Renewables and the free market: an advantageous choice for consumers

Published on Thursday, 23 September 2021

The increase in electricity prices we’ve seen in Italy since last quarter is expected to continue into the next, and this is mostly due to the rise in the cost of natural gas internationally. As the economy restarts, production cycles have surged and gas demand has increased to levels the system is still not prepared to meet, even considering the fact that Italy imports over 90% of this resource from abroad. Since a large portion of electricity in Italy is generated using gas, there is an even stronger connection between the two. And two additional factors come into play: the cost of CO2 emission allowances recording a steep increase; and the effects of climate change, which have noticeably increased energy consumption by end users.

These factors cause the cost of energy production to rise significantly.

This dynamic, however, can be interrupted thanks to renewables, which have already proven to be able to provide greater stability in the market. Between 2009 and 2019, the cost of gas generation in Italy remained relatively unchanged, while the price of wholesale electricity decreased by approximately 19% thanks to the growth of renewables.

So even if the share of electricity generated using renewable energy sources were higher, there would be no significant increase in prices for end users. In fact, as Carlo Tamburi, our Head of Country Italy, explained in an interview with Il Sole 24 Ore, bills would be even higher today if we didn’t have renewables: “In the past few years, renewable energy sources have gone from approximately 30% to 37% of production, and this has allowed for a reduced use of gas. So the current increase in gas prices is applied to a smaller amount of energy. If we had maintained the same generation mix as 2009, 1 megawatt wholesale would not cost 98 euros but 111 euros.” In other words, electricity prices are increasing today because the share generated from renewable sources is still marginal.

“The way to limit the impact of rising energy prices is to accelerate the development of renewables.”

– Carlo Tamburi, Head of Country Italy

The competitive advantage of renewables lies first and foremost in technological innovation and, in particular, in research on materials – which has made it possible to lower production costs in wind and solar plants. But an important role is also played by internal factors and market instruments like PPAs (Power Purchase Agreements), which grant a long-term electricity supply at set rates. As Tamburi explains, “with renewables, it’s easier to enter into long-term supply agreements with PPA contracts. Now that we’re seeing a sharp rise in wholesale prices, there’s obviously an increased interest in fixing prices for the medium-long term.” So, this is another way in which renewables contribute to price stability.

In the future, the financial advantages of renewable sources for end consumers will be even more striking. This is mainly because generation costs for wind and solar plants are destined to fall even further, but it’s also due to renewables’ intrinsic characteristics: they don’t involve any costs for extraction or for transportation infrastructure.

Furthermore, a country like Italy – endowed with scarce deposits of raw materials, yet rich in natural resources provided by the sun and wind – would decrease its import expenditure, its dependency on countries that produce fossil fuels, and market competition from other nations.

“I’m convinced that when we reach the point that 6o-70% of energy is produced from renewable sources, an increase in gas prices of this proportion will have a much smaller impact on the price of electricity.”

– Nicola Lanzetta, Head of Market Italy

Finally, from an energy transition perspective, fossil fuels will be increasingly impacted by the costs of greenhouse gas emission allowances – making clean energy sources even more competitive.

Enel Energia for the Free Market - Enel.it

So how can consumers protect themselves from rising prices today? “Customers can avoid being subject to quarterly jumps in prices by autonomously choosing an offer on the free market that matches their consumption profile, and finding a solution that guarantees a fixed price for electricity, for up to 24 months,” suggests Nicola Lanzetta, Head of Market Italy. In addition, thanks to cheaper and more efficient new technologies, electricity can be used for different purposes and roles than those we’re used to, such as home heating and mobility.

If we expand our vision even further, a cleaner energy mix at the global level can counteract the effects of climate change and therefore reduce the huge financial – not to mention social – costs caused by weather events that unavoidably lead to an increased demand for energy, recording consumption peaks when temperatures fall below average in spring and rise above average in summer. Ultimately, the benefits of renewables for Italy, even in purely economic terms, are not limited to our individual energy bills but impact the entire country as a whole.

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