The production of electricity and coal

The production of electricity and coal: the anomaly of the Italian case

Electric energy resources (source: IEA, 2009)

39% of the electricity in the world is produced from coal against 6 billions tons of coal production, which is an increase of 2.5% compared to 2008. In Europe 33% of the electricity is produced from coal.

This percentage is stable compared to 2006. Italy is the only European country that while not using nuclear power has got a coal use percentage extremely low.

Italian electricity production is unique in Europe: if in general the average of electricity production is for 60-70% generated from a mix of coal and nuclear power, in Italy gas has got the predominance: in 2007 the electricity production came from gas for 60%, from burning oil for 8%, from coal for 12% and from renewable for 20%.

Beyond the small share of coal in the market in Italy coal is affected by the effects of poor communication about it. Italians are indeed poorly informed on modern technologies of handling and combustion available today in Italy and capable of making coal a primary source of electricity which is perfectly compatible with the environment.

In order to maintain the security and the competitiveness of energy resources Europe expressed its intention to limit its own electricity production from gas under 37.3% and to maintain at least 45,4% from nuclear and coal also in 2020. This because, according to European Union’s valuations, without an energy policy in the next 20 to 30 years 70% of energy consumption will be covered by imported products from countries politically instable.

These predictions are already matter of concern in Italy since it is the only Country in the world to depend on gas for electricity production for more than 60%, importing 85% from abroad above all from Algeria and Russia.

The strong dependence on imported electricity is intended to grow gradually and constantly in the next years. Whereas Europe will continue to base its electricity production by at least 60% on nuclear and coal power, Italy will rely, by the same percentage, on natural gas with the significant implications that will have in terms of safety of supply and the competitiveness of different sources. Italian electric system is indeed forced to accept gas prices fixed by the “duopoly” because there are no real alternative sources because of the distance and consequently of too high transport costs. In fact natural gas to be brought into Italy by pipeline comes from Algeria and Russia which are considered highly unstable politically. Energy savings and economy slowdown, were elements that contributed in 2009 to contain the Italian consumptions of energy. The Italian energy bill is estimated at Euro 41.4 billion, slightly lower compared to the 2008 one, that was the highest in the last twenty years – at Euro 59.7 billion.

The fall in the oil prices in the early 2009 and the economic downturn have contributed to lighten the average Italian energy bill, that nevertheless is still high relative to the GDP (2.7%) and much higher than other European countries' ones.

(million Euro) 1981 1985 1990 2000 2005 2007 2008 Estimate 2009
Solid fuels 790 1.167 731 1.009 1.892 1.940 2.931 1.700
Natural gas 1.106 2.803 1.859 7.834 12.194 16.207 22.021 16.350
Oil 13.094 15.570 8.561 18.653 22.411 26.312 32.550 20.500
Other 300 603 867 1.524 2.136 2.083 1.934 2.350
Biofuels             330 500
Total energy bill                
million Euro nominal 15.290 20.143 12.018 29.020 38.633 46.542 59.766 41.400
million Euro real 2009 55.986 45.906 20.786 34.983 41.666 48.382 60.194 41.400
% Turnover vs. PIL 6,3 4,7 1,7 2,4 2,7 3,0 3,8 2,7

In 2009 the international prices of coal fell considerably, as a result of the global recession. Cif Ara reached an average value of 70$/t, against 147-148$/t in 2008, whereas Richards Bay almost halved (from about 121 to 64$/t). The quotation prices of coal are however more stable than oil, that is subject to greater speculation. As a matter of fact, WTI and Brent darted from 45 to 80$/b last December, while coal fluctuated between 60 and 80$/b. The global trend appears to be toward increasing thermoelectric power production from coal, due to its lower and more stable prices.

These consequences are particularly experienced by industries: according to the latest annual report of the Energy Authority Italian enterprises are forced to cope with prices above the European average, with negative effect on the competitiveness in particular in energy-intensive sectors characterized by high energetic consumptions(such as paper, steel etc.).

Energy prices for industries (sources: data processed by AEEG)
Current ratio between regasification capacity and gas consumptions (source: AEEG)

Our Country is also affected by infrastructural gaps with regards to the regasification plants (with the only exception of the plant in Rovigo, in production since 2009). At present, Italy doesn’t seem to be able to face a potential energy emergency, as it is the only European country not provided with appropriate plants – despite the fact that the usage of regasification technology in Europe is equivalent to 50% of the domestic consumption on average.

According to the “World Energy Outlook 2009” published by the International Energy Agency (IEA), the global need for energy is expected to grow at an average annual rate of 1.5% in the period between 2007 and 2030 – from 12,000 Mtep (million equivalent tons of oil) to 16,800, with an increase of 40%. Fossil fuels remain the dominant source of primary energy in the world, and represent more than three quarters of the global energy consumption growth between 2007 and 2030. In absolute terms, coal holds the highest demand growth rate in the examined period, as it’s expected to leap by 73% and push its share of total energy demand to 44%.