Italian Energy Prices Soar as Heat Wave Boosts Cooling Demand

(Bloomberg) -- The heat wave baking southern Europe is causing particular stress to Italy’s energy system, which still relies on natural gas to generate the power to meet cooling demand.

Emergency heat alerts have been issued for many Italian cities as temperatures soar above 40C (104F). That’s pushing up demand for air-conditioning, and feeding directly through to higher gas and power prices. 

Italy is being forced to fall back on traditional thermal capacity to meet those cooling requirements, whereas countries like Spain have more solar capacity. Italian consumers are picking up the tab, especially after regulatory changes mean that from July many are no longer eligible for cheaper protected electricity tariffs.

Italian gas for next-day delivery has traded about €3 a megawatt-hour higher than an equivalent contract in Spain since the start of the month. At the same time, power prices have remained above €100 per megawatt-hour in July, after reaching their highest levels since April. 

Prices are surging as Italian electricity consumption jumped to a multi-year high this week, according to Bloomberg calculations based on available data from power grid operator Terna SpA. Over the next five days, Italy is forecast to have an average of 10 cooling-degree days — a measure of demand for air-conditioning — which is three days above the 10-year norm, according to Weather Service International data.

As demand increases, the country’s traditional thermal power plants are contributing more than half of the day’s actual generation, with solar and wind power making up a fraction of the total, according to Terna. In Spain, natural gas accounts for about one-third of the day’s total demand, Enagas SA data show.

The blast of Saharan heat will persist across large parts of southeast Europe this week. Temperatures in Rome will climb as high as 40C on Wednesday, close to an all-time record for the capital, according to a forecast from the Italian air force.

That’s still some way short of Europe’s record heat of 48.8C, recorded in Syracuse in Sicily in July 2021.

©2024 Bloomberg L.P.