Foreign utilities are increasingly active in Italy's partially liberalized power market. With Italy having some of the highest electricity prices in Europe, the availability of cheaper deals from new entrants is proving irresistible to large industrial and commercial users - a trend that incumbent suppliers would ignore at their own peril.
Endesa, Spain's largest power company, has announced a deal under which its Italian subsidiary, Endesa Italia, will supply 10% of Telecom Italia's electricity requirements. Given the stature of the client - Italy's largest telecoms company and one of the best-recognized brand names - this is one of the most high-profile deals to date involving a foreign utility.
In September 2001 Endesa Italia, in which the parent company owns a controlling 51% stake, bought Elettrogen - one of the three generation companies divested by Enel following the Bersani decree opening Italy's power markets to competition. This acquisition established Endesa as Italy's third-largest generator, with an installed capacity of 5.7GW.
While much of Endesa's Italian output is sold on the regulated market under long-term contracts inherited from Enel, the company is actively recruiting large end-customers in the liberalized sector. In this respect, Endesa is far from being unique. Several other large foreign utilities have been winning business among Italy's major power users, including France's EdF, Germany's E.On and EnBW, Switzerland's EGL and Austria's Verbund (a co-owner of Energia).
Datamonitor's Italian Major Energy User survey, conducted at the end of 2002, reveals that between 15-20% of the country's eligible electricity customers view one of the foreign utilities as their preferred supplier, and are likely to switch when their current contracts come up for renewal.
Large Italian power users are attracted to foreign utilities not only by their perceived price advantages, but also due to their greater experience of serving major customers in a competitive environment. Many users feel that incumbent suppliers do not provide the levels of service that they deserve, with an average customer satisfaction rating of only 88% (where a 100% score indicates a match between customer expectations and supplier performance).
According to Datamonitor's estimates, approximately E2.5 billion worth of power supply business is expected to change hands within the next 12 months. Unless incumbent suppliers shake off their complacency, much of that business will be taken by their foreign-based competitors.
Related research: Datamonitor, "Competitor Tracking: Customer Acquisition in Italian Power Supply" (DMEN0240)