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The future of energy: the role of Italy

October 2018  |  SPECIAL REPORT: ENERGY & NATURAL RESOURCES

Financier Worldwide Magazine

October 2018 Issue


One of the main challenges of the coming decades is the energy issue. In the future, it is hoped, we will be able to create an ‘energy mix’ in which all energy sources are complementary to one another. In the event of such a mix, it is likely that renewable sources will be the dominant force. It has been claimed by some analysts that the coming ‘energy transition’ will probably be faster and more disruptive than the previous one.

By 2050, wind and solar technology will provide almost 50 percent of total global electricity. Just 29 percent of the world’s electricity production will be provided by burning fossil fuels, a drop of 63 percent compared to today. Bloomberg’s ‘New Energy Outlook 2018’ report estimates that renewables currently make up 87 percent of the electricity mix, with wind and solar playing a dominant role. In order for this to change, time and considerable financial investment will be needed to achieve predicted changes in the global energy mix.

There are two main aspects of the energy issue: energy supports growth and growth supports welfare. It is significant that the most energy-intensive countries are considered the wealthiest, according to the Human Development Index.

Furthermore, the international community has acquired a growing environmental awareness that has recently influenced governmental decisions on energy policy.

In the foreseeable future, in face of the predicted increasing global demand for energy, we should pursue an emissions reduction. In fact, even today, it should be considered that in many countries, for several days each year, electricity consumption is completely covered by renewable-based generation. Further, several cities have announced a ban on diesel cars in order to limit air pollution and the automotive industry is slowly switching to electric mobility.

From a political perspective, the Paris Climate Agreement was an important step forward in the fight against climate change. The Agreement was aimed at the adoption of a common policy to combat global warming, by limiting the temperature increase to less than 2°C, compared to pre-industrial levels. These international initiatives are clear and tangible evidence of the ongoing transformation in the energy sector.

In this global context, the European Union (EU) is at the forefront of the fight against climate change, setting challenging goals aiming to increase the production of renewable energy and drive efficiency in the use of natural resources. Recently, the EU has enacted a series of directives regarding energy and climate protection – ‘Clean Energy for All Europeans’.

Italy has a long-term vision for its energy strategy, aimed at achieving the objectives set out in the country’s National Energy Strategy. Namely, the country hopes to achieve 28 percent of energy consumption from renewable sources, with a target of 55 percent of production coming from ‘green’ sources. At the end of the summer of 2018, the renewables decree was due for approval, with incentives of new plants powered by renewable sources for the three-year period 2018-2020.The new decree will provide incentives up to €5.8bn per year, which will be granted for the installation of over two gigawatts per year.

Access to incentives will be granted when plants fall within specific parameters, for example when power is less than 1 megawatt, or if the power is above the specific threshold as a result of the low bid auctions managed by the Gestore dei Servizi Energetici S.p.A. (GSE).

The current draft of the decree also aims at rationalising interventions. Plants cannot be built in areas already saturated with renewable energy sources (RES) installations that are based on RES and cannot be connected to the electricity grid.

Therefore, the operators of the country’s electrical infrastructure will have to communicate the areas in question to the GSE, indicating the additional maximum production capacity that can be added to the electricity grid.

In addition, plants located abroad may participate in the auction procedure if they export electric production to Italy, subject to a free trade agreement.

Notwithstanding the trend toward the abandonment of fossil fuels, gas continues to play a key role in energy consumption in Italy, both in terms of industrial and residential use.

Despite being one of the most advanced markets for the production of energy from renewable sources, on average, between 50 percent and 65 percent of Italy’s electricity is produced by burning fossil fuels and, therefore, thermal power stations with fossil fuels will be the main player in the country’s energy supply market for at least the next decade.

In Italy, the natural gas market has been going through a deep reorganisation of late. In fact, the market for gas distribution is affected by a process of concentration of operators. Recently the inter-ministerial decree ‘Promotion of the use of biomethane and other advanced biofuels in the transportation sector’ was issued.

Biomethane represents an opportunity for innovation in the gas industry and for developing a renewable and programmable energy source, with significant benefits in terms of environmental sustainability and positive impacts on the industrial and agricultural sector.

Consorzio Italiano Biogas (CIB) estimates that Italy could potentially produce up to 10 billion cubic metres of biomethane by 2030, equal to about 15 percent of the current annual demand for natural gas.

A study carried out by Ecofys for the European Gas for Climate consortium estimated that the production and use of biomethane and other renewable gases in existing infrastructure would enable Europe to meet the climate targets of the Paris Climate Agreement, saving around €140bn per year by 2050.

The decree on biofuels sets forth an incentive mechanism for biomethane and advanced biofuels, other than biomethane. With this decree, Italy has set the ambitious goal of achieving 10 percent of renewable energy consumption in the transport sector by 2020.

In light of the above, and considering the recent legislative initiatives, Italy is making a great effort to create the right, complementary ‘energy mix’ in order to face the new challenges in supply, distribution and containment which will arise from ongoing climate change.

 

Manuela Mastrandrea is a lawyer at CBA. She can be contacted on +39 02 778 061 or by email: manuela.mastrandrea@cbalex.com.

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