Cross-border capacity to rise as Italy’s price premium holds up

Falling Italian wholesale electricity prices are clinging on to a premium to other markets on mainland Europe even as the overall downward trend is making the market increasingly unattractive for investors, ICIS analysis shows.

As a result, the possibility to tap into arbitrage s across the border continues to draw the attention of private companies, which are proposing several merchant line projects to increase Italy’s interconnection capacity in the north.

Transmission system operator (TSO) Terna has similarly targeted market opportunities to build new cross-border cables, supported by successive governments looking to boost Italy’s industrial competitiveness by slashing energy prices through imports.

Currently Italy has 16 interconnector projects developed by TSOs or as merchant lines by private companies, totalling more than 10GW. These stretch over a seven-year span, the first projects targeting a 2017 commissioning.

This host of activity highlights the investors’ interest in a country that is the largest importer of wholesale electricity in Europe by volumes. However, construction works have started only for one line. Another 12 projects are still at an early development stage and in fact might not be completed.

EU institutions also contributed to the abundance of proposals by including nine projects in the 2014-2015 list of projects of common interest. These projects can also apply for EU co-financing of the project.

The EU Commission approved two non-legally binding targets for member states as part of the energy union package in February (see EDEM 25 February 2015). Members are required to expand cross-border transmission capacity to a minimum 10% of their installed generation capacity by 2020, and to 15% by 2030.

With total interconnection capacity for imports at 8.9GW according to Italian energy regulator AEEGSI, and a production fleet of an estimated 115GW according to ICIS calculations, Italy currently stands at 7.8%.

Projects at advanced stage

The 1.2GW Piedmont-Savoy link between Italy and France is the only project for which construction works have started. The cable was promoted by Italian TSO Terna in co-operation with the French equivalent RTE, and will be partly financed by Italian energy-intensive consumers (see EDEM 21 May 2015).

The new Italy-France cable is expected on line by 2019 and will add to the 3.2GW transmission capacity currently available on the border.

Terna is also behind the 1GW Villanova-Tikat project of an undersea interconnector with Montenegro aiming for a 2018 commissioning.

The cable was initially designed to open a new import route for Italy which, according to a 2011 intergovernmental deal struck with the Serbian government, was meant to import hydroelectricity from Serbia through the Montenegrin cable at €155.00/MWh.

Despite opposition coming also from Italy’s association of energy traders and wholesalers AIGET, the project has been confirmed by Terna and will start construction in the near future, although the Italian government has played down the importance of the Serbia-Italy treaty (see EDEM 13 October 2014 and 4 December 2014).

The first new interconnectors expected to come on line on Italian borders are the 150MW Dekani-Zaule and Redipuglia-Vrtojba connections with Slovenia, which are targeting a 2017 commissioning (see EDEM 18 August 2015).

Developed by Italian electricity incumbent Enel with smaller partners under the Adria Link joint venture, the two merchant lines will expand the 730MW transmission capacity in place between the two countries by up to 250MW of net transfer capacity.

The projects were awarded an exemption from EU regulation regarding the use of profits from the interconnector (see EDEM 4 November 2014).

Other projects

Two other lines were targeting a 2017 commissioning, although this might have to change.

The first project is a 300MW link between Somplago and Wurmlach across the Italy-Austria border. Enel is also the main sponsor of this line, developing the interconnector with smaller partners as part of the Alpe Adria Energia joint venture.

The cable – which is included in the EU PCI list – received the green light from the Italian side of the border. However, key environmental permitting was struck down in court in Austria in August 2014 (see EDEM 15 October 2014).

An appeal filed by Alpe Adria Energia at the Supreme Administrative Court, Austria’s highest administrative grade of appeal, was also turned down in February 2015. A second appeal was filed at Austria’s constitutional court and the matter could be escalated at the European Court of Justice.

Italy currently has 315MW of transmission capacity with Austria.

The second project is a 1GW line between Verderio Inferiore in Italy and Sils im Domleschg in Switzerland.

Swiss-based energy group Worldenergy, which is developing the cable through the company Greenconnector, is aiming for a late 2017 commissioning. The deadline might slip to 2018, however, as the process of filing an exemption request from EU regulation on interconnectors has been taking longer than planned. The project is on the list of projects of common interest.

Total capacity between Italy and Switzerland is 4.2GW.

Ten other projects are currently at an early planning stage and it is not yet clear how likely they are to go ahead. These include new connections to Austria, Switzerland, Slovenia, Tunisia and Albania (see table). riccardo.patrian@icis.com