The macroeconomic scenario
The COVID-19 pandemic triggered a severe economic crisis. In the March 2021 update, the OECD reported an annual fall in GDP in 2020 at global level of 3.4%; by contrast, the Euro Area’s GDP was down by 6.8% compared to 2019, with a return to pre-crisis levels not expected before 2022.
For the Italian economy, an 8.9% decline in GDP in 2020 compared to the previous year was recorded. The Bank of Italy forecasts Italian GDP growth of 3.5% in 2021 and a return to pre-pandemic levels only starting in 2024.
Household spending
The current economic crisis has led to a decrease in households' disposable income, with repercussions on consumption. In fact, total household consumption expenditure in 2020 was 11% lower than in 2019.
The freeze on layoffs maintained the number of employees with permanent contracts stable, while the number of employees under fixed-term employment contracts decreased the most. Overall, as of December 2020, the number of employed people was 2% lower than a year earlier. Despite the fall in the number of employed persons, in December the unemployment rate for the population aged between 15 and 64 (9%) was 0.6 percentage points lower than in the previous year; the inactive population increased over the same period (+3.6%).
Investments
The climate of uncertainty related to the evolution of the pandemic and the economic crisis affected business confidence negatively in 2020, causing a significant reduction in gross fixed capital formation. The 2020 value of investments is 9% lower than the 2019 level.
Exports
The value of Italian exports in 2020 was 10% lower than in the previous year. The decline was concentrated in the first half of the year, when the value of exported goods fell by 16% compared to the same benchmark in 2019. Despite the recovery recorded in the third quarter, this came to a halt in the last months of the year.
Prospects for a return to pre-2020 levels remain strongly influenced by uncertainty about pandemic evolution.
The oil market
2020 recorded an average Brent price of $43.21/bbl, down 33% from 2019, which had averaged $64.2/bbl for the year.
Overall, a decline in global oil demand of around 8% was recorded in 2020 compared to 2019. The largest reduction was recorded in the second quarter (-15% compared to Q2 2019). Fourth quarter demand, which recovered 3 percentage points in cyclical terms, was still lower (-4%) than in the same period of 2019.
The 2020 production cut decided by OPEC Plus countries and the concomitant reduction in US shale oil production led to an overall reduction in global oil supply of 6% compared to 2019. The fourth quarter of 2020 ended with supply down 5% compared to the last quarter of 2019.
Brent Price Trends ($/bbl)
Source: REF-E processing of Reuters data
The electricity market
Supply and demand
In 2020, net electricity production in Italy was 273.11 TWh, down 3.8% compared to 2019. The demand for electricity, amounting to 302.80 TWh, was 89% met by domestic production, with the remaining 11% met by imports from abroad. At 175.38 TWh, domestic thermoelectric production accounted for 64% of net domestic production, down 6.4% compared to 2019 values, mainly under the effect of lower demand. Production from hydroelectric sources amounted to 47.99 TWh (+0.8% compared to 2019), representing 18% of the national supply, while 49.74 TWh (+1% compared to 2019) were produced from geothermal, wind and photovoltaic sources, i.e. 18% of the national supply.
Consumption in 2020 was 5.3% lower than in 2019. The North suffered the most significant reduction in demand (-6.2%), followed by the Centre (-5.7%), the South (-3.2%), and the Islands (-2.7%).
Demand and supply of accumulated electricity (GWh and changes in trends)
| up to 31/12/2020 | up to 31/12/2019 | Change % | |
| Demand | 302,801 | 319,792 | -5.3% |
| Northern Italy | 141,746 | 151,142 | -6.2% |
| Central Italy | 88,824 | 94,176 | -5.7% |
| Southern Italy | 45,026 | 46,523 | -3.2% |
| Islands | 27,205 | 27,951 | -2.7% |
| Net production | 273,108 | 283,950 | -3.8% |
| Hydroelectric | 47,990 | 47,590 | 0.8% |
| Thermoelectric | 175,376 | 187,317 | -6.4% |
| Geothermoelectric | 5,646 | 5,689 | -0.7% |
| Wind and photovoltaic | 44,096 | 43,354 | 1.7% |
| Pumping consumption | -2,557 | -2,469 | 3.6% |
| Foreign balance | 32,250 | 38,311 | -15.8% |
Source: Terna
Day-Ahead Market (DAM) prices
In 2020, the National Single Price (NSP) stood at an average value of € 38.9/MWh, down 25.7% from 2019. The decrease in the NSP compared with the previous year was particularly significant in the first half of the year, with the largest decreases occurring in April (-53.5%) and May (-57.0%).
The average monthly NSP value was higher than in 2019 only in the last two months of the year.
Average Purchase Price on MPG Trends (PUN) (€/MWH)
Source: REF-E processing of GME data
The year-on-year decrease in prices involved all zonal prices, with the highest incidence for Sicily (-26.4%) and the lowest for the South (-23.4%). Despite this sharp reduction, Sicily's average annual price continued to be the highest, whilst the lowest electric power price was in the North, where it averaged € 1.12 per MWh lower than the NSP. In 2020, the zonal average price differential (8.4 €/MWh) contracted compared to 2019 (€ 11.9/ MWh).
Italian zonal price trends 2020 (€/MWh)
Source: REF-E processing of GME data
Trends in the main European power exchanges
The average price for European power exchanges in 2020 (calculated by taking into account the arithmetic average of market results in Germany, France and Spain) was € 32.2/ MWh, down 23% compared to 2019. The differential with the NSP was € 6.7/ MWh, compared with € 10.7/ MWh in the previous year. Thus, only in the last quarter of 2020 prices were on average higher than in the same period of 2019 (+3%).
European Electricity Price Trends (€/MWh)
Source: REF-E processing of European stock exchanges data
Future of Baseload NSP on the EEX
The table below shows futures prices traded in the last quarter of 2020, signalling expectations of higher electricity prices on the European Energy Exchange. Specifically, forward purchases referable to delivery in January showed upward changes between the beginning and end of the quarter; those maturing in future quarters (Q1 21, Q2 21 and Q3 21) also increased, rising by 5.9 €/MWh, 4.5 €/MWh, and 3.7 €/MWh, respectively. The yearly Calendar-21 followed the same trend, from € 47.9/ MWh in October to € 52.5/ MWh in December.
| Oct-20 Futures | Nov-20 Futures | Dec-20 Futures | |||
| Monthly | €/MWh | Monthly | €/MWh | Monthly | €/MWh |
| Nov-20 | 43.2 | dec‐20 | 45.6 | Jan-21 | 54.3 |
| dec‐20 | 46.5 | Jan-21 | 45.3 | Feb‐21 | 56.5 |
| Jan-21 | 47.1 | Feb‐21 | 48.3 | Mar-21 | 57.3 |
| Quarterly | Quarterly | Quarterly | |||
| Q1 21 | 48.8 | Q1 21 | 48.0 | Q1 21 | 54.7 |
| Q2 21 | 43.3 | Q2 21 | 43.1 | Q2 21 | 47.8 |
| Q3 21 | 48.7 | Q3 21 | 48.7 | Q3 21 | 52.3 |
| Yearly | Yearly | Yearly | |||
| Y1 21 | 47.9 | Y1 21 | 47.7 | Y1 21 | 52.5 |
Source: Reuters on EEX data
The natural gas market
Supply and demand
Gas consumption in 2020 decreased by 4.2% compared to 2019, to 70.7 billion cubic meters (last year it amounted to approximately 73.8 billion). The significant drop in consumption occurred during the first half of 2020 as a result of the spread of the pandemic and related containment measures. Winter temperatures, in line with the seasonal average, together with the partial economic recovery, particularly in the third quarter, allowed demand to recover slightly in the latter part of the year.
Uses and sources of natural gas in 2020 and comparison with previous years
| GAS WITHDRAWN (bln m3)* | 2020 | 2019 | 2018 | Change % 2020 vs 2019 |
Change % 2019 vs 2018 |
| Industrial use | 13.2 | 14.0 | 14.3 | -5.7% | -2.0% |
| Thermoelectric use | 24.2 | 25.8 | 23.3 | -6.1% | 10.5% |
| Distribution plants | 31.3 | 31.7 | 32.3 | -1.0% | -2.1% |
| Third party network and system consumption / line pack | 1.9 | 2.3 | 2.3 | -17.9% | -0.6% |
| Total withdrawn | 70.7 | 73.8 | 72.3 | -4.2% | 2.0% |
*Cumulative amounts at 31 December 2020
Source: REF‐E processing of SRG data
| GAS INPUT (bln m3)* | 2020 | 2019 | 2018 | Change % 2020 vs 2019 |
Change % 2019 vs 2018 |
| Imports | 65.9 | 70.6 | 67.4 | -6.8% | 4.8% |
| Domestic production | 3.8 | 4.5 | 5.1 | -14.9% | -11.9% |
| Storage | 0.9 | -1.4 | -0.3 | (**) | (**) |
| Total input (incl. storage) | 70.7 | 73.8 | 72.3 | -4.2% | 2.0% |
| Maximum capacity | 145.7 | 137.6 | 135.9 | ||
| Load Factor | 45.2% | 51.3% | 49.6% |
*Cumulative values as at 31 December 2020, the value of inventories indicates net movement
**Change of more than 100%
Source: REF‐E processing of SRG data
The sectors that suffered the most significant reduction were the industrial sector (-5.7%) and the thermoelectric sector (-6.1%), mainly due to the economic effects of the measures implemented to contain the pandemic. Gas consumption in the residential sector was also slightly negative (-1.0%).
As regards supply, total imports in 2020 were 6.8% lower than in 2019 (at 65.9 bln/m3, compared to 70.6 bln/m3 in 2019), while domestic production fell further by 14.9% compared to 2019 (for a total of 3.8 bln/m3) of gas produced).
Concerning exports, the general situation of domestic entry points connected with foreign countries is as follows:
- inflows from Russia at the Tarvisio entry point (28.2 bln/m3) confirm once again the central role played by the Russian gas pipeline in Italy's overall budget (43% of the domestic market);
- the reduction in Norwegian production, together with a tight schedule of Transitgas’s pipeline maintenance, led to a decrease in imports from Northern Europe, which stood at 8.5 bln/m3 (-22% compared to 2019);
- gas supply was also concentrated in the Mediterranean areas, with an increase in inflows from Algeria at Mazara del Vallo (+18% compared to 2019, i.e. 12.0 bln/m3);
- Liquefied Natural Gas (LNG) imports remained high in 2020 (12.6 bln/m3), but did not reach the record of 2019 (14.0 bln/m3).
Imports by point of entry on total* (% values)
*Cumulative amounts at 31 December 2020
Source: REF-E processing of SRG data
Wholesale gas prices
In the first part of 2020, the downward trend in European and global wholesale natural gas prices that has been in place since late 2018 continued. In the second half of the year, however, there was a rather significant recovery.
The downturn in the first two quarters, due to Asian demand (Chinese in particular), a surplus of supply also on the storage side and the decrease in the price of Brent, was overcome by the upward trend in the second half of the year, mainly due to:
- recovery of Asian demand and consequent gradual recovery of global economic activities;
- supply issues, especially for LNG: maintenance, interruptions and forecasts of a colder-than-normal winter in the North Asian hemisphere, addressed by US supply, leaving European needs uncovered;
- the start of a winter season with temperatures at times below normal.
The average spot price at the Dutch TTF for 2020 stood at € 9.4/MWh, down 32.4% from € 13.9/MWh in 2019. With regard to the PSV, the average spot price marks a -37% compared to the 2019 quotas, settling at 10.4 €/MWh and demonstrating once again how the Italian hub continues to remain a premium market compared to the Northern European ones, with an average PSV-TTF differential of € 1/MWh (down, however, by more than 60% compared to last year).
The so-called “CMEM component”, meant to reflect the cost of gas procurement in the protected market price and defined by the ARERA on the basis of the TTF forward prices, increased with an average of 12.93 €/MWh.
In 2020, prices at the border, still oil-linked partly, followed the general downward trend and settled at a European average level of € 9.9/MWh, down almost 40% compared to 2019. Average Italian prices at the border were lower than the European average, standing at € 11.2/MWh.
Wholesale prices in Europe (€/MWh)
Latest data 31 December 2020
Source: REF-E processing of WGI – ARERA – Alba Soluzioni data