Our weekly editorial, #EnergyAgenda, hosts a welcomed contribution by Carlo Durante, Managing Partner eLeMeNS.
Around 7% of the total electricity demand in Italy was not served by utilities in 2014: a huge market share escaping normal channels that frightens the Italian Electricity Authority (AEEGSI), which amounts to around 22TWh. What is hidden behind the statistics is a world of 6 to 7GW of almost unknown installed capacity.
It all started when the concept of Distributed Generation surfaced some years ago. In an attempt to understand the phenomenon, the Authority identified the possible “self-consumption” families and, during the years, a very wide range of possible alternatives was regulated – spanning from private grids to self-consumption schemes. In the initial intention, regulation aimed at providing a tool to support RES-based developments focussing on final consumers instead than investors, and the underlining principle was that a consumer-centred generation plant should not need support infrastructures thus could be considered (partially) out of the electrical system. The operational scheme (for a “SEU”, Sistema Efficiente di Utenza, the most recent scheme) can be summarised as follows:
- Generation has to be RES or CHP, total capacity (one or more plants) below 20MW
- All plants must belong to the same owner and there has to be only one final consumer
- Plants and consumer need to be connected through a private grid, privately built
- Plants and components have to be built within an area legally available to the consumer
Within the above scheme, the advantage for a given consumer is to avoid part of the system charges. A given customer could in fact end up paying 30-45% less than within the normal bill (depending on a number of variables including the amount of self-consumption) or even less if with CHP (higher self-consumption, lower cost of technology). However, taking PV as example, pure cost of energy won’t be competitive with the wholesale market: this is not “market parity” but “grid parity” where the difference is in that the energy exchanged does not have to directly compete with other sources and has a preferential inroad to the customer eluding system charges.
Not surprisingly, SME consumers developed the vast majority of the self-consumption generation plants. The reason is quite simple: the Italian electricity bill is structured in a way that protects on one hand “the families” (the electorate), i.e. households, and on the other the largest consumers (the stakeholders). In a nutshell, most part of the system charges are paid by the SME segment, whose bill per kWh is by far the most expensive in Italy, hence the strive to escape the “official” bill in search for cheaper solutions.
In summary: in an attempt to escape from the high system charges, which is partly due to the cost of RES incentives, the most burdened segment of electricity customers adopts a RES oriented tool. And, since RES might not fit with consumers’ needs (for example: solar, available only during the day, or wind, not really programmable), the self-consumption scheme has so far contributed to the development of around 3.5GW of CHP and 3.5GW of PV, which, in terms of output, account respectively for about 17TWh from CHP and 3TWh from PV.
Please allow me to rephrase it: to avoid RES costs, an implicit incentive for RES has been developed that turned into a market for CHP.
The consequences that frighten the Authority are clear: if the self-consumption scheme develops too much, the number of consumers which will continue to pay system charges will diminish, or, in other words, the cost of system charges per kWh will become unbearable for those unable to shift to self-consumption. “Smart” consumers offloading costs to “stupid” ones?
There are many layers of distortions in the Italian electricity bill, and stopping the development of Distributed Generation due to a distorted electricity bill structure would be the next big mistake. As in the case of the electricity market, suffering for both the economic downturn and the increased relevance of RES bidding at zero in a System Marginal Price market, also the electricity bill structure needs to be revisited and, very probably, changed. But this is another article.