To curb the spread of the Covid-19, Italy like several other nations had gone into a countrywide lockdown. With a pause in activities in the industrial and commercial sectors, there has been a decline in the overall electricity consumption. From January to April, electricity consumption in Italy declined by 7.5% compared with the same period of 2019.
Electricity consumption (TWh) and increase (+) / decrease (-) in electricity consumption, Italy, (%), 2020 vs 2019.
Breaking down the electricity consumption trend from January to May
Towards the end of February, the electricity consumption picked up slightly. By the end of the last two weeks of February, the consumption was up by 5.7% to that from last year. This result must be considered taking into account that this year February, despite being a leap year, had the same number of working days (i.e. 20) and recorded a monthly average temperature 1.2°C higher than that in February 2019.
In the first two weeks of March, the demand for electricity declined by 3.8% compared to the same time in 2019. During the first two weeks of April, electricity consumption declined to the lowest where it was 24.3% lower when compared to the same time during 2019.
The last couple of weeks did see a rise in demand with respect to the previous two weeks, as essential industries and businesses were seen to meagrely restart operations. However, the overall electricity demand was reduced by 9.8% with respect to the same time during 2019. The declining trend of consumption continued in the first couple of weeks of May as electricity consumers used approximately 11.4% less electricity compared to the same period in 2019.
Bi-weekly increase (+) / decrease (-) in electricity consumption, Italy, (%), 2020 vs 2019
Decline in consumption in industrial and commercial segments
Italy has been one of the European nations that had experienced a prolonged phase of lockdown as it has been heavily impacted by the outbreak of the Covid-19 pandemic. Towards the end of March and beginning of April, the nation saw a large spike in the death toll and the country went into severe lockdown. This measure led to a significant decrease in electricity demand.
Apart from hospitals and medical centres, all other institutions were immediately shut down to contain the spread of the virus. Along with the commercial industry, large companies, factories, including car manufacturing units, small and medium enterprises, educational institutions and hospitality industry were shut down, which had a significant impact on the demand and it declined to an all-time low as shown in the graph above.
More than two weeks after the government ordered a shutdown of non-essential factories, Italian businesses started calling for the ban to be quickly lifted to avoid jobs being lost. Officials started working on plans to gradually lift the restriction on a sector-by-sector basis rather than the entire country at once. Only critical to semi-critical businesses started operating, and simultaneously, the electricity demand picked up somewhat in the last couple of weeks in April.
Increase in residential consumption
With severe countrywide lockdown in place, the entire workforce started working from home, and therefore, the electricity consumption of the residential sector rose in comparison to the same time the previous year. However, the increase in residential consumption was unable to compensate for the decline in electricity consumption in the industrial and commercial segments.
With the lockdown in place, a temporary cash crunch is being experienced by many workers, who have experienced pay cuts, delays / non-payment of salary and job cuts. To relieve them from their miseries, utilities in Spain and Italy have started Utility Bill Moratorium where a temporary moratorium is provided to the consumers on paying their electricity, natural gas and water bills for the next few months. This allows the customers to defer paying for these services during the lockdown to curb the spread of the virus.
Due to the outbreak of the pandemic leading to a countrywide lockdown, the electricity demand has been significantly reduced. To cater to the existing electricity demand, mostly renewables have been preferred, and hence, there is a percentage reduction in generation from the thermal sources this year compared to the previous years. In comparison, the percentage generation from solar PV and hydro has gone up.
The lockdown led to a drop in electricity demand and prices. Generation from renewable sources are provided priority access. Hence, there is a decline in the percentage generation from thermal sources.
Power generation mix (%) by technology from January to May (TWh), Italy, 2015-2020
Electricity demand to increase by 2021
Economic activity had taken a hit due to strict lockdowns measures in place. According to the latest GDP estimates, Italy’s GDP shrank by 4.8% year-on-year in the first quarter. The real GDP growth rate of the country is expected to be at -8.1% in 2020.
Against the backdrop of reduced economic activity this year, electricity demand is expected to decline by 6.8% to reach 280.4TWh. Demand for electricity will improve in the second half of the year and is expected to have bottomed out in April. Essential industries have restarted their operations and other industries have also begun their operations at lower capacities with rolling shift systems and strict social distancing norms.
With the efficiency in operations likely to improve in the coming months, the demand for electricity would also see a gradual rise. Based on the macroeconomic trend, electricity demand will pick up in 2021. It is expected that generation and consumption will increase by 3.7% to 272.7TWh and 3.8% to 290.9TWh respectively.
Lower capacity additions expected this year
Covid-19 pandemic had a severe impact on equipment supply and the under-construction projects are facing delays due to shortage of labour, as well as the lockdown and travel restrictions. The disruption in the global equipment supply chains always acts as a potential threat to the upcoming projects to adhere to the timelines. New capacity additions in wind and solar will be lower than what it was last year.
Approximately 517.2MW of capacity is going to be added by solar PV and another 146MW from wind in 2020. Annual installations for solar PV in Italy will be 30% less than what it was last year and for wind, it is expected to be 28% lower than last year. The San Giorgio la Molara wind farm with a capacity of 35MW and Vaglio di Basilicata wind farm with a capacity of 20MW are some of the major wind projects in construction. The KGAL Sardinia solar PV park with a capacity of 53MW is one of the largest solar PV plants under construction in Italy.
Due to fall in electricity prices, power purchase agreements (PPAs) contracts in Italy are expected to remain at a standstill until the market recovers. Only a little investment is expected because of the fear of tight profits and price cannibalisation. A partial rebound in the power sector may be expected at the end of the year as economic activity later this year will gain momentum. However, a full recovery can only be expected by the summer of 2021.