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REF-E scenario: November 2019 update

The month of November marks the participation of Italian electricity market operators in the capacity market auctions with delivery in 2022 and 2023. Indeed, with the approval of the European Commission and the ministerial decree published in July, Terna was able to proceed with the two auctions, in order to incentivize new gas capacity to enter the market and push towards the coal phase-out. The effects on the Italian electricity market will be evident as early as 2022 when new investments will compete with the old combined cycles.

Current trends in commodity prices are turning the spotlight on the coal switching price, affecting coal production not only in Italy but throughout Europe, also reflecting the results of the Market Stability Reserve mechanism.

With an early coal phase-out, investments in the Italian thermoelectric power plant return in the years following the capacity market, through retrofit that make the combining cycles more efficient and flexible and allow a competitive advantage on the day-ahead market (“Mercato del Giorno Prima”, MGP) as on the ancillary services market (“Mercato dei Servizi di Dispacciamento”, MSD).

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 entry of new renewable sources and in the absence of a capacity remuneration mechanisms dedicated to new investments, adequacy in the long term is not guaranteed.

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 capacity market will have different effects on the Italian electricity market: new entrant of gas capacity, the coal phase out and the consequent effects on the price
  • the effects of the market stability reserve, and the falling prices of gas and coal
  • 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
  • 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.

The Elfo++ scenario is also accessible through the new Web App interface!


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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