Energy: ENEA Quarterly Analysis, growth for consumption (+2.5%) and CO2 emissions (+8%), renewable energy down by 9.5% in 1st quarter 2022

16/6/2022

Record increase in energy prices – Drop of Russian gas import (-41%) - Energy transition index falls by 29%

Energy consumption grew again in the first quarter 2022 (+ 2.5%), up for the fifth quarter in a row, although it still stays below pre-pandemic levels. CO2 emissions are also growing (+8%), due to the increased use of fossil fuels (+7%) and the decrease of both electricity import (-20.5%) and renewable electricity (-9.5%). Main driver for the latter is the fall of hydro (-40%), while wind and solar power increased by 11%.

These are some of the key data from ENEA Quarterly Analysis of the Italian energy system, which also highlights a further decrease (-29%) in the -ISPRED composite index, which assesses the Italian energy transition on the basis of a set of indicators related to energy prices, CO2 emissions and energy security.

“The strong increase of carbon dioxide emissions, combined with record energy prices, weighed on the ISPRED - explains Francesco Gracceva, the ENEA researcher who coordinates the analysis -. Starting from the CO2 emissions level projected by the end of 2022, it would be required a cut of over 100 million tons of CO2 over the next eight years in order to meet the new European Fit for 55 target (a 55% decrease in EU emissions by 2030 compared to 1990).”

The analysis shows that about 40% of the sharp increase in CO2 emissions is attributable to the transport and residential and service sectors, while about 60% comes from energy-intensive industries, refineries, and power generation in particular, where the increased use of coal led to a rise in emissions of over 25%, the highest in the last 20 years. Coal consumption growth (+0,4 Mtoe, + 25%) gave a significant contribution to energy demand growth in the first quarter of 2022, even though the main driver has been by far the sharp increase in oil consumption (+1,6 Mtoe, + 14%), while natural gas increased by a more modest 1% (+0,2 Mtoe).

Energy consumption grew less than GDP in the first quarter, due to the sharp slowdown of industrial production, the mild winter and the record energy prices, all factors driving down energy demand (gas in industry dropped by 8%). “However, given the strong recovery in passenger and freight traffic volumes, which are now back to their pre-pandemic levels, we estimate energy demand growth well above 2% in the second quarter too; as consequence, a similar growth is estimated for the first half of the year as a whole. It is remarkable that in the first quarter 2022 both energy demand and CO2 emissions increased in Italy more than in the Eurozone, as in 2021”, says Gracceva.

As regards energy prices, the average wholesale electricity price stood at €250/MWh in the first quarter of 2022, a 320% increase compared to the same period a year prior; and despite the slight contraction expected in the second quarter, the average price in the first half of the year will stay well above 200 €/MWh, that is twice the 2021 average. Moreover, the spread between the Italian power price and that of the main European exchanges increased once again: compared to the German exchange this spread had never been so high (almost 70 €/MWh), that is the Italian price is almost 40% higher (it was 20% a year ago). Even though government interventions mitigated the impact of these wholesale price increase on final consumers, Italian consumer prices reached new historical records in the first quarter (+ 55% for households; + 40% for industry), and they raised more than in other EU countries.

Natural gas consumer prices reached new historical highs too: 1.4 €/m3 in the first quarter, almost twice a year prior; and despite the slight decline in the second quarter (and government interventions), the average price in the first half of the year will be higher by about 60% than the previous historical maximum. As regards the lowest non-household gas consumption band, gas price stood at about 1 €/m3 in the first quarter, three times the price of the same period of 2021. Moreover, according to the most recent data in the first half of the year Italian gas prices are increasing more than the EU average.

As per energy security, the European policy decision to pivot away quickly from Russian gas had already a significant impact: in the first five months of 2022 the share of gas imports from Russia decreased by 41% and fell on average below 24% of total imports (compared to about 40% in the same period of 2021). Russian gas dropped to even lower levels in April and May (below 20% of total imports), becoming the third source of supply after Algerian gas (at 31%) and LNG (slightly under 20%).

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