(The opinions expressed here are those of the author, a market analyst for Reuters.)

By Gavin Maguire

LITTLETON, Colorado, Dec 18 (Reuters) - Italy's power producers are set to generate more electricity from clean power sources than from fossil fuels this year for the first time, marking a major energy transition milestone for Europe's fourth-largest economy.

However, the country remains beset by the highest wholesale power prices among major regional economies, and will end 2024 as Europe's largest net electricity importer for the 10th straight year.

Italy's utilities also remain overwhelmingly reliant on natural gas, which produces more than twice as much electricity as any other power source in the country.

This combination of enduring gas dependence, above-average power costs and high import reliance means that Italy's energy consumers remain heavily exposed to external energy sector volatility even as domestic clean generation hits a record.

And with natural gas costs set to keep rising into 2025, energy bills in Italy look set to keep climbing even as local clean electricity supplies also rise.

CLEAN THRESHOLD

Over the first 11 months of 2024, Italy's power firms generated 116 terawatt hours (TWh) of electricity from clean sources and 109 TWh from fossil fuels, according to data from energy think tank Ember.

That generation split means that clean electricity supplies accounted for more than 50% of Italy's total generation mix for the first time.

Record production from hydro dams (44 TWh) and solar farms (34 TWh) were the main drivers behind the clean power gains, while output from wind farms and bioenergy plants shrank slightly on the year.

Total clean generation was up nearly 14% from the same period in 2023, while output from fossil fuels to fell to its lowest since at least 2016.

Gas-fired output was down nearly 4% while coal-fired generation slid by over 70% to a record low.

INDUSTRIAL OFFTAKE

While power generators reduced their overall gas needs, Italy's industries slightly increased their collective gas use from 2023's levels following two consecutive years of contraction.

Industrial gas users - which include those who use gas for power and as a feedstock - increased their overall gas consumption by 1.4% from the year before to 114,000 gigawatt hours (GWh), according to data from LSEG.

While that industrial gas offtake was up from just under 112,000 GWh in 2023, it was still 12% less than the annual gas use average by industry between 2019 and 2022, LSEG data shows, indicating enduring weakness within Italy's business sector.

PRICE PRESSURE

A key inhibitor of industrial energy demand remains Italy's wholesale base power prices, which in 2024 have averaged around 109 euros per megawatt hour (MWh), according to LSEG.

That compares to just under 80 euros/MWh in Germany and the Netherlands, around 64 euros/MWh in Spain and around 59 euros/MWh in France.

Italy's average wholesale power price so far in 2024 has been over 50% higher than the average for France, Germany, Belgium, Spain and the Netherlands, LSEG data shows.

Italy-based businesses have thus been hit by a significant handicap compared to competitors based elsewhere in Europe, accounting for the contraction in Italy's manufacturing activity for the past eight months running.

Continued growth in local clean electricity output could help relieve some of the pressure on major energy users, and the country's utilities do have plans to add more renewable capacity by 2030, according to the International Energy Agency $(IEA)$.

However, over the nearer term Italy's power firms will remain heavily dependent on natural gas for generation, which in 2024 will generate around 44% of Italy's total utility-scale electricity production.

Utilities will also remain heavily reliant on gas and liquefied natural gas $(LNG)$ imports to secure sufficient gas supplies, as the country imports roughly 95% of its total gas needs, according to the Energy Institute.

But with gas prices set to trend higher heading into 2025, generation costs look set to climb in tow.

Italy's power firms will also remain Europe's largest electricity importers, and in 2024 are on course to import just over 50 TWh of electricity from neighbouring nations, according to energy data portal Energy-Charts.info.

But with electricity demand rising across all of Europe, overall electricity costs also look set to push higher and will mean that Italy's energy costs could continue to climb into 2025 no matter how much more local clean power supplies will grow.

The opinions expressed here are those of the author, a market analyst for Reuters.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Italy boosts clean electricity generation above fossil fuel generation for the first time in 2024 Italy's gas use has contracted across all sectors since 2019 Italy's power price premium over major European rivals widens in 2024 Italy is by far Europe's largest electricity importer

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

(Reporting by Gavin Maguire; Editing by Edwina Gibbs)

((gavin.maguire@thomsonreuters.com; +720 295 6101;))