26/03/05
Q&A: Italian decree causing uncertainty — Alpiq
Q&A: Italian decree causing uncertainty — Alpiq
London, 5 March (Argus) — The latest decree aiming to tackle high power prices
in Italy has caused uncertainty and concern among market participants, energy
supplier Alpiq Italia's vice-president, Massimiliano Bignami, told Argus on the
sidelines of the Key Energy Expo in Rimini on Thursday. Edited highlights of the
interview follow: Italy has approved measures worth over €3bn to cut energy
bills in a package that has shaken the power market. What is your reaction? It
worries us because it will certainly have an impact on the Italian market, but
also cross-border energy flows from Switzerland to Italy and vice versa. These
are issues that go beyond Italy's borders. We are particularly concerned about
the uncertainty it is generating, because the legislator has decided to take
actions, some of which are subject to EU approval. At the moment, we do not
really know how things will end, even though the market has already shown some
movement, and therefore there are opposing dynamics. We will do our best to
limit the impact on our customers. Could you elaborate on Italy–Switzerland
flows? At the moment, Italy has a slightly higher power price than Switzerland,
so Switzerland typically exports to Italy. But if the differential were
reversed, these flows would change and the way we manage and approach our
portfolio would change. Regarding the uncertainty, the legislator would not want
this benefit to spill over beyond our borders, otherwise it would mean
subsidising foreign countries. Rome plans to strip out EU ETS costs by offering
gas-fired plants compensation for emissions costs they would otherwise pass on
to final users in bills. Market participants have criticised the measure, even
highlighting the potential for market manipulation. Do you share that view? It's
a complicated issue because the fact Italy has slightly higher prices on average
than the rest of Europe is pretty much a given... We have a price disadvantage,
but also many regulatory opportunities to mitigate this situation. I believe the
government has tried to reduce prices by, in some way, throwing the ball to the
other side for now, particularly to Brussels. I don't think this amounts to
market manipulation, as long as the rules remain the rules. I do have some
doubts that the decree, as it stands, will be approved by Brussels — unless it
triggers a domino effect with other countries revising the ETS mechanism.
Indeed, the mechanism was introduced when gas-fired generation was more
abundant... Today, fossil fuel-based generation is significantly lower because
of the expansion of renewables, so perhaps with such a heavy cost burden, it
might make sense to revisit it practically without losing sight of the ultimate
objective. The decree also proposes a controversial mechanism designed to
eradicate Italian gas hub PSV's long-standing premium to the TTF benchmark. What
are your thoughts on this? I think it is, in some respects, a reasonable
measure. However, I believe anything that tends toward over-regulating and in
some way constraining the market goes against the concept of a free market that
we are trying to pursue. So we must be careful that these measures, although
they have a noble and positive intent, do not end up creating a market that is
no longer free. Gas makes up the main share of Italy's generation mix, but how
do you think this situation will evolve? I believe thermal generation is
essential for system security and adequacy, and I think this is not just my
opinion but also a fact confirmed, for example, by Terna introducing mechanisms
like the capacity market to ensure system adequacy. I believe a long-term core
of very efficient and flexible plants will remain, with a likely trend toward
being dispatched but producing less and less over the next 10–15 years. I see a
phase-out that will not be particularly fast. Energy minister Gilberto Pichetto
Fratin is working towards a new legal framework to resume nuclear output using
small third and fourth-generation reactors by the end of this year. How does
nuclear fit into the mix? I think it was a mistake for our country to give up
this form of energy 40 years ago. There was a referendum, and today we are
paying the price of not having this type of generation, which has probably led
to an unbalanced mix and higher prices. This is a structural weakness of our
portfolio. I believe it is an important and essential technology that has a
future, especially with the third and fourth-generation reactors. But it has
very long timelines — particularly in our country, which made a different choice
in the past. It will require significant effort and a cultural shift to reach
acceptance of this technology. By Ilenia Reale Send comments and request more
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