THE RENEWABLES. SOLUTION AND NOT CAUSE OF THE EXPENSIVE BILL

By Francesco CALABRETTA

Cluster Leader Italy and Hungary Audax Renewables

+30% or, even, +40% according to Minister Cingolani. These are the estimates of the increase in energy bills from next October 1st. Arriving at the end of a summer in which we all attempted a cautious return to normalized life, these dizzying percentages worry families, businesses and, in general, a country which in the second quarter of 2021 saw its economy grow on average more than the euro area (also than France and Germany).

The Government – it's a thing these days – is intervened urgently. The 3 billion euro allocation is designed to mitigate the effects on the pockets of Italians, starting from the economically weakest groups. As is known, this is the second provision in a few months, after the establishment of a 1.2 billion euro fund established in June.

In short, it should be a sort of three-month shield against the increase in electricity and gas for around 3 million low-income families, for 6 million micro-enterprises and for 26 million domestic users up to 16.5 kW. Furthermore, there is a temporary reduction in VAT on gas to 5% from the current levels of 22% (businesses) and 10% (households).

Although the media has only now spoken about it with alarm, the increase in prices was far from an unexpected event. In fact, it is enough to look back: from the second quarter of 2020, the price of electricity went from 16.08 to 22.89 euro cents per kilowatt hour, for an increase of more than 40%.

Not only. The perfect and almost contemporary idea made the situation complex  combination of factors and their consequences.

First of all the recovery of the world economy. After the slowdown in production activities due to the repercussions of the Covid-19 pandemic, today's recovery has generated a sustained increase in demand for goods and, essentially, for raw materials, such as those with which energy is produced: gas natural and petroleum.

We therefore arrive at second cause. If since the spring of 2020, the price of crude oil has risen by more than 200%, since the second quarter of 2021 alone, natural gas has risen by 30%. To be clear, 12 months ago international methane prices were between 20 and 30 euros per 1,000 kilowatt hours, today they are between 50 and 60 euros. Then speaking about the wholesale price of a kilowatt hour in Italy, it went from 20-40 euros for 1,000 kilowatt hours to 140 euros today.

Although in our country, the rise in gas prices natural gas has had a greater impact than in other countries (in our country approximately 40% of electricity is produced from methane), the high bill is common to other countries such as the United Kingdom, France, Spain and Germany. The not always relaxed situation with Moscow - through which a large part of supplies pass - has further penalized the Old Continent.

The increase in the price of gas on the markets is also linked to that of the so-called ETS or Emission Trade System, the international system of trading permits to emit carbon dioxide. Companies "buy" the possibility of polluting from the European authorities and permits can be exchanged and sold if one company pollutes less than expected. Now, to further limit emissions, their number has been reduced and the price increased up to the figure of 56 euros per ton of CO2 produced. An increase which - it goes without saying - has weighed especially on the companies that pollute the most, including those that generate energy from fossil sources.

Furthermore, this is added to the global economic situation structural of our country. A clear example of this is that varied array of accessory items which, despite having little or nothing to do with energy itself, contributes to giving shape to the figure that we all we pay on the invoice. From the RAI license fee to the costs for the dismantling of structures linked to Italian nuclear power up to the well-known incentives on renewables. But not only. There are national and regional taxes and excise duties and transportation costs. In percentage terms, of this hypothetical pie, the "energy material" slice (i.e. what is actually consumed) accounts for approximately 60%, while the remaining 40% is divided between transport and meter management (17.5%), taxes (12 ,6%), system charges (10,7%). A decidedly substantial slice.

Figure 1. Percentage composition of the electricity price for a typical household consumer (September 2021)

Source ARERA

In this regard, in recent days and from various quarters it has been indicated in the renewable (and in their incentive), one of the possible culprits of the high bill. But is it really like that? Rather than an in-depth reflection, it appears to be a superficial and short-sighted assessment, above all because in strategic issues for the future - such as energy - we continue to prefer a fleeting benefit today to a lasting well-being tomorrow. 

Rather, the current situation is also the result of the lack of or still delayed development of the sources green. At the point where we are, the Energy transition it is anything but an option: it is the only path that must be pursued if we want to maintain acceptable living conditions on the Planet.

In hearing in the Senate on the topic of price increases, Terna's Development and Dispatching director Francesco Del Pizzo hoped for greater penetration of renewables. In fact, "if on the one hand they pursue the objective of decarbonisation, on the other they will allow us to have less dependence on commodities and a greater ability to be resilient to these stresses". This means: more renewable sources and storage, less energy produced with gas-powered technologies, which we know are linked to unstable conditions (such as geopolitical factors or the price of CO2 quotas).

Therefore, having addressed the price increase emergency, perhaps the time has come to look at the bill issue from a broader perspective, which contemplates a profound review in terms of composition. ARERA – the relevant authority – is in favor of this restyling or if you prefer redistribution of items, perhaps with some of them moved from the bill to general taxation.

A necessary but not easy choice because with every decision one must imagine the long-term effect it can generate and, therefore, its economic sustainability.

In all this there is one certainty. A sustainable future lies only in the virtuous union between an energy offer at affordable prices coming from clean sources. And we at Audax Renewables – as our name already says – believe it.