in the Italian power system Alberto Gelmini*, Michele Benini*, Marco Borgarello* EEM 09 – 6th International Conference on the European Energy Market Leuven, Belgium, 27-29 Maggio 2009 * ERSE SpA Aim of this paper is to assess the impact, in terms of economic and environmental costs and benefits, of the penetration of Distributed Generation in the Italian power system. The assessment is carried out from the overall system point of view, by means of a scenario analysis, using MATISSE, a multi-regional model of the Italian power system developed by CESI Ricerca. MATISSE, based on the MARKAL-TIMES model generator provided by the Energy Technology Systems Analysis Programme (ETSAP) of the International Energy Agency (IEA), can combine the energetic, socio-economic and environmental constraints of scenarios set up by the user to determine the optimal configurations (in terms of least overall cost) of the power system, both on the demand side, making compete different end-use technologies to provide the required energy services, and on the supply side, making compete the different generation technologies available to meet demand, over a time horizon that extends to 2030. In this study, we take into account a “base” scenario, where we model the development of Renewable Energy Sources (RES), according to a conservative estimated potential and to the incentive schemes currently in force in Italy. Then, we compare with the “base” scenario two additional scenarios where: • we let MATISSE install (if deemed cost-effective 1 ) mini Combined Heat and Power (CHP) plants (size lower than 10 MVA) till an estimated potential in the industrial, tertiary and residential sectors; • we force MATISSE to install mini-CHP plants in the aforementioned sectors till to saturate all the estimated potential. The study shows that in the “base” scenario, Renewable Energy Sources, most of which can be considered as “Distributed Generation”, can develop till the estimated potential, keeping the amount of incentives within acceptable levels, basically due to the high fossil fuel prices we assumed, that reduces the cost gap between RES and fossil-fueled generation technologies. As far as mini-CHP plants are concerned, to force the installation of all the available mini-CHP technologies to saturate all their potentials is not the best choice. In particular, Stirling engines are never considered cost- effective in the tertiary and in the residential sectors, while micro-turbines and internal combustion engines in such sectors and steam cycles in the industrial sector are considered cost-effective only after 2020, when growing fossil fuel and CO 2 emissions allowance prices sufficiently penalize bulk generation plants. Moreover the use of mini-CHP plants (both optimal and forced) cannot significantly reduce the overall CO 2 emissions (w.r.t. the “base” scenario, where the co-generated heat is assumed to be produced by conventional gas fired boilers). Anyway, since they are small plants, their emissions are not subject to the constraints in force in the European Emissions Trading Scheme, therefore their use allows for a reduction of ETS CO 2 emissions of 5÷10 Mt/year along the considered time-horizon, with a significant economic saving. With the optimal mini-CHP development, such saving, together with a lower system gas consumption, allows for an overall annual saving w.r.t. the “base” scenario that can grow to about 800 M€ in 2030. 1 As above stated, cost-effectiveness is evaluated at system-level, and not by assuming the point of view of a single investor who decides to build a plant of a specific technology.