It is amazing to recall that a decade or two ago, gas was regarded as too precious a natural resource to be squandered by merely burning it in power plants. These days, however, driven by economics and environmental pressures, .the power generation industry’s passion for guzzling gas is showing no signs of abating. Indeed, a recent report from UBS Warburg and ILEX Energy Consulting, The future of gas in Europe, projects sustained growth in gas consumption – “a minimum 2 per cent rise pa on average over the period 2001-2010” – with much of the growth coming from increased use of in power generation.

Where will all this gas come from? “Pipeline gas from the FSU, Norway and Algeria is set to play an increasingly important role in supply to Western Europe,” says the report, “as indigenous resources become exhausted and a number of countries increase their dependence on imported gas. LNG (liquefied natural gas) is also likely to play an increasingly important role over the next 10 year period and beyond.” And what about prices? “Gas prices in Europe are likely to fall over time,” says UBS Warburg/ILEX.

The expanding role of gas in power generation is perhaps exemplified by Italy. A major effort is currently underway to convert a large number of the country’s ageing fleet of oil-fired plants to natural gas fired combined cycle units. The end result of this repowering effort will be around 12000 MW of gas-fired combined cycle units.

On top of this, there is no shortage of activity in the new-build sector for gas-fired power plants in Italy. Some estimates suggest that as much as 100 GW of new gas-fired capacity (and as many as 150 generating units) is in the planning process. But probably only a small fraction of this will survive the rigours of Italy’s notorious permitting procedures, which involve several ministries, a variety of local authorities (municipalities, regions, provinces) and a good deal of debate. Nevertheless, it would be reasonable to expect at least an additional 10 GW or so of new natural gas fired combined cycle capacity (15-20 or so plants) to be brought on line by around 2006, with a number being developed by EniPower, the company created by oil giant Eni to handle its power generation activities. EniPower has the advantage of having a network of petrochemical plants dotted around Italy providing good locations for new combined cycle generating capacity – a very useful set of assets in Italy, where siting is extremelydifficult.

This shift to gas is one manifestation of the way in which energy market liberalisation is beginning to take hold in Italy, which is not a country that can be accused of rushing headlong into deregulation.

The EU electricity liberalisation directive, which Italy is implementing under domestic legislation known as the Bersani Decree, basically requires that by 1 January 2003, no single company may produce more than 50 per cent of a member state’s electricity. This prompted ENEL to transfer 15 000 MWe of capacity to three new “GenCo’s”, Elettrogen, Eurogen and Interpower, which were then put up for sale. Elettrogen, with an installed capcity of 5400 MWe, was sold to Endesa of Spain and Eurogen, with 7000 MWe of capacity went to Edipower (a new company created by Edison (40 per cent), AEM, Atel and several banks). Interpower, with 2600 MWe of installed capacity, is just now in the process of being sold, and as of mid May, no less than 19 potential bidders were in the running. Sale of a further 5000 MWe or so of ENEL capacity may be required in the near future.

So the structure of the Italian electricity sector is changing dramatically and irrevocably – and not before time – with the emergence of a new set of highly competitive players, all with an interest in expanding gas generation. In Europe as a whole, and Italy in particular – where CCGT has gone from nothing in 1999 to looking like becoming the dominant mode of power generation within the next half dozen years – the dash for gas continues in earnest.

And so far the general consensus seems to be that the gas supply infrastructure can take the strain and that imported pipeline gas supplies should be reliable enough, although the prudent among us would like to see alternative sources of supply developed – just in case.

Nuclear resuscitation?

Still on the subject of Italy, and its changing power generation mix, there has been talk recently of resuscitating nuclear energy in that country, and even some legislation before parliament stressing the need to reconsider this greenhouse-gas-free option.

While very helpful in meeting Kyoto commitments, such a revival would of course go against the general political trend of recent years, which has, for example, seen the Germans implement plans for a long-term Swedish style phase-out of nuclear energy – plans which only finally became law on 27 April. Even the Belgians are considering a phase-out plan, perhaps ill-advisedly considering that around 60 per cent of their electricity is currently nuclear-generated.

Then there is the question of economics. With ENEL dominant and electricity demand growing fast, electricity prices in Italy have been very high. But with the onset of liberalisation, and the rise of natural gas, things can change very quickly. Look at the UK. Wholesale electricity prices there are now, at least from a generator’s point of view, worryingly – some might say unsustainably – low. With wholesale prices down to around 1.8 p/kWh, many forms of generation other than the best gas plants, look untenable and there has been a spate of closures with some stations in or heading for receivership. Even low-cost nuclear energy is finding the going tough.

Back in the 1980s, the Italians had a very respectable nuclear power programme, with several stations in operation and more under construction and planned. In 1987, as a response to Chernobyl, they shut everything down. A good few billion dollars worth of productive assets closed down overnight.

Nevertheless, there are precedents for restarting long-time laid up nuclear plants. In 1985, even before Chernobyl, TVA decided it simply wasn’t up to running its nuclear plants and shut them down. But the US utility is now seriously considering uprating and restarting Browns Ferry 1, which has not operated since June 1985. Perhaps the Italians should talk to TVA about how to get their nuclear plants out of mothballs.