The Italian lockdown: takeaways for the electricity market & system

This is a translation of an article by Andrea Marchisio, Salvatore Alessandro Casa and Emanuele Zanardelli, published on June 9th, 2020 on RiEnergia.


The fall of electricity demand following the Italian lockdown set the path for a domino effect that affected all the electricity system: rise of renewables penetration, drop on prices, increase of Ancillary services’ demand (not just from conventional systems). As a matter of fact, it is an insight on many elements that would shape a decarbonized system.

Focusing on some indexes allows to understand the extent of the stress generated to the system, and -despite the uncertainties – starting to develop expectations on short term evolutions, driven by national economics’ possible responses to this unprecedented crisis.


The hammer on demand and the raise of renewables

Let’s go back to March 4th, 2020 – when the first measures followed by permanent lockdown a week later were started. Since that moment, the load’s trajectory has been deviated, marking an englarging furrow with respect to how things would have been in absence of the Coronavirus pandemic: Elemens estimates slightly more than 10 TWh of non-withdrawn energy due to the lockdown for the entire March-April-May trimester, almost a 15% reduction (whilst for the same semester of 2019 we see -12% yoy variation). [Chart 1]

As the denominator decreases, the renewables at the numerator were able to reach a penetration slightly above 45%, mainly thanks to the PV and hydroelectric contribution (respectively +13% and +16% compared to 2019).

Chart 1 – Actual and “what if” estimated demand of electricity [Elaborations by Elemens]


Prices fall, gas amid ballasts

The larger role of renewables, however, is not linked to dispatching priority, but to the RES ability to bid at zero marginal price, which shrinks the residual demand, decreasing the available market space for conventional price makers by 20% compared to 2019.

In the first three months of the pandemic in Italy, the average PUN was halved compared to the average price of the same timeline the year before, also due to repeated lows (131 hours of price lower than 10 €/MWh vs 4 hours in 2019), hitting for five times the 0 €/MWh floor at national level.


However, the smaller market space was not the only ballast to prices which suffered the simultaneous fall of gas costs: according to Elemens estimates, the reduction of average prices has been caused by 48% due to the residual demand effect and by 33% due to the price at PSV [Chart 2].

Chart 2 – Drivers of PUN, March/April/May PUN (2020 vs 2019) [Elaborations by Elemens]



Chasing system security (with a special guest)


The Day-Ahead Market (MGP) and the Ancillary Services Market (MSD) are two communicating vessels: the more the space that renewables gain on the first, the more the TSO’s need of exploiting the latter.

This correlation has been confirmed during the lockdown: the required volumes for TSO on MSD increased by 36%, especially on ex-ante MSD – the market session in which Terna restores non-available reserve margins after the MGP sessions – which increased by 62%.

The system absorbed the blow, proving itself adequate – especially in terms of flexibility. However, we should mention the key help from renewables, and wind power in particular, whose production looks like it was limited by dispatching orders in critical circumstances for the system (Chart 3 shows such an effect in some significant days).

A year ago we ended one of our columns with the words “the implementation of renewables is a necessity, not luxury”, thinking about the 2030 decarbonized electric system, something that looks more current than what we expected due to these events (é+portare+le+FER+in+MSD/Salvatore+Alessandro+Casa+e+Andrea+Marchisio).


Chart 3 – Forecasted vs actual aggregated national wind production [Elaborations by Elemens]



What is going to happen?


The peculiarity of this crisis was the asymmetric effect on different sectors: some economic branches were as a matter of fact more harshly hit by the lockdown (like restaurants, bars and hotels), whilst others (IT and communications) actually experienced an increase in business.

Elemens performed a quantitative assessment of the COVID-19 effects on electric consumptions for single sectors, studying the historic evolution of the Added Value and evaluating the elasticity of the electric demand for each economic branch, aimed at finding out which sectors were more responsible for the decrease of consumptions (Chart 4).


Chart 4 – Lockdown impact, share on consumptions and electric demand elasticity per economic sector [Elaborations by Elemens]


Starting from this fine-tuning, we quantified the evolution of the electric demand starting from the economic outlook of the European Commission, which forecasts a decrease on Italian GDP of 9,5% in 2020 and a rebound of 6,5% in 2021.

Under these assumptions, electricity consumptions would decrease to 302 TWh in 2020, then reaching 309 TWh in 2021. This figure goes amid the demand scenarios estimated by Elemens, that – in absence of new strict social distancing measures – foresees a 2021 demand between 311 and 304 TWh, depending on the depth of the economic crisis. Assuming otherwise that new lockdowns are coming, the electricicy demand in 2021 could even fall to 278 TWh.

In this framework, the magnitude of economic support policies brought at both national and – especially – European level, together with the capability in translating them into effective interventions on the Italian economic and industrial tissue, will play a key role in containing the crisis and re-boosting Italy’s economy.


Towards antifragility


Despite the dramatic uncertainty of the Italian economic situation, the resilience showed by the electric system in the last months doesn’t suggest a simple feeling of “narrow escape”. Indeed the current crisis could push the system towards an anti-fragile evolution – capable of enhancing itself by the stressors that may occur down the long way to decarbonization – which could find a key ally in storages, assets able to increase the systems’ flexibility and at the same time decrease overgeneration risks.



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