One of Europe’s leading electricity transmission grid operators, Terna is crucial to guaranteeing the efficient and reliable delivery of power to Italy’s individual and corporate clients on both its mainland and islands. As such, it is also a key component to Italy’s interconnection with other European producers to create a larger, continental network. CEO Matteo Del Fante explains where the sector is heading and the importance of renewable sources and smart grids to a more balanced handling of supply and demand.
The International Energy Agency (IEA) expects energy demand to grow 37% by 2040. Ensuring sustainable growth by matching the demand and supply of the energy sector is one of the most compelling global challenges. When it comes to sustainability, do you think it is still a buzzword, or are we moving towards more binding regulations internationally such as COP21 and Europe 2020?
We believe that the actual outcome of the Paris summit was a real one and that the strong support which China gave to the agreement, in the end, was extremely important. That probably changed the whole dynamic of the summit – a serious outcome where countries are actually going to be monitored on a regular basis to ensure that the target of reducing CO2 is met. This is also a great achievement for Europe, as it was already leading efforts to effect this reduction.
And this is even more of a good outcome for Italy because we were already leading the line in non-polluting energy production. As you know, Italy has around 40% production coming from renewables already. We need the transport-polluting sector to follow, but there is another area where there are some crosslinks with e-mobility that are also showing some good and interesting potential.
We like the result of the COP21 and support the path of reduction of CO2 emissions.
The European Union is pushing towards the creation of a single market for energy. What are the opportunities for the country and Terna in this context?
We believe that the European goal of energy independence can only be achieved if Europe manages to create a single electricity grid platform. We need to optimize the use of renewables, which are scattered around Europe with different technologies – you might have more wind in the north, more solar in the south. Given the fact that these technologies are scattered geographically and are non-programmable from a management standpoint, to capture all the production they bring to the table, you need to have a grid that allows the perfect flow of electricity in the system – that’s a very logical intuition that even a non-expert can have.
Additionally, there are also other tools that can be applied to optimize: smart grids and storage are also some positive tools that can aid the use of the non-programmable renewables that will be increasingly used in Europe, and Italy is physically in a unique geographical position to link several markets. Today, we have 25 interconnections that are already active, mainly on the northern border, with France, Switzerland, Austria, Slovenia. We have a line with Malta as well. And then in the south, with Greece. We are going to add one major interconnection with France to those over the next four years and one major interconnection with the Balkans throughout Montenegro.
Additionally we are working on a project with the European Commission to create a very important geopolitical interconnection to Tunisia. That is an extremely important project because then Italy will become the core platform from a geographical standpoint.
We are defined by law as strategic infrastructure. And even though we are controlled by CDP (Cassa Depositi e Prestiti) and we have 70% listed, there is a very strict control through the controlling stake from CDP. If you look at Europe in general, except the national grid of the UK, we are the largest independent company in Europe. Italy has already opened up its market.
I see the need for a unique grid from a physical standpoint and that’s why, as a company, we are pushing very hard for the interconnection projects. The interconnection with Greece was built around 10 years ago when Italy was short of energy. Then, the infrastructure was an “importing line”, meanwhile now, 80% of the time, we are working as an “exporting line”. At night, when Italy has fewer renewables, we import because it’s cheaper in Greece than it is in Italy. We allow both markets to pay lower prices for energy, and we have the capability of changing the flow several times a day, depending on the respective prices and needs in the two markets.
If you are an Italian producer of energy, and you want to sell energy today, you have the option of selling it to the Italian stock energy exchange, or with the same rules, you can sell it to the French border. Therefore you need to have a market that takes the same guarantees – the same timetable, the same rules, and the same procedures – that allow your company to be able to trade electricity easily. So, with market coupling, the software comes once you have the hardware.
We are working on both fronts. It may interest you to know that I am the Vice President of the European national TSO association, for which I volunteered about a year ago. I believe that the recent gains on the European landscape are an effort on my part, but I also believe that Italy has to bring its contribution. Italy has never had such a responsibility at the European level.
Smart cities and the Internet of Things (IoT) are two mega trends that are worth $1.5 trillion globally. From this point of view, do you think that energy or the IoT can really bring the 21st industrial revolution? What is the contribution of Terna towards this trend?
I don’t think there’s going to be a disruptive digitalization coming into the energy space. I think there’s going to be a progressive improvement in the way we do our business through digitalization tools. Specifically at Terna, we have the responsibility of guaranteeing the security of supply and an adequacy of production plants.
The beauty is that we have managed to keep all these plants securely producing. Interestingly, last year in July, peak demand in Italy reached 15% above the previous peak. The grid was under stress, and we had to make sure that all of our renewables were producing. Certainly we managed to keep the systems working on the way. There were no disruptions thanks to the planning and the work of the grid that Terna did.
And this is what we mean when we talk about smart grids. For us, it means being able to model all the flows – to have all the information on everything that’s happening in the system, and make sure that we keep the lights on. More specifically, we also need to follow smaller projects where problems could arise. Just to mention a couple which I think are meaningful: Italy has many small islands, and we have the responsibility of interlinking those islands unless they are too far or too small, and therefore too expensive. What we find today is that most of these islands have older oil-based production. The reality is that this production is there, is polluting, and the same price is paid on the island as on the continent.
We have two pilot projects we care a lot about: we are going to create two smart islands in Giglio and Giannutri islands, which are in the Tuscany Archipelago, and Pantelleria, a very large island in Sicily. We are going to combine a solar production plant with a mini wind-storage plan and water desalination. On the project for Giglio and Giannutri islands we are working with IBM, who is doing all these smart system optimizations. The system will tell us how much energy is to be allocated to consumption and how much will be stored.
What are the measures Terna is taking to increase energy efficiency in order to shape a more conducive business environment?
Some of the largest projects we have embarked on also link to the previous topic of digitalization. We have the largest project in the world on storage and count with a storage lab initiative where we are testing all possible technologies around the world. We have already implemented seven different technologies in the Italian grid and have invested in excess of €200 million in storage. You will not find any other operator in the world that has spent more money than Terna.
This translates into over 50 megawatts of storage capacity that are already installed in the Italian system, and represent two different technologies. One is for the common sense use of storage. When there is a plant that produces energy that they cannot use, we store and release it when needed. But the even more interesting technology is the one we use to balance grid parameters in the islands, which by definition are more unstable. The larger the space you manage, and the stronger the grid you have in any electrical system, the easier it is for you to balance any problem you might have on the demand or on the production side.
On an island, you have a tougher space, notwithstanding the grid links. We are employing batteries in Sardinia and Sicily, to balance the grid. They can give very prompt solutions when the grid parameters go out of the ranges that we consider optimal.
I think it’s important for foreign companies that are interested in coming and investing in Italy because we will bring products from the energy demand side. So, the same imbalance as is in the US – I think PJM on the East Coast is a very good example, where they save several billions per year adding services to the system from the demand side. So, you have thousands of companies that you are interlinked with. And this is, again, clearly a digital revolution where you can have an importer rephase consumption and shift it by an hour. If they shift and move production by an hour, they balance the grid because they have a need in that specific hour. They make it so they don’t have to go to the production side, and get money for this service they render.
The acquisition of 8,400 kilometers of high-voltage power from Ferrovie Dello Stato has been one of the most strategic transactions ever for your company. What does that represent for the future of the government of Terna? Is there a sentiment that all the stakeholders in different sectors are coming together to pursue a common vision?
We had a clear problem in Italy of “infrastructure over design”. So, why did Ferrovie need to build its own high-voltage grid when Italy has the largest efficient European one? Why do they need to spend money to build lines when the lines are already there? And there are regions in Italy – I can give you many examples - where you have two or three power lines crossing valleys next to each other. Nonsense.
They want to create a new link going from Naples where the high-speed train stops, down to Puglia. Why the need to build the high-voltage line to go there? We are going to be providing the energy they need for that project. And for us, acquiring these 8,400 kilometers is improving our capability to accommodate all the non-programmable new plants that are there and will keep growing because we have an extra-large footprint in the country.
We don’t have a very large international presence, notwithstanding the fact that five years ago Terna was the second largest Brazilian system operator – we had over 5,000 kilometers. Today, we don’t have any international networks, so we turned up to Enel and to the large Italian energy and infrastructure players and said, “If you need to build infrastructure globally, wherever you are, here I am.” We closed the line for Enel in Chile, in March, interlinking PV for the entire project to the national Chilean line.
Why would you say that American investors should come and invest in Italy, and what is your personal vision for the future of the country?
The country is going through a meaningful change of leadership and dynamics. Maybe for the first time, the leadership is exposed to its responsibilities. If you look at the history of Italian leadership, people tended to have several exit routes. So, this is a good opportunity for the right assets. More than 50% of our investor base is international.
More specifically, at Terna we have 400% TSR (total shareholder return) since listing in 2004. We are, if not the best, one of the top performing shares in Europe, in the utility and infrastructure sector.