Regulatory notice
A capacity mechanism was launched in Italy in 2019: it was validated as state aid by the European Commission on 14 June 2019 (State Aid number SA.53821) until the end of 2028; an implementing decree was issued for this mechanism by the Minister for Economic Development on 28 June2019. Terna, the Transmission Network Manager, defined the rules after consultation with stakeholders, and the first auctions took place in November 2019 for the 2022 and 2023 delivery years.
The capacity mechanism implemented in Italy is a “Market Wide” mechanism (remunerating all capacity required to meet security of supply criteria), with centralised “pay as clear” auctions, price zones in case of potential congestion and carbon emission limits. Capacity availability is primarily encouraged through the “reliability option” system specified below.
Selected capacity is remunerated by a fixed annual premium stated inEuros/MW/year (paid monthly during the delivery year). Prices are established by cross-referencing a demand curve produced by Terna with a supply curve(bids at auctions).
A bid cap for existing capacity is set within a range of between€25,000/MW/year and €45,000/MW/year (€33,000/MW/year for the 2022 and2023 delivery years).
A bid cap for new capacity is set within a range of between €75,000/MW/year and €95,000/MW/year (€75,000/MW/year for the 2022 and 2023 delivery years).
The “reliability option” scheme adopted by Italy involves a “repayment obligation”: the selected capacities must pay Terna the positive difference between a reference price and a predetermined strike price, whether or not the capacity is available at that time.
The reference price is based on the day-ahead market price and the balancing(adjustment) price of the price zone where the capacity is located. The strike price is set at the level of the standard hourly variable cost of the technology with the highest variable costs (i.e. the peak technology). The peak technology chosen by the Authority for 2022 and 2023 is the OCGT (open-cycle gas turbine), with a variable production cost of €125/MWh in 2017.
New and refurbished capacity is only eligible for the capacity mechanism if it does not emit more than 550g of fossil-fuel carbon emissions per kWh of electricity. Existing generation capacity is only eligible for the capacity mechanism if it does not emit more than 550g of fossil-fuel carbon emissions per kWh of electricity. If this limit is not respected, existing capacity may still be eligible if it commits not to emit more than 350kg of fossil-fuel carbon emissions on average per installed kWe for a given delivery year.
With respect to hydro power, the “certification decree” (law dated 11 February 2019, no. 12) covering national regulation of concessions for hydro power diversions was approved in law. The new provisions cover the allocation and fees for concessions, and must be implemented in specific regional laws. To date, only a few regions have passed these laws, the implementation of which requires regional administrative instruments (notably regulations); these are in progress.
In Italy, as of 31 December 2020 Edison’s installed capacity (excluding energy efficiency services) amounted to 6.3GW, with net electricity production of 18.1TWh in2020, a decrease of almost 12.4% from the 2019 figure.
Edison’s generation fleet is currently made up of 89 hydropower plants, 14 thermal power plants, 43 wind farms and 64 photovoltaic plants. Combined-Cycle GasTurbines (CCGT) account for 72.8% of electricity generation, while hydropower accounts for 17.7% and combined wind and other renewable energies for 9.6%.
The downturn in Edison’s production is due mostly to the fall in thermal power production (13.2TWh, down 17.1% on 2019), itself due in part to reduced consumption nationwide and in part to the shutdown of two power plants in the early months of the year.
In 2020, Edison’s hydro power output totalled 3.2TWh (stable compared to 2019),resulting from the operation of some 0.9GW of hydro power installations in Italy, approximately 70MW of which was from “mini hydro power” installations, some of them located on irrigation canals in Piedmont and Lombardy.
Wind power and other renewable energy production amounted to 1.7TWh (up10.6% on 2019) in 2020, due in particular to the acquisition of EDF EN Italia plants from EDF Renewables in July 2019.
In the field of renewable energy, Edison has installed capacity of 1GW, making it the second-largest wind power operator on the Italian market after ERG(1). Edison operates wind power production mainly through E2i (Energie Speciali srl)(2), which holds some 680MW of renewable assets (at 31 December 2020), with all of the energy produced being transferred to Edison pursuant to the integrated management of its production portfolio.
In line with Italy’s National Plan for the Climate and Energy, which supports the development of gas-powered electricity production and its integration with renewable production to ensure the flexibility and security of the national electricity system, in2019 Edison started work on the first new-generation combined-cycle gas power plant (CCG) on the site of the Marghera Levante power plant (780MW). Construction of a 760MW greenfield project using the same technology at Presenzano, Campania, began in 2020. These two installations are highly flexible and efficient (with energy efficiency of 63%), have a low environmental impact (with CO2 emissions 40% lower than the national average and 70% fewer NOx emissions); power generation should begin in 2022 and 2023 respectively. The two power plants should benefit from the fixed contribution of €75,000/MW for 15 years linked to the capacity market, with a positive impact on the volatility of Edison’s margins, subject to the commissioning date deadlines being met.
Edison’s strategic role in energy transition in Italy has been recognised by the European Investment Bank (EIB). In 2020, it granted Edison two long-term loans: one worth €150 million to support the reconstruction of the new-generation Marghera Levante combined-cycle gas power plant (CCG); the second, worth €300 million (the first Green Framework Loan in Italy) is for the development of a portfolio of projects in the field of renewable energy production and energy efficiency services.
Internationally, Edison is well-established in Greece, where it owns a 50% stake in ElpEdison SA, one of the country’s main electricity operators (with Hellenic Petroleum owning the other 50% stake). ElpEdison serves 280,000 customers and owns twoCCGT plants: one in Thessaloniki (400MW) and the other in Thisvi (410MW) built byEdison, which sells electricity on the domestic market.
Last, Edison holds a 50% stake in Ibiritermo, a subsidiary in Brazil, which operates a 226MW CCGT plant, and a 20% stake in Kraftwerke, which operates 626MW of hydropower in Switzerland.
(1) Data published by ANEV (page 11 of the ANEV 2020 Brochure), taking into account the capacity of EDF EN Italia and E2i.
(2) A company set up in 2014 in partnership with the F2i fund, which owns a 70% stake; the remaining 30% is owned indirectly by Edison.
