Why electricity is twice as expensive in Italy as it is in France - Liberalization and costs in the electricity market in Italy

by Paolo Forniciari

In the past years a wide belief was spread throughout Italy and also in Europe, on the possibility that the completion of the liberalization and privatization process of the energy sector would allow the reduction of the energy bills.

This had been stated for example by the National Industry Association (Confindustria) at the Conference "Actions to compete", held in Parma, Italy on 16 and 17 March 2001, by the Bank of Italy's Governor Antonio Fazio, by the Italian EU Commissioner for competition Mario Monti and by the Italy's Energy Minister Antonio Marzano saying : "The reduction of the electricity prices is one of the major objectives I intend to achieve".

The oil crisis in 2000/2001 and the subsequent energy crisis in California, with several "blackouts", have raised doubts on the real benefits achievable through liberalization and privatization of the energy sector in Italy. What happened in California was not due to the public or private ownership of the State energy system, but to other causes. In the industrial world today exist private electric systems, like in Germany and in the United Kingdom, which operate well and others, like the French public monopoly EdF that function also very well and even better.

The negative experiences in California and in Spain should lead us to appropriate reflexion.

With the energy sector liberalization in Italy, the energy bills will not decrease. It is not a problem of competition, but of diversification of the energy sources. Should we generate electricity burning oil or natural gas, the most expensive energy sources, whose price have doubled or even tripled in the past few years - when all the others Nations using nuclear and coal, generate electricity at a much lower cost - there is no difference whether the ownership is a public monopoly or a private investor. What is really needed is "diversification" of the energy sources, rather than "liberalization" of the energy sector : use more coal and, in the future, also nuclear energy.

It is worthwhile to remember that after the 1973 oil crisis (Kippur war), all the others industrial nations, but not Italy, have substituted oil with nuclear or coal in electricity generation, France from 45% to 2%, Germany from 23% to 1.5%, Sweden from 19% to 3%, Belgium from 78% to 15%. We Italians have instead increased the hydrocarbons use in electricity production from 61% to 71% !

This is why our energy bills are double in Italy than they are in France, three times higher than in Sweden, and 60% higher than the European average, with a major cost of about 8 billions Euros.

Energy is a very peculiar good : it has to be generated at the same time as it is requested, since it can not be stored, requires long time for the construction of plants and transport lines with important investments and delayed revenue. Unfortunately the private electrical companies in Italy (Enel...) subdivided the national territory in zones of competence, avoiding to compete among themselves.

According to the French Economy Minister Laurent Fabius, privatizations of public electrical companies in various countries have led the energy bills to higher prices, for example, according to the NUS Consulting Group:

+16.5% in Germany,
+ 7.5% in Denmark,
+ 5.6% in South Africa,
+ 2.4% in Spain
+ 2.3% in Canada.

Luigi Einaudi, formerly President of the Italian Republic, used to say : " The operation of public services by the State assures results, not always valuable in money, but unquestionable advantages for the civilization of the Nations".

We will need energy, a lot of energy in the future. According the World Energy Council

("Energy for Tomorrow's World - Acting Now!, April 2000"), the World energy demand in the next 20 years shall increase by 50% and it states : "All the industrial Nations retain that the diversification of the energy sources means simply to use more coal and that no energy source should be abandoned for arbitrary political reasons, in particular nuclear, which does not emit greenhouse gases".

And in addition : "Governments shall shape the energy sectors". In other words : "Market is an essential mechanism for promoting greater efficiency in the energy sector, but is not sufficient by itself."

The EU has proposed at the recent Johannesburg Summit, to increase the contribution of renewable energies up to 15% by the year 2015, but this proposal had been rejected by the US, because of its high cost. In the mean time the EU Commission, with its deliberation of November 16th 2001, had rejected the EU Green Paper on: "Towards a European strategy for the security of energy supply", which considered nuclear energy "costly, undesirable, and in doubts".

Almost no one has the courage to say that nuclear energy is the solution.

Only Lester Turow, Nobel Prize and prestigious chief economist at the MIT in Boston has recently written in the magazine USA Today : "In the case of electricity, we already have a technical solution at hand. It is called nuclear power -- a clean way to generate electricity that does not cause global warming".

USA President Gorge W. Bush, did not loose his time when announcing on May 16th 2002 at the Convention Centre in St Paul, Minnesota, the new US Energy Plan, based on the realization in the next 20 years of 1300 or perhaps 1900 new power stations based on coal and nuclear energy for electricity generation.

Decision shared soon after by Tony Blair, UK Prime Minister.

An energy policy based on coal and nuclear energy, as compared with that of burning oil and gas, with a few percent of new renewable energies (those that the US Energy Secretary Spencer Abraham calls "the undiscovered energy sources") is not only economically competitive, but also environmentally harmless.

Without alternative energy sources, the price of oil and gas will skyrocket in the future to much higher prices than today and we will regret the actual prices. French President Mitterand at the WEC Congress in Cannes (1986) encouraged the Industrial Nations to : " Leave to the Third World Countries those energy sources that are more easy for them to use".

This concept has been ever since recurrent reason and patrimony of the Roman Catholic Church. From the "Rerum Novarum (1891) from Pope Leon XIII up to the more recent Encyclicas "Sollecitudo rei socialis" (1987) and "Centesimus Annus"(1991) from Pope Joannes Paul II hundred years after, which underline the problems of the unbearable difference in living standards of life between the industrial nations and the developing countries.

Nuclear energy therefore has not only economic and environmental benefits, but also includes an ethic value to provide to all inhabitants of the planet a sustainable development with solidarity and peace.

Source of this diagram : EFN - www.ecolo.org from European energy statistics