Power policy

Gas plants accounted for 50% of Italy’s electricity generation in 2020, followed by coal at 5%, hydro at 18%, and wind and solar at a combined 15%. The country has committed to phase out coal by 2025 and announced plans to increase its interconnection and renewables capacity. In 2019, it passed legislation to revive its renewables sector, which had been struggling since the end of utility-scale solar subsidies in 2013. It decided to host seven technology-neutral auctions to procure 6.2 gigawatts (GW) of renewable capacity. Auction winners secure 20-year contracts that guarantee them a power price. As of September 2021, four rounds of auctions had awarded a total 1,533 megawatts of contracts to wind and solar generators. The country must ramp up construction to meet its 2030 target of 55% of electricity generation coming from renewables.

Power prices and costs

Italy’s power market is geographically divided into six zones, and spot prices vary according to the bidding zones. Wholesale power prices reflect the marginal cost of generation at the zonal level. Prices only converge to the national single price (known as the PUN) when there is no congestion. Italy has recently improved transmission network bottlenecks between the Northern and Southern regions of the country, leading to power price convergence across the bidding zones.

Italy’s wholesale and retail power prices are among the highest in Europe. High retail power prices reflect Italy’s dependency on gas, putting consumers at a disadvantage. On the flip side, high wholesale power prices combined with good wind and solar resources are attracting subsidy-free renewable projects.

Power market

Italy’s generation sector is fully liberalized and regulated by the Autorita di Regolazione per Energia Reti e Ambiente (ARERA). The Italian transmission service operator, Terna is the sole owner and operator of the national transmission grid. Gestore Mercati Energetici (GME) is the system operator of the wholesale and ancillary services market.

Italy’s retail market is semi-liberalized. Commercial and industrial consumers purchase electricity in the wholesale market, while residential consumers buy electricity through the single buyer, Acquirente Unico (AU), at regulated retail rates.

Doing business and barriers

Despite gas plants comprising the largest share of power generation, their utilization rate in 2020 was a lowly 30%. As a result, many Italian gas plants struggle to make a profit and are at risk of closure. The country’s intention to phase out coal by 2025 would reduce some of the overcapacity in the market, although this is part of a non-binding energy plan. The recently approved capacity market has given marginal generators a boost. Italy held its first auction in 2019 and awarded 30GW of capacity contracts to existing gas generators and 5GW for new build.

EV market

Italy is aiming to have 4 million electric vehicles (EV) and 2 million hybrid vehicles on its roads by 2030. These targets are ambitious considering the relatively small size of its current EV fleet, estimated to be around 100,000 at the end of 2020.

EV policy

The country has subsidies and grants to support the growth of EVs. In 2018, it passed a stimulus bill that increased the maximum EV subsidy to 6,000 euros ($6,982) for battery electric vehicles (BEVs) and 3,500 euros for hybrid electric (HEV) and plug-in hybrid electric vehicles (PHEV). In addition, the bill included provisions for a scrappage scheme.

Italy also has an exemption from annual circulation tax (ownership tax) for a period of five years from the date when the EV was first licensed and, starting from the end of that five-year period, a 75% reduction of the circulation tax. There is also a state policy that applies to certain provinces whereby EVs are exempt from road tax for five years.

As well as incentives to encourage the purchase of EVs, there are also support schemes to enhance EV charging infrastructure across the country. The European Investment Bank (EIB) is working alongside Enel to finance around 14,000 new EV charging stations that will be installed throughout Italy over the next five years.

Buildings market

Over the past decade, Italy has seen significant gains in energy efficiency. Moving forward, the country has planned for new measures to implement its National Fund for Energy Efficiency, which will support Italy to reach its 2030 targets.

Buildings policy

Italy provides training, awareness activities and tax breaks to reduce emissions from the buildings sector. The latest ‘Ecobonus’ scheme offers a tax deduction of 50-110% for expenses related to the refurbishment of existing buildings, energy efficiency requalification of buildings and installation of renewable heat technologies.

Heat pumps are expected to play a pivotal role in Italian households’ transition to a lower-carbon system. There are both private and public sector incentives to invest in cogeneration and district heating through a price-based scheme known as ‘Conto Termico’. Heat pumps, biomass and solar thermal are eligible technologies, and the incentive is granted for a period of between 2 to 5 years. Incentives are paid either annually or in a single amount up to a maximum 5,000 euros.