Italy is finally coming out of a difficult economic crisis, as are Italy’s industrial and business sectors. Now the common challenge is how to become more efficient in order to stay competitive, and “energy” is one of most important focal points. And one focal area within energy will be growing potential and demand for energy efficiency services from Italian industrial and SME customers.
The liberalization of Italian energy market started in 1999. It was great in theory, but the execution has been poor and the results even worse. Despite the fact that the wholesale power price for electricity has fallen 11% since 2008, the average industrial customer has seen his total cost of electricity increase by 30%. As a result, the Italian industrial sector is paying more for its energy than any other European country.
Why have energy prices risen? The main problem has been a continuing role for the state, through energy taxes, and an incomplete liberalisation of the energy market. First, the Italian Government collects an impressive amount of money through VAT on energy bills, calculated on top of energy taxation, in other words as taxes on taxes. Second, all the companies operating in distribution, measurement and transmission, are regulated under public concession, and as a result invest considerable resources into grids, to extract fees set by the National Authority for Energy and Gas (here comes the Government again), fees which are therefore constantly rising. Third, the same TSOs and DSOs also pay dividends to the Italian government, because most of them are only partially privatized. And fourth, because of an incomplete liberalisation, the six biggest electricity producers have a more than 90% market share. These Italian utilities prefer the status quo, and have used their power to block market change.
Higher energy prices have created an impressive demand for savings or, in other words, energy efficiency services. You might therefore expect facility managers to be active in energy efficiency. But they are not, because most of them are owned by the utilities and they have no motivation to save energy, as that is bad for the utility business. There are ESCOs, but these tend to be former solar companies and small engineering firms with no balance sheets and poor capabilities to take over the financial risk of the investments in energy efficiency (for example through an Energy Performance Contract).
The good news is that full liberalisation will finally come over the next 24 months, which should bring badly needed competition.
First, we have the frustrated and unhappy energy customer. That creates the demand for energy efficiency services in Italy. Second, we have a large market, with an electricity supply market of 138 TWh/y (in 2014), or about 47% of energy consumption in Italy. That implies a potential market for energy efficiency services for industrials and SMEs, of about €76 billion through 2020.
The first player to supply energy efficiency services 2.0 (in other words, EPC, PPA, EMS, net-metering integrated with energy-storage capability, demand-response, bespoke energy supply scheme, etc), could take over the Italian market, if they are also supported by embedded ad hoc financial solutions, with a clear and transparent offering and a well-sized marketing-effort.
Ivo Gattulli comes from the red-sea of the Italian subsidized solar industry. After being part of an industry killed by an overdose of subsidies , he brought his expertise on project assessment and financial feasibility to the energy efficiency market. During recent years he has worked on several high-end projects about business model innovation across the energy market, renewables and energy efficiency for traditional utilities and investment funds.