The new electricity market zones: what you need to know

The map of the electricity market zones in Italy has changed. From the first of January 2021 the configuration of the Italian market zones has changed as a result of a multi-annual review process. Why? And why this new configuration? We explain it to you in this article that retraces the steps of an apparently technical operation, but one which actually produces significant progress in terms of security and efficiency of the electricity market as well as improving the integration and uniformity with the European market. It is the result of Terna’s work, begun in 2015 in compliance with the new criteria identified by the EU CACM regulation (on capacity allocation and congestion management ): Italy, from 1 January 2021, is the first European country to bring the new paradigm into force. A leadership worth stressing.

What has changed with the new configuration of the electricity market zones? Before answering, let’s try to understand what a market zone is: “The electrical system is divided into areas where producers and consumers can sell and buy electricity freely, while there are limitations on the buying and selling of energy between different zones”, explained the engineer Federico Quaglia, Manager of Analyses and Studies for the Energy Operation at Terna, Italy's electricity transmission grid operator.

The objective is to interpret correctly the trends of the main power flows according to the supply and demand conditions, representing the so-called “bottlenecks” in the grid transmission, compatibly with the security of the national electrical system. Italy is already in itself unique in the continental scenario: while in all the other countries (with the exception of Scandinavia) the zones correspond to the entire national territory (each country a zone), here right from the start the national territory was modelled in the energy markets in the form of market zones. This happened partly for the geographical conformation, and partly to differentiate the purchase prices according to the balance between electricity generation capacity and demand which varies from zone to zone (providing opportune "price signals"). Where there is more supply the prices are lower, and vice versa.

But this regards mainly producers: for consumers the cost is levelled with the single national price, or SNP. The higher cost is therefore spread at the national level, so it happens for example that in the South, where there is more supply and where the prices would be lower than Sicily, consumers pay slightly more, contributing in part to the higher price to be paid to producers in Sicily, so that the spread is not loaded only onto the backs of consumers on the island. There is also a double positive repercussion: for producers that want to inaugurate a new plant it is best to build it where there is less supply, because they can earn more; but doing so also improves the quantity of electricity offered in the zone and therefore the general efficiency of the electricity system.

The new zones will therefore have no impacts on bills or on vendors’ profits: “That’s not what it means", explained again the Terna engineer. "The new configuration will make it possible instead to maximise the efficiency of the market because it will reflect better the criticalities of the grid, enabling operators to optimise negotiations avoiding grid security problems, that is for example overloads, voltage collapses, instability”. The advantage for market efficiency is therefore that the so-called price signals provide indications that are as correct as possible, preventing possible speculations. The more the zone is uniform the more the price is low because it reflects in a more precise and adequate way the conditions of excess supply, and vice versa in the case of scarcity.

But what are the electricity market zones today and with what criteria have they been identified? Starting from 2018, when a process was launched for the gradual implementation of the solution identified by Terna, the zonal configuration has been streamlined, going from 10 market zones to seven: 4 production hubs have been eliminated (Priolo, Foggia, Brindisi and Rossano) thanks to the expansion of the transport capacity of the grid and, also, at the same time, a decommissioning of generation capacity, and a new zone (Calabria) has instead been introduced to reflect the effects of renewable generation on power flows. In addition, the Umbria region has been moved from the Centre-North zone to the Centre-South zone, to reflect better the impact of negotiations within this region on grid congestions.

From 1 January 2021 the zones are therefore: North, Centre-North, Centre-South, South, Calabria, Sicily and Sardinia.

“The methodological review began in 2015", said Quaglia. "The old criterion was only that of grid security, while in recent years following the European regulation three macro-categories of criteria have been introduced: security, market efficiency and robustness”. The Italian zones are interconnected with those of the European countries nearby: the North with France, Switzerland, Austria and Slovenia; the Centre-North and Sardinia with Corsica; the Centre-South with Montenegro; the South with Greece, Sicily with Malta. An appropriate national configuration, together with the strengthening of the respective international interconnections on which Terna is working, will therefore make it possible to maximise the efficiency of the electricity markets in the coming years.