Snowpack surplus may curb Italian power and gas prices

• SWE volumes flip to surplus on Italian Alps for the first time in two years – CIMA
• This should support Italy’s hydropower margins and pressure power, gas prices
• Snowmelt should lift water reservoirs above average, boost hydro and limit gas needs

LONDON (ICIS)–Abundant snowfall on the Italian Alps through February and March boosted the snowpack after two years of deficit from severe drought, which has resulted in a confident outlook for hydropower generation this summer and could pressure Italian power and gas prices.

For the first time in two years the Italian Alps’ snow water equivalent (SWE) volumes, a measure of the water contained in the snow, flipped above the median over the last 12 years, in particular the Po river basin, Italy’s largest river, shown by data up to 1 April published by the Italian CIMA Research Foundation’s study on 4 April.

This was a significant improvement from the first part of the past winter, when CIMA’s data initially indicated a snowpack deficit.

The surplus of SWE volumes brings some security of supply as most of Italy’s water reservoirs and hydropower plants are located in proximity to the Alpine region.

However, CIMA warned that while the overall SWE volumes for Italy showed a slight surplus, the central and southern basins were recorded at a deficit. Although, the deficit is unlikely to cause a risk for hydropower supply, as most of the capacity is concentrated in the north.

“The reason for these differences [between the Alps and the Apennines] is, as always, linked to rainfall and temperatures,” said Francesco Avanzi, hydrologist at the CIMA Foundation, in the report.

Avanzi also said that March had more precipitation in the northern and central region of Italy, but on the other hand the Apennines had temperatures that were more than 2.5°C higher compared to the average of the last decade throughout winter, which led to less snowfall and early melting of the snow.

The study showed that further snowfalls are very unlikely, while early snowmelt could also represent a risk in the hottest summer months if it leads to a lack of water from the mountains over the third quarter.

“For [the SWE surplus] to be truly useful in the periods when we need water most, the snow must remain snow for a few more weeks” Avanzi indicated in the report.

IMPACT ON POWER

The snow surplus can support the refill of water reservoirs and hydropower supply margins, providing secure supply of power.

Additionally, higher SWE levels can reduce heatwave-related risks for the gas-fired generation plants located along the Po river. During past summers, heatwaves and low river levels caused gas plants to curb their power output due to difficulties in cooling their systems.

Italy has 22.1GW of hydropower generation capacity, mainly from run-of-river and poundage and pumped hydro storage, according to ENTSO-E data.

In 2023 hydropower generation totalled 39.3TWh, accounting for more than 15% of the total generation and representing the country’s top renewable generation source and the second power supply source behind gas, according to grid operator Terna.

Wider hydropower supply margins means that cheaper electricity could be available this summer, therefore pressuring Italian power products and narrowing their premium to key European neighbours.

IMPACT ON GAS

Stronger hydropower output could also reduce the need for gas-fired generation this summer and result in lower gas consumption for producing electricity, which is potentially a bearish factor for PSV prices with delivery this summer.

Combined-cycle gas turbines are Italy’s main source of power supply, with a 45.1GW-strong fleet and a total output of almost 134TWh in 2023, accounting for more than 52% of the total power supply mix over the same year.

In 2023, Italy consumed 21 billion cubic metres of natural gas for electricity generation, or 35% of the total gas consumption according to gas grid operator SNAM.

Improving hydro margins could further pressure Italian gas demand, continuing the declining trend seen in 2023.

Note: Snow water volume graphs published with the permission of CIMA Research Foundation