Italian Power

Why then it is so surprising that Italy is also one of the world's great economic engines? Italy's dynamism may be disguised by its seductive Mediterranean culture, but its industrial might is no less real for all that. Italy - a founder member of the G8 - ranks 7th in GDP globally, and its economy stands alongside France and Britain in most measurements.

ENEL is the Italy's largest energy provider and - surprisingly, again - the third largest energy provider in the world. Formerly a state-owned monopoly, ENEL is now partially privatised and its shares are traded on Milan's Borsa Italiana.

Almost 60 per cent of Italy's power generation is oil-fired, with gas accounting for another 30 per cent. Coal, hydroelectric and renewable sources make up the rest. Italy is one of the only countries in the world to have shut down its nuclear power plants as part of a moratorium on nuclear power generation following a referendum in 1987 in the wake of the Chernobyl disaster. Prior to the moratorium, almost four per cent of Italy's power generation was nuclear, with 1.15 gigawatts of capacity.

The moratorium expired in 1992, and although the Italian government has extended it since, ENEL does import nuclear-generated electricity from France. In 2005, ENEL invested in new nuclear capacity in France and Slovakia, and in the development of the European Pressurized Reactor - a third-generation nuclear fission pressurized reactor project being developed by France and Germany.

Like many of its fellow electricity companies around the world, ENEL has undergone massive changes in recent years. The company's transformation began in the mid-1990s, when the Italian government sold off major share blocks. The company is now primarily privately held, with a 31.1 per cent share still in state control. The move to privatise ENEL was undertaken in anticipation of competition across the European Union.

Between 1997 and 1999, the Italian parliament passed a number of new laws to deregulate the domestic electricity market. The 1999 legislation unbundled ENEL into separate generation and distribution companies, and also introduced competition between providers. Although ENEL still accounts for over 80 per cent of total electricity generation in Italy, there are also municipal electric companies and private producers now in operation.

Before 1999, there was no retail competition, although the law did encourage cogeneration. Interestingly, until 1991, related companies could not trade in electricity between themselves, and new legislation enacted in that year allowed private companies and municipal utilities to produce power for their own needs and to sell any excess to the national grid, for the first time.

In March of 1999 new laws opened the way for retail competition. A provision of the new law stated that no single company would be allowed to control more than 50 per cent of the domestic market. Large consumers were allowed to purchase electricity from distributors or wholesalers in Italy or abroad, although smaller consumers were still tied to a single distributor.

The legislation allowed competitors throughout Europe access to sell power to the Italian grid, and although the government still retained control of the grid, it could now grant concessions for its operation.

The government established an Authority for Electricity and Gas to ensure fair competition and access to energy markets, and a supply-side electricity futures market was created. This market, the Italian Power Exchange, or IPEX (Gestore del Mercato Elettrico, or GME, in Italian) was established in 1999 and came into operation in May 2001.

On 31 December 2004, the market was opened to the demand side as well, enabling interested parties to directly purchase electricity. Acquirente Unico was established to act for residential customers, with the goal of minimising costs and risks to consumers while making direct purchases in IPEX.

Full demand-side participation in IPEX meant that wholesalers and large customers could buy electricity directly through IPEX, planning their load profiles on an hourly basis.

Today, IPEX is an electronic virtual marketplace where the price of electricity is determined by the combination of demand bids with supply offers submitted by market participants. It consists of a Day-Ahead Market, an Adjustment Market, and an Ancillary Services Market.

• The Day-Ahead Market closes at 9am on the day preceding the settlement date on which the transactions occur, and includes the majority of electricity purchase and sale transactions. Offers and bids may be submitted up to 9 days in advance.
• The Adjustment Market allows participants to revise their schedules by submitting additional supply offers or demand bids.
• The Ancillary Services Market deals in the resources required for managing, operating and controlling the system.

If all this is starting to sound a bit familiar, perhaps it's because Italy has already gone some way down the road, which we will soon be taking when the All-Island Market goes live in November 2007.
Our solution will be different, of course, but the end result will be the same: more consumer choice and a more attractive environment for the investment needed to secure our energy needs for the future.