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REF-E scenario: July 2019 update

Investments in the Italian thermoelectric sector have resumed. The costs trend, the slight upturn in demand, the uncertainty over import levels and the evolution of the regulatory framework with the launch of Capacity Market auctions with delivery in 2022-2023 support the gradual phase-out of coal even without administrative shutdown, and create the conditions for a renewal of the existing CCGT sector. The retrofit interventions, that make the combined cycles more efficient and flexible, and allow for a competitive advantage on the day-ahead market (DAM) and on the ancillary services market (ASM), become more and more likely. However, adequacy is not guaranteed in the longer term. After 2030 the strong penetration of renewable sources increases competition intensity and investments, making the entry of new OCGTs very difficult, in the absence of dedicated capacity remuneration mechanisms.

The market parity of the more mature renewable sources, in particular of photovoltaic, is gradually consolidating: assuming a light and efficient authorization regime and an adequate development of network infrastructures, the central REF-E scenario foresees a progressive development of wind and photovoltaic production also in the absence of incentives, capable of reaching 85% of the PNIEC’s target by 2030. For the full achievement of the targets, a faster reduction in the costs of the technologies used is necessary. Alternatively, the use of supplementary support tools properly coordinated with market dynamics will be needed.

The development of technologies for flexibility and in particular of storages is favored by the effect of the overgeneration on the shape of the DAM prices and by the increasing balancing volumes on ASM. However, the completion of the dispatching reform and a further reduction in technology costs seem necessary for the feasibility of the investments.

This issue includes multiple in-depth analysis:

  • the evolution of the generation mix including the retrofits of existing plants, the entry of new OCGTs for the adequacy of the system and the development of renewable sources have an effect on Clean Spark Spread(CSS)dynamics
  • the economic phase-out of coal is driven by the rise in the price of CO2 to offset falling commodity prices
  • electricity demand is driven by the degree of electrification and the development of efficiency measures on final consumption
  • decarbonisation is carried out mainly with the development of renewable sources and the consolidation of the gas generation quota
  • the penetration of RES-E that reach market parity, being consolidated for more mature technologies, leads to the achievement of 85% of the renewable production target set by the PNIEC by 2030
  • to support adequacy over the long term, a new capacity remuneration mechanism will allow the entry of new OCGT plants
  • new technologies for flexibility, such as electrochemical storage and grid development, play a key role in integrating renewable sources into the electricity system.

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The REF-E scenarios are complete market studies, processed every four months, setting out the evolution of the Italian electricity market up to 2040. The accompanying documents put the reader in a position to investigate the methodological assumptions and knowledge of the main results presented.

In particular, the scenarios show:

  • fuel prices
  • electricity demand
  • the development of the transmission grid
  • production capacity from renewable sources
  • thermal generation
  • marketing strategy
  • the safety and effectiveness of the system

The REF-E scenarios arise from in-depth and accurate understanding of the needs of the people who work in the energy markets in terms of strategic vision. These rich, detailed and reliable information products are able to respond fully and efficiently to the needs of their users.

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