Markets & Policies

Coal phase-out in Europe: Italy is here!

The 2017 Italy’s National Energy Strategy is finally online, with good news for the anti-coal lobby and the environmentalists. The political intent to proceed with a coal phase-out for electricity generation within 2025 is confirmed, and a governance plan to make it possible is set up. This plan is in line with other European countries, which in the past few years have shown a growing commitment to get rid of coal as soon as possible.

Coal phase out in Europe: Italy is here!

 

Following the public consultation launched in June 2017, on November 10th 2017 the Italian Ministry of Economic Development has published the 2017 Italy’s National Energy Strategy (NES). One of the main elements of the Government plans for the future of the Italian peninsula is the establishment of a strategy for a complete coal phase-out in the power sector. Almost 8 GW of baseload coal power plants will be totally decommissioned within a time span of 7 – 8 years: this will require some network and new generation capacity interventions, together with more ambitious renewables and efficiency targets.

Upgraded targets

Reviewing and updating the 2030 energy-climate targets proposed with the consultation was one of the action lines needed to pursue a complete coal phase-out by 2025 (instead of 2030, as suggested in the consultation process).

  • The total renewables (RES) share on gross domestic consumption target for 2030 is 28%, which entails the following sub-targets
    • Renewables in electricity (RES-E): 55%
    • Renewables in heating&cooling (RES-H): 30%
    • Renewables in transport (RES-T): 21%
  • The final energy consumption reduction 2030 target is 10 Mtoe/year (compared to the BAU scenario).

Other actions needed

A number of required actions are identified in order to guarantee the system adequacy and security standards given the high increase of RES-E in the power system and the coal phase-out planned for 2025: electricity grid reinforcements and expansion, new generation capacity, storage systems, ancillary services market managements. Those actions are also needed to deal with some of main issues that the Italian power market is facing: RES-E integration, grid congestions, overgeneration.

In particular, the following interventions are needed for the sake of a complete coal phase-out in 2025 and RES-E at 55% in 2030

  • 1.5 GW of new natural gas generation capacity, of which at least 50% OCGT (peaking generation technology)
  • A new Sardinia- Italy mainland interconnection, or a Sardinia-Sicily-Italy mainland interconnection.
  • Natural gas generation capacity in Sardinia, with regasificators and LNG storage systems, or 400 MW of natural gas storage capacity in the island. Currently, Sardinia has no natural gas interconnection and internal network, and provide the Island with access to a supply of natural gas is of the key points of the Government national energy policy.
  • Mainland grid infrastructure works and reinforcements, such as the new Adriatic backbone (1.2 GW – to reduce grid congestion between north and south), and 0.3 GW of new storage systems (batteries) mainly focused in the South and Sicily areas.
  • Demand side response contribution of roughly 1 GW.

RES-E incentives

How to get to such an ambitious RES-E penetration target? Up to 2020 the incentives granted to RES-E generation will be based on two way contracts for difference (CdF), mainly awarded through competitive auction procedures (a mechanism originally introduced in Italy in 2012) held by a public body (GSE), which is the contract counterpart. Starting from 2020 the CdF mechanism will be replaced by long term contracts for the purchase of renewable electricity: Power Purchase Agreement (PPA) concluded between the renewable electricity generator and private subjects willing to buy the energy, instead of the public counterpart.

Electricity mix in NES 2017 scenario

Figure 1 shows the Government expectations for the Italian electricity generation mix, where the coal phase-out and the RES-E increase are the dominant trends. It is interesting to point out the decrease of natural gas from 2025 to 2030, which is part of the Government plan to reduce the Italy energy dependency from foreign fossil fuel sources. To get the total Italian electricity consumption also the import/export net balance should be considered, which in 2015 was equal to 46.4 TWh of net import (Terna Statistical Data), while for the long term NES scenario assumes 28 TWh of net import.

Within the different RES-E sources, in 2030 solar will by far play the lion’s share (more than 3 times the 2015 generation), but also wind will see a great increase; hydro will maintain a relevant role in the mix, and bioenergy will slightly decrease due to sustainability and cost issues (see Figure 2)

A lot of work… is it worthwhile?

One big question that could arise from the analysis of coal-phase out policies, such as the Italian one, is about the goodness of such policy driven decision versus developments and decisions mainly driven by market forces and by the technical life of electricity generation investments.

As show throughout this article, the political decision to shut down all the coal plants in Italy within 2025 is strictly linked with the deployment of a number of technical and market resources, that would be probably be needed anyway in the longer term, but now they are anticipated in order to cope with the planned changes in the power generation installed capacity. This political decision has the pro of setting up an investment plan for the energy future of the country, but with a more diluted and progressive “natural” coal decommissioning there could maybe be more environmentally and financially sustainable.

Coal phase-out policies in countries with a relevant coal share in the electricity mix can lead to the need of scheduling and planning of huge investments in the electricity sector. This is not an easy task, with many possible downsides, such as misinterpretation or non-recognition of the main consequences and aspects to tackle. Furthermore, pretending that the issue will be solved just with higher green investments is not realistic, and even if it was possible, dealing with a fast and massive renewables growth would also call for massive grid and markets updates.

Is Italy Government walking in the right direction? The scale and importance of the coal phase-out challenge are recognized, and the main issues to tackle are identified. It remains to be seen if the interventions needed will be done on time and if they will be proper for the goal to achieve.

Where is Europe?

Several other European countries, like Germany, the UK, the Netherlands, Austria, France, Denmark and Finland, have in various ways and levels shown some commitments to coal phase-out or at least reduction…

Stay tuned for more info on coal phase-out plans in Europe!

 

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