Renewables are going up and so are utility bills. Something is wrong because if renewables cost less it would be logical to expect electricity bills to go down. And that they cost less is not what environmentalists say; the market says it. In 2024, 92.5 per cent of global electricity generation created by new power plants was renewable because capital chose this type of source for reasons of affordability. So if renewables cost less and give us about four-tenths of the electricity we consume, what is the trick to keep up our bills that are amongst the most expensive in Europe?
“Gas is the trick, gas is in charge,” replies Giuseppe Onufrio, the physicist who switched from research to Greenpeace leadership. “Across Europe from the point of view of electricity production, the fossil fuel mix is worth much less than renewables, but sun, wind and water hardly ever give 100 per cent of the energy needed by the electricity system. Help is needed, and the price is made by the last fuel that is called upon every day. This fuel is almost always gas, which is the most expensive. So the electricity price of the whole day is aligned with the cost of the most expensive time.”
Quite a catch.
“There is no doubt and it was all made very clear in last year’s Draghi report as well. It says that by 2022, natural gas in Europe determined the price of electricity 63 per cent of the time, even though it accounts for only 20 per cent of the electricity mix. After the invasion of Ukraine in Italy, there was a lot of talk about the need to disengage from fossil fuels, but in practice it is still gas that is the main driver.”
But the electricity price formation mechanism, the one that aligns the cost of the whole day to the most expensive time slot, applies throughout Europe, it’s not like Italy chose it.
“True. But other countries apply strategies to get around the problem, to reduce it. For example, Spain in recent years has pushed harder than Italy on renewables and found a way to bring down bills, which are now much cheaper than ours. It means that families breathe a sigh of relief and industries become more competitive.”
What is this system?
“One of the instruments adopted are Power Purchase Agreements, long-term sales contracts that keep the price locked in. Again: it’s no secret. Also in the Draghi report, it is clearly explained how this type of contract can protect the industry from high and volatile prices by providing price certainty to large industrial players.”
And why aren’t these contracts multiplying rapidly in Italy as well?
“Why we need to reduce bureaucratic costs by standardising contracts. Aggregate supply and demand. Mobilise the banking world for the provision of financial guarantees. That is, you need an efficient government that is intent on achieving the goal. This has been done in Madrid, not in Rome.”
Other tools to lower bills?
“So-called contracts for difference, companies agree on a price for a certain number of years: say 100. If the market price is higher the buyer gains because he pays less if, on the other hand, the price is lower the buying enterprise pays the same 100. It is a way to have certainty of expenditure and better plan investments.”
What about for families?
“There are Renewable Energy Communities that self-consume about 70 per cent of the energy produced. They are communities linked to the local area and bring together those who produce renewable energy and those who want to consume renewable energy.”
What could be done to get out of the trap of higher bills?
“Multiply renewables, which by 2030 are expected to make 80 per cent of electricity generation in Italy according to the REPowerEU plan. And storage. In California on Monday, 21 April at 7:20 p.m., batteries covered 36.6 per cent of electricity demand. Because renewables and storage matter a lot in the United States. And the White House tries to dismantle the most innovative part of the U.S. energy and manufacturing system, but it also has to reckon with its constituents: three-quarters of the $340 billion Biden had earmarked for renewables ended up in Republican-majority states. Texas has surpassed California in wind power. Business is business.”
