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Energy Consumption

The demand for energy, measured in terms of million tons of oil equivalent, or "MTOE," decreased by 0.5 per cent in 2008 following a 1.7 per cent decrease in 2007. The decrease in energy demand recorded in 2008 was mainly due to a significant decrease in demand by the manufacturing industry (4.8 per cent), partially offset by an increase in private consumption (3.0 per cent).

In 2008, oil represented 47.8 per cent of Italy's primary energy consumption, with natural gas accounting for 28.4 per cent, renewable energy resources (which includes solar and wind energy, recyclable material, waste material and biogas) accounting for 2.1 per cent, solid combustibles accounting for 3.2 per cent and net purchased electricity accounting for 18.5 per cent.

In 2008, Italy imported 92.2 per cent of its oil requirements and 90.3 per cent of its natural gas requirements. The only other significant imported energy source is coal.

The domestic energy industry consists primarily of ENI, ENEL and Edison. ENI, approximately 30 per cent owned by the Government, is engaged in the exploration, development and production of oil and natural gas in Italy and abroad, the refining and distribution of petroleum products, petrochemical products, the supply, transmission and distribution of natural gas and oil field services contracting and engineering.

ENEL is the largest electricity company in Italy and is engaged principally in the generation, importation and distribution of electricity. The Government owns approximately 14 per cent of the share capital of ENEL directly and 17 per cent through Cassa Depositi e Prestiti S.p.A., which is 70 per cent owned by the Government. Domestic capacity is insufficient to meet current demand, and Italy imports a significant share of its electricity requirements.

The Electricity and Gas Authority (Autorità per l'Energia Elettrica e il Gas) regulates electricity activities and natural gas distribution in Italy with the aim of promoting competition while ensuring adequate levels of service quality. The Authority is led by a board of three members appointed by Parliament and has a large degree of independence and significant powers, including the power to establish base tariffs and the criteria for tariff adjustments and to issue fines and other sanctions. While several companies operate in the gas distribution market, during 2008 natural gas sales by ENI accounted for about 62.3 per cent of domestic consumption. In 2003, Italy implemented legislation (Law 290/2003) aimed at liberalizing the natural gas market and requiring that after July 1, 2007 no single operator own more than 20 per cent in the share capital of any company that owned and managed natural networks for the transmission of natural gas and electricity. The deadline for complying with this ownership limitation was postponed several times and was finally set at 24 months from the effectiveness of the Italian Prime Minister's decree that will implement Law 290/2003. That decree has not yet been issued. ENI sold a 40.2 per cent stake in the share capital of its distribution subsidiary, SNAM Rete Gas, through an initial public offering in December 2001 and a further 9.1 per cent interest in March 2004. As of December 31, 2008, ENI held a 50.04 per cent interest in SNAM Rete Gas.

In the period between 1999 and 2002, the Italian electricity sector underwent significant change. A Government decree issued in 1999, known as the Bersani Decree, established a general regulatory framework for the Italian electricity industry that has gradually introduced free competition in power generation and sales to consumers meeting certain consumption thresholds while maintaining a regulated monopoly structure for power transmission, distribution and sales to other consumers.

On July 23, 2009 Italy enacted legislation ("Law no. 99/2009"), setting forth, among other things, a framework for future developments in the energy sector, including principles for streamlining procedures for the construction of energy networks and infrastructures, incentives for the use of renewable energy and a plan for the reintroduction of nuclear energy generation. This new legislation aims at reducing Italy's dependence on foreign energy supply while at the same time reducing energy cost and pollution. Following full implementation of the new framework, each of renewable energy and nuclear energy produced in Italy is expected to meet approximately 25 per cent of domestic demand.

In relation to the nuclear sector, Law no. 99/2009 provides that, within 6 months of its coming into force, the Government must determine the type of nuclear energy plants that may be built on the Italian territory and their proposed location. Law no. 99/2009 also established a specific authority ("Agenzia per la sicurezza nucleare") with the duty to regulate and supervise all activities connected to the development and exploitation of nuclear energy (from the authorizations for and the constructions of nuclear facilities to the safety of such facilities and the handling and disposal of nuclear materials).

The enactment of Law no. 99/2009 followed the execution of an inter-governmental protocol, which was signed between the Governments of Italy and France on February 24, 2009, for the joint research and exploitation of nuclear energy and the development in Italy, through ENEL and EDF, of four new plants using EPR (European Pressurized Reactor) technology. In August 2009, ENEL and EDF formed a 50-50 joint-venture company named "Sviluppo Nucleare Italia S.r.l." with a view to carrying out the feasibility studies relating to the new plants. It is expected that Sviluppo Nucleare Italia should act as the holding company of the project companies that will build, own and manage the nuclear facilities.