crops.
- revision of legislation on concessions for water flows diversion for hydroelectric production to select new projects and investments
Regarding RES-H two technologies are expected to drive the sector evolution: heat pumps, both for heating and cooling purposes, and district heating, mainly based on renewables and combined heat and power. The role of bioenergies and solar thermal will be marginal.
The greening of transport sector will see the increasing share both of advanced biofuels (such as bio-methane), and electric vehicles.
Table 1 summarizes European and Italian 2030 targets.
Energy markets: power & natural gas
The Ministry shows three possible alternative scenarios for coal power stations, with different decommissioning assumptions. One scenario foresees a complete phase-out, which would entail stranded costs (that would finally be a burden on taxpayers) if it happened within 2025. Due to the geographical location of coal plants (the older ones are in the North Zone, where the electricity demand is the highest, and two are in Sardinia, where there are constraints and issues related to being an island), a partial, and even more a total, phase out, would require electricity and natural grid investments, and new generation capacity.
In the past few years, the available thermal power generation capacity decreased, due to the physiological closing down of older units and to the tight market conditions (decreasing demand, increasing renewables), which accelerated closures. Since in the meantime most of the new entrant capacity was based on intermittent renewable sources, with high unavailability rates, adequacy concerns are arising. Following this, a capacity market mechanism should be launched in 2018, allowing TERNA (Italian TSO) to supply mid-long term resources via competitive procedures, and giving investors a more stable long-term business context, avoiding further anticipated closures. Grid investments will be needed to reduce inter and intrazonal congestions, with a particular focus on the South-North line, where 4.2 GW of new transport capacity is planned (Terna 2017 Development Plan). Various measures are proposed to integrate renewables in the national power system, such as promoting new gas-fired generation and flexible resources (storage), and the completion of market reforms to allow an increased participation of demand and renewables.
Natural gas is expected to provide a backup to renewable energy sources, with an increasing relevance as the renewable share in the national energy mix raises. The diversification of supply sources and the reduction of the price gap between Italy and the rest of Europe are two key elements needed to foster natural gas role in the energy mix. Diversification should improve thanks to new import infrastructures (such as the largely debated TAP, Trans Adriatic Pipeline) and to an expected reduction of long-term take-or-pay supply contracts. Liquefied Natural Gas (LNG) is seen as an opportunity to catch for Italy, since the oversupply conditions of the market should last at least until mid-2020s, and for this purpose regasification capacity will have to be increased (a floating terminal with 4 Bcm regasification capacity is proposed), and the remuneration of regasification services should be based on auctions instead of tariffs. In Sardinia, which is not connected to natural gas pipelines, small-scale LNG projects are deemed to be the best option to bring natural gas to the Island.
A brief critical review
Italy’s NES is a policy document depicting the evolution of the national energy system as expected and desired by the Government and describing a variety of measures that could be taken to meet long-term climate/energy targets. It has no legal binding value, and all the projections and measures will need to be further discussed and agreed by the Government of the time within the legislative national process in order to become enforceable. Italy’s NES shows the general intentions of the Government, highlighting the climate/energy strong commitments of the Country, but the core and practical decision and directions are left to future legislations. Long term ambitious targets are proposed, but how the energy system of the Country will actually meet those targets goes beyond the jurisdiction of this policy document.
As a result, Italy’s NES has a much more limited scope of action compared to other Countries similar documents, such as the Swiss Energy Strategy 2050. How will the Country get where the Government wants it to go? The lack of clear and firm choices finally impairs the document value for stakeholders, especially for business planning purposes.