In wholesale energy auctions, the winner is always the one who offers the highest price. This distortion depends on European rules. The price of electricity in Europe in hourly auctions is set according to competitive logic. Hence, its performance tends to reflect market fundamentals. In particular, in Italy: demand, gas prices, carbon dioxide emissions permit prices, volumes of renewables put on the market. The task of managing the Italian electricity market is in the hands of the Director of Energy Markets (or GME), a company controlled by the Director of Energy Services (GSE), based on a specific system that defines how the market operates and how the operators participate in it. In turn, the Italian electricity market should be framed within a broader integrated electricity market, developed according to EU indicators.
How does today’s market work forward
The Italian electricity market is segmented on a time basis (in different sections: the daily market, the transmission services market, etc.). Today’s Market Forward (MGP) hosts the largest number of transactions related to the purchase and sale of electricity. The name is derived from the fact that trades must take place the day before for every hour on the next day. In short, the exchanges are blocks of energy every hour for the next day. Operators participate on an optional basis by submitting an offer containing the quantity and price of energy they wish to buy or sell. The opening of the Day Ahead Market session is set at 8 am on the ninth day before the delivery day. Closing, however, is at 12 o’clock the day before delivery.
The Day Ahead Market is an auction, not an ongoing trading market. At 12 noon on the closing day, GME collects and orders all offers starting with the offers at the lowest prices. For each hour and region of the country, supply and demand data are crossed by quantity and price. The point of intersection of the two curves determines the ‘equilibrium price’, which is the price of the latter, the supply with the highest value which covers the entire energy demand. According to the rules of the marginal price set by the European Union, this is the price at which the entire auction power will be bought or sold. Day Ahead Market closed, it’s up to secondary auctions. Acceptable purchase offers referring to units of consumption belonging to the geographical regions of Italy are evaluated with the so-called PUN (Individual National Price), which is equal to the average prices of the geographical regions weighted by the quantities purchased in those regions.
The role of the dispatch service market
At this point, it was the turn of the Dispatch Services (MSD) market. Since electrical energy cannot be stored, the amount of energy produced must exactly match that required. The so-called transmission, which is the management of the balance of energy flows on the national grid, of Terna, the company that owns the power grid, which acts as a central counterpart with MSD. If the demand for energy differs from the actual consumption, the terna balances, i.e. to record the difference between the planned and actual consumption and send the updated instructions to the generating stations.
The difference between renewable energies and thermal energy
The problem is that not all energy producers are the same. Renewable energies must cover infrastructure costs but use natural elements such as water, sun and wind, i.e. free raw materials; On the other hand, thermoelectric plants use coal and gas, and the prices of the energy they sell are affected by raw material costs, which we know are skyrocketing like never before. Renewable energy producers always offer zero prices, so competition is inevitable between thermoelectric producers, which in fact determines the final price, which grows without clean energy having a way to cool it.
Tax on additional profits
While the energy costs of Italians experienced the well-known boom, the government, in an attempt to find the resources to stop the exorbitant bills at the end of March, imposed a tax on the extra profits of 10 per cent of energy companies. From the extraordinary contribution, the government expects to receive 90% of the decree’s coverage, i.e. nearly 4 billion. The tax affects all producers, retailers (or intermediaries), and importers of electricity, gas and oil products equally, even if they have different businesses. Furthermore, the tax is retroactive as it also applies to the last quarter of 2021 and for the entirety of the first quarter of 2022 that began on January 1. This tax does not solve the upstream problem. We’ve been talking about system fixing for years, without ever coming up with an assembly. Now that this storm has hit the market, we find ourselves in a muddle: Would it be a good time for it to become a priority on Parliament’s agenda?