Eni outperforms the competition in a declining Italian electricity market
29 October 2013, Gas, Electricity
Datamonitor's recently published "Structural Balances of Key Power and Gas Retailers in Italy" highlights that Eni is performing well with this strategy, having seen free market electricity sales grow by over 5% from 27.8TWh in 2010 to 31.8TWh in 2012.
However, although it may seem a simple strategy, Eni could run into a number of stumbling blocks. Firstly, electricity demand is falling within Italy, mostly due to the wider economic climate, with total demand down 3% in 2012. In these conditions, suppliers generally revert to customer retention strategies, so it becomes even more difficult and expensive for new entrants (or incumbents with growth strategies) to prise away customers.
Secondly, the largest electricity supplier, Enel, still has the majority of its customer base under the "enhanced protection" banner, which means they are residential or SME customers that have never changed supplier since market liberalization. In other words, they are the most "sticky" of customers.
Lastly, Enel's generation portfolio includes several coal assets, which can produce electricity far more profitably than Eni's wholly gas portfolio. In 2012 global gas prices stayed strong compared to coal, driven by demand from Japan in particular, which still has to import huge quantities of gas to generate power post-Fukushima. On the other hand, coal prices are relatively weak, with the US exporting to global markets with its plentiful supply of shale gas. This means that Eni will find it more difficult to compete on price given the differing generation costs of the two fuels.
However, despite these apparent obstacles, Eni was the only major supplier to increase electricity sales in 2012. Where Eni seems to have triumphed is in marketing initiatives. Offering deals such as special "web prices" for switching online encourages customers to complete the switch in an instant. Despite Eni's success to date, with Enel still retailing over 60TWh of electricity to enhanced protection customers in 2012, there is still a huge segment of the market that must adapt its views towards switching before Eni can truly mount a challenge.
Datamonitor's "Structural Balances of Key Power and Gas Retailers in Italy" (EN00016-004) will be available on the Knowledge Center as an Excel databook containing gas and power retail sales, generation output, and capacity as well as trade requirements from 2010 to 2012.
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