Intesa Sanpaolo recently presented a study, which was developed with the contribution of the IMI Corporate & Investment Banking Division, together with the Chief Sustainability Officer of Intesa Sanpaolo.
The objective of the study was very practical: to build a European electricity network model and simulate which inputs have the strongest impact on the average electricity price.
The starting point is known.
After the energy shocks of recent years, and after the Draghi Report, energy is no longer only an environmental or technological matter.
It is a matter of industrial competitiveness.
It is a matter of economic security
It is a matter of affordability for companies and families.
When electricity price is too high, industry loses oxygen.
And when industry loses oxygen, the whole economy struggles to breathe.
The most obvious response is to say: we need to build more.
More interconnections.
More batteries.
More renewable capacity.
More flexible gas plants, such as CCGTs, to ensure the security of the system.
All of this is needed.
But our study highlights a simple point, and for this reason often overlooked:
it is not enough to increase the supply. We need to make the demand evolve.
And, above all, we need to make it evolve before.
Because every grid line, every battery, every backup plant and every interconnection has a cost.
If these investments are made in a system where demand remains flat, rigid and concentrated in the wrong hours, the unit cost of electricity is likely to remain high.
It is like building a major rail network and then only using it at peak times.
The capacity is there.
The investment has been made.
But the system does not work well enough to dilute costs.
The real lever, therefore, is not simply to consume more, but to consume more efficiently.
Flexible demand means shifting consumption to times when electricity is more abundant, cheaper and cleaner.
This is the core finding of the study.
If flexible demand grows upfront, investments in grids, storage and generation are used better.
The same assets generate more value.
And the average price may fall, not because the investments cost less, but because the system absorbs them more efficiently.
Cost-effectiveness is not achieved simply by adding megawatts. It’s also achieved by shifting megawatt-hours at the right time.
This changes the way we need to view the energy transition.
We should not wait for electricity to become structurally cheap to electrify.
We must create the conditions today to ensure that electrification is flexible, programmable and cost-effective.
In practice, this means three things:
First: clearer price indications are needed.
Companies, investors and consumers need to understand when the system has a surplus and when it is under pressure.
Without price indications, flexibility remains invisible. And what cannot be seen, cannot be financed.
Second: we need to accelerate the electrification of industrial processes where it already makes technical sense.
An important example is low-temperature heat: food, paper, textiles, certain stages of the chemical industry, and materials processing.
In many cases, industrial heat pumps, electric boilers and thermal storage systems can generate heat when electricity is cheaper and store it for use in the following hours.
In other words, some industrial heat can be used to provide flexibility for the electricity system.
A chemical battery is not always needed.
Sometimes the battery is in fact a hot water tank.
Sometimes it is in fact a well-designed industrial process.
Sometimes it is a factory that learns to interact with the grid.
The third lever is electric mobility.
Vehicle-to-grid should not be seen merely as a technology for cars.
It should be seen as a distributed network of small batteries which, if aggregated and managed correctly, can absorb energy when it is cheap and return value when the system needs it.
The consumer is no longer just a point of delivery. It becomes a resource for the system.
This is the most significant cultural shift.
For years, we have viewed demand as something to be met.
Today, we must start to view it as something to be managed.
For regulators, this means dynamic pricing, market rules for demand flexibility, access for aggregators, and a charging structure that does not penalise flexibility.
For industry, this means identifying processes that can be electrified and developing business cases based not only on the cost of energy, but also on the value of flexibility.
For banks and investors, it means financing projects that reduce emissions, increase resilience and improve the overall efficiency of the system.
And for utilities, it means moving from being mere sellers of kilowatt-hours to becoming smart demand managers.
I would like to conclude with the most important message.
The most cost-effective electricity system is not the one with more infrastructure.
It is the one in which infrastructure and demand work together.
Europe will have to continue investing in grids, storage, renewables and flexible capacity.
But if it really wants to reduce the average price of electricity, it must do one more thing.
It must stimulate immediately flexible demand.
Because in the next phase of the energy transition, demand will no longer be a passive element.
It will be one of the key components of the European electricity system.
