ENERGY U/S CARD VISIT HIGHLIGHTS BILATERAL ENERGY

1. SUMMARY: Department of Energy Undersecretary Robert Card
stopped in Rome December 10 to meet with key Italian energy
sector officials, en route to the COP-9 conference in Milan.
Key issues discussed included generation choices, gas supply,
greenhouse gas emissions, dependency on energy imports and the
absence of nuclear energy production in Italy. Card also
raised similarities between the two recent blackouts in the
U.S. and Italy. Italian energy officials underscored Italy's
excessive dependency on electricity imports and indicated that
while plans are underway to add new conventional power plants
to the national grid, they believe that nuclear energy would be
the most practical way forward. However, they conceded that
popular opposition makes this unlikely for the forseeable
future. END SUMMARY.



2. On December 10, U/S Card met separately with Massimo Romano,
Director of Institutional and International Affairs for Italian
energy producer ENEL; Carlo Bollino, the Chairman of Italy's
national power grid operator; GOI Ministry of Industry U/S
Giovanni Dell'Elce; and with the Chairman-elect of the Italian
Energy Regulation Authority Alessandro Ortis.

ENEL, THE ELECTRICITY PRODUCTION CONGLOMERATE


--------------------------





3. Romano indicated that ENEL is planning to increase its
domestic production/generation capacity, but also emphasized
that Italy is now, and will remain heavily dependent on, energy
imports. Romano indicated that construction of new plants is
very difficult, as the NIMBY (Not-In-My-Back-Yard) problem is
hard to overcome. Regarding natural gas, ENEL expects to
benefit from new supplies from Algeria. According to Romano, it
will be very difficult and expensive for Europe to implement
the emissions reduction standards specified by the Kyoto
agreement. U/S Card and Romano also discussed recent blackouts
in the U.S. and Italy, stating that both were the result of
operational failures rather than systemic or technical
breakdown. Romano maintained that the principal cause of
Italy's blackout lay with the Swiss electrical grid operator
and its connection to the Italian grid.

GRTN, THE NATIONAL GRID OPERATOR


--------------------------





4. Bollino provided U/S Card with greater detail regarding the
Italian blackout. He, too, maintained that the principal cause
of the blackout was the slow reaction of the Swiss operator.
Bollino asked U/S Card for his opinion regarding Italian
requests to the Swiss operator to implement a protocol
providing better cooperation. U/S Card suggested that the
answer might lie in the extensive modeling and simulation of
systems, as occurs in the U.S. Card and Bollino also discussed
at length Italy's decision to do away with nuclear energy
production in the late 1980s. In Bollino's view, this decision
heavily penalized Italy, by depriving it of the cleanest and
most cost-effective source of energy and forcing Italy to rely
too heavily on energy imports. Bollino, a nuclear engineer,
does not envision a return to nuclear energy in the foreseeable
future because of negative Italian public opinion. He hopes,
however, that Italy can still take a leadership role in nuclear
research.

GOI MINISTRY OF INDUSTRY


--------------------------





5. U/S Dell'Elce, U/S Card's GOI counterpart, and his staff
described ongoing liberalization in Italy. Italy considers
reducing dependency on energy imports a national security
issue. The GOI plans to increase electrical production by
12,000 Mgwts over the next 3-5 years, thus reducing imports by
20 percent. While the GOI also recognizes that nuclear energy
is not an option in the foreseeable future, it is looking at
opportunities to create nuclear plants abroad. (Note: The bulk
of the energy Italy imports from France happens to be nuclear
energy. End note.) Regarding power plants driven by liquid
natural gas, Dell'Elce said that Italy faces a NIMBY problem.
However, two new plants are scheduled to be built and come on
line within the next five years.

ITALY'S NATIONAL ENERGY REGULATORY AUTHORITY


--------------------------





6. Energy Authority Chairman-elect Alessandro Ortis told U/S
Card that a new law will soon better define the division of
powers between the Energy Authority and the Ministry of
Industry. This division is currently vague and has often been
the source of friction between the two entities. Ortis
considers his principal goals as incoming Authority Chairman to
be enhanced security of the energy supply, creation of a


competitive energy market, and respect for the environment.
Ortis hopes that future blackouts and other energy
inefficiencies in Europe will be prevented by increased
information exchange among EU operators, as currently each
country is responsible for its own system and there is little
or no international coordination. Ortis also voiced his
disappointment that popular opposition prevented "rational
consideration" of the nuclear option in Italy. While short-
term energy supplies were also vital, Ortis is concerned that
ignoring the nuclear option contributed to a lack of critical
long-term energy planning.

A FOLLOW-UP INVITATION


--------------------------





7. U/S Card extended an invitation to Bollino, Ortis and
Sergio Garribba (incoming Director General for Energy at the
Ministry of Industry) for an informal late-January
brainstorming session in Washington. (Note: Garribba will
enter the position Ortis has just vacated when he moved on to
his new job at the Energy Regulatory Authority. End note.)
Bollino and Ortis have accepted in principle, and Bollino's
office has already been pursuing the matter with Embassy's Econ
section. They would like U/S Card to consider January 26 as a
possible date for the meetings and envision a one and one-half
day event to include high-level policy meetings as well as
technical meetings.

COMMENT


--------------------------





8. In addition to concerns regarding Italy's excessive
dependence on energy imports and the NIMBY problems, one common
theme throughout the meetings was the private frustration of
Italian energy officials over the inability to overcome public
opposition to nuclear energy. In this respect, it is
interesting that the three new key players in the Italian
public energy sector - Bollino, Garribba and Ortis - are
nuclear engineers by training. While we do not expect a change
in Italian policies relating to nuclear power generation in the
immediate future, we envision that active research will
continue. These officials may try to influence longer-term
momentum and public opinion aimed at reevaluating the role of
advanced nuclear energy in Italy's future. END COMMENT.

Skodon


NNNN
2004ROME00043 - Classification: UNCLASSIFIED