Adequacy explained

1. What does the "adequacy" of the electricity system mean?

A defining characteristic of every electricity system is the need to guarantee a constant real-time balance between the energy demanded by consumers (households and businesses) and the energy generated by power plants. A system is considered adequate when it has sufficient levels of resources for production, storage, flexibility (e.g. consumers who are able to voluntarily reduce their load) and transport capacity to meet the expected electricity demand at all times, including a "reserve margin" to be able to cope with errors in forecast electricity demand and production (e.g. from renewable sources) and the consequences of possible grid failures and events (opening of a line, production plant failure, etc.).

2. How is adequacy measured?

One of the key indicators for measuring the adequacy (or inadequacy) of an electricity system is known as LOLE (Loss of Load Expectation) and represents the total number of hours per year that a portion of consumers are likely to be disconnected because expected demand exceeds the resources available to meet it. This indicator has been adopted as an index to measure adequacy at both European and Italian level. Generally, an electricity system is adequate when there are no more than 3 hours LOLE. This means that there is 0.03% probability that at least one consumer (but not necessarily all consumers) will be "disconnected" from the network due to adequacy issues. The adequacy assessment is carried out by means of a probabilistic analysis to take into account the variations (random or deterministic) of the main variables, including climate events (temperature, wind conditions, solar radiation, etc.). Terna is required to carry out and update, on an annual basis, the adequacy assessments and present the results of its analyses in an adequacy report.

3. How much capacity is required for an adequate electricity system?

In general, an increase in the overall capacity of production plants, ceteris paribus, leads to an improvement in the adequacy of a power system. However, the contribution of each technology to adequacy varies considerably: it is important to distinguish between the actually available capacity and the installed capacity. For example, traditional thermoelectric sources contribute to adequacy, on average, almost 10 times more than intermittent renewable sources, because their availability depends on the availability of the resource itself (e.g., sun and wind), which cannot always be guaranteed during hours of high demand. In the medium to long term (2025-2030), Terna's analyses show that the Italian electricity system requires an installed thermoelectric generation capacity of not less than 54-55 GW to meet the adequacy criterion of a maximum of 3 hours LOLE.

4. What actions are needed to ensure the adequacy of the system?

In order to ensure an installed capacity level of around 54 GW by 2025, the electricity system therefore needs new capacity to replace the capacity that is expected to be decommissioned (primarily coal-fired). In fact, the analyses carried out show that it is necessary to build 3 GW of storage systems and 5.4 GW of additional gas-fired generation by 2025. In order to promote the construction of new capacity and maintain existing capacity at full efficiency, strategic works are needed to provide producers with the right long-term price signals. The main tool needed to achieve this is the Capacity Market.

5.What happens if the system is inadequate?

When a system is inadequate, the likelihood increases that the electricity supply will have to be interrupted because the electricity demand at a certain time exceeds the resources available to meet it. In the absence of new production capacity by 2025, LOLE hours would increase to around 30, a value more than 10 times higher than the adequacy standards adopted at European level. In this scenario, the energy not supplied to consumers would amount to about 11 GWh per year, more than 14 times higher than the target level set by the Italian Regulatory Authority for Energy, Networks and the Environment (ARERA). In practical terms, any consumers disconnected due to an inadequate system is managed via the so-called Emergency Plan for the Security of the Electricity System (PESSE), established to reduce electricity withdrawals in a selective and measured manner and avoid uncontrolled blackouts. However, with a load interruption of about 11 GWh/year, the PESSE would not be an emergency measure, but become an ordinary tool for managing the electricity system, at great inconvenience for citizens and businesses.