Empirics of Intraday and Real-time Markets in Europe: Italy

The horizontal integration of the energy market and the organization of transmission services remain two open issues in the restructured European electricity sector. The creation of an efficient and flexible internal market for electricity, started with Directive 96/92/EC and Directive 2003/54/EC and further enhanced with the introduction of the Third Legislative Package (2009) and of the Network Codes, aims at creating a coordinated European electricity market that is able to guarantee competition among operators, to achieve the imposed environmental targets and to provide electricity companies with the right incentives to invest in new infrastructure so as to ensure security of supply. The integration of the European day-ahead electricity markets has now become a reality thanks to the application of Market Coupling and the development of the Flow-Based Market Coupling approaches. However, despite these significant progresses, the harmonisation of intraday and balancing markets, as required by the European Target Model, has not yet been achieved. This ambitious objective is made more challenging by the increasing penetration of the intermittent generation technologies and by the different organizations of these markets in the European countries. This paper aims at shedding some light on the functioning of the Italian electricity market and to describe the challenges that Italian operators are now facing in order to achieve the harmonization of the European wholesale market arrangements. In particular, this paper provides a detailed description of the current design of the Italian spot electricity market with a particular focus on intraday and balancing markets whose organizations are under discussion at European level. The paper is structured as follows. In Section 2, we describe the functioning and the organization of the day-ahead, intraday and ancillary service markets. Section 3 illustrates how the Italian Transmission System Operator (TSO) conducts forecasts on load and intermittent renewable energy production as well as it operates congestion management. Section 4 is devoted to the analysis of imbalances, while Section 5 concentrates on reserve procurement. In Section 6, we summarize the main features of the current organization of the Italian electricity market and we describe some of the challenges that it is currently facing in order to accomplish with the requirements of the European Target Model. Finally, Section 7 concludes with some envisaged objectives and developments that the Italian Regulator intends to apply in order to increase the efficiency of the Italian electricity market.