Corrected Copy: Italy Rethinking Nuclear

UNCLAS ROME 001807

SIPDIS


E.O. 12958: N/A
TAGS: ETRD ENRG IT ITALIAN POLITICS
SUBJECT: Corrected Copy: Italy Rethinking Nuclear
Energy Policies


Summary
--------------


1. A surprisingly vigorous debate has emerged in Italy on
renewing nuclear power generation, following comments by
Prime Minister Berlusconi and others. While Italy's
geography limits sites for nuclear plant construction,
Embassy energy sector contacts maintain that Italy must
reconsider its 1987 ban on nuclear power generation because
high energy costs are reducing the country's economic
competitiveness. While this debate is unlikely to lead to a
full blown civilian nuclear program anytime soon, Italy has
already begun rebuilding its nuclear expertise (largely
lost after the 1987 ban) and is re-engaging in research,
including teaming up with France's EDF in an advanced
research program. Moreover, through parastatal electricity
conglomerate ENEL, Italy is investing in nuclear plants
abroad. Strong GOI support would be necessary to launch a
full nuclear program, since the private sector is unlikely
to take on the daunting political and economic risks. The
current center-right government supports a rethinking of
domestic nuclear power generation, while the center-left
opposition largely opposes the idea. However, our contacts
maintain that even if the centre-left opposition were to
return to government, Italy's re-engagement in nuclear
programs will not stop. End summary.


Background
--------------


2. A 1987 national referendum had the practical effect of
banning nuclear power generation in Italy. All four
existing nuclear plants were closed down and all nuclear
research projects, in which Italy reportedly excelled, came
to an end. Italy had a solid base of recognized, top-notch
nuclear engineers and first-class university nuclear
engineering programs. Since 1987, however, almost all such
expertise has been lost. Broader research projects spurred
by nuclear research also came to a halt.

But Senior Officials Are Now Open to the Idea
-------------- -


3. Somewhat surprisingly, after PM Berlusconi expressed his
personal support for reintroducing nuclear energy earlier
this year, a vigorous debate has opened in Italy. Italy's
Energy Authority Chief Alessandro Ortis (a nuclear
engineer) seconded the PM's opinion and said that nuclear
energy could help with Italy's electricity prices (among
the most expensive in Europe) by bridging the gap between
domestic energy production and domestic consumption. Ortis
also argued that its high electricity prices made Italy
less competitive industrially than many of its EU partners,
citing France (where nuclear energy is widely produced) as
a prime example. Ortis and many other supporters of
nuclear energy generation also underscore that French
nuclear plants are so close to the Italian border that
opposition based on safety considerations is a very weak
argument.

Public Perception Has Changed
--------------


4. Our Energy Authority contacts argue that, when nuclear
power was banned in 1987, Italians did not have an economic
perception of the energy sector, but were focusing only on
the safety aspects, given the then-recent nuclear accident
at Chernobyl. Today, politicians and consumers are more
aware that the price and availability of electricity are
key to economic growth and that Italy is excessively
dependent on electricity imports. A recent poll indicated
that public perception has indeed changed: most Italians
now believe nuclear power plants would be much more secure
than 20 years ago, and 63 percent of Italians would not be
against rethinking the 1987 decision.


5. Our contacts at the Ministry of Productive Activities
(MPA),which has the lead on GOI energy policies, believe
that a full return to nuclear power generation in Italy
would be very difficult, but perhaps not impossible.
Making the correct decision would entail considering
nuclear power generation from many perspectives:
economic/industrial, social, political, technological,
environmental, and financial.

Italy Needs a Comprehensive GOI-financed Program
-------------- --------------



6. Regarding economic/industrial considerations, Italy
would need a comprehensive strategy to construct more than
several plants, since it would not make economic sense to
build one or two plants only. Our contacts indicate that
Italy would need eight to ten years to build even one
nuclear plant (including the time necessary both to gain
approval and to construct the facility). Building a
nuclear plant is not only expensive, but requires a large
up-front investment, with profitable returns coming only in
the long run. Our contacts thus believe that it is very
unlikely that the private sector would finance and take on
the risk of such investment. They conclude that a nuclear
power generation program would only be possible with direct
GOI investment and government guarantees of private sector
investment. The GOI would need to contribute to funding:
1) plant construction; 2) adequate security maintenance;
and ultimately 3) appropriate dismantling of nuclear
plants. A very strong central government role would be
needed. Thus, our contacts believe, if Italy continues to
decentralize and devolve more powers to Italy's regions
through constitutional reform, it will be very hard to
program a nuclear "revival."

An Alternative to Oil Must Be Found Very Soon
--------------


7. That said, there is a strong lobby in support of
nuclear power generation in Italy. Many nuclear engineers
hold key energy sector jobs. The head of the Energy
Authority, two other Energy Authority commissioners, and
the very influential Director General for Energy at the
MPA, Sergio Garribba, are all nuclear engineers. Similarly,
many economists are calling for reconsideration of nuclear
power generation in Italy.


8. Our contacts also argue that Italy, in particular, but
also Europe more generally, will soon be confronted with
the increasing costs and possible scarcity of oil as demand
from India and China grows sharply. This reality could
force Italy to seriously pursue nuclear power generation.
Timing is key, our contacts believe, with no more than 10-
15 years before an oil crisis hits the country. The
alternative to nuclear, in their view, is coal energy
generation. Coal has an advantage over oil in that clean
coal technology is advancing rapidly; it is also widely
available in many different parts of the world. However,
such technology is still expensive and considerable
problems remain regarding CO2 emissions, "which brings us
back to nuclear," said one of our contacts.

Not in My Back Yard
--------------


9. Decision-makers will obviously need to consider the
social implications of reviving the nuclear option. Energy
Authority officials note that ubiquitous NIMBY-ism ("not in
my backyard") in Italy is possibly the biggest hurdle to
overcome. Italy's geography -- a long, narrow peninsula,
with a backbone of mountain chains and densely inhabited
coastline -- limits the number of suitable power plant
locations. It would be very difficult to find the many
locations needed for a comprehensive program without
encountering vigorous citizen resistance. One idea
circulating is to exempt those living in the communes where
the plants would be built from paying electricity bills.


10. Another idea EU circles are reportedly discussing is
creation of an EU nuclear holding company to acquire all
nuclear energy produced in different parts of Europe and
redistribute the energy as necessary, thus creating a
European level base load which would do away with national
monopolies' interests (at least regarding nuclear energy
generation). However, our contacts believe it would be very
difficult (and impossible in the short term) to obtain the
agreement of all EU member states on this, especially as
some (particularly France) wish to maintain their
competitive advantage over other EU countries.


Investment Abroad; Research Is Already Underway
-------------- ---


11. From a political perspective, our contacts believe
Italy will have the political capital to reinvigorate the
nuclear option only if the current center-right governing
coalition wins the next national elections, due by spring

2006. Should a center-left coalition win the 2006


elections, it would not be able to advance a nuclear
program, as resistance from parts of its coalition (e.g.,
the Greens) would be too strong to overcome (although many
among its ranks see the advantages of nuclear electricity
generation).


12. Before the elections take place, one possible strategy
is to allow ENEL, Italy's state-controlled electricity
conglomerate, to regain expertise and re-build its
"muscles" during the remainder of this legislature, mainly
by purchasing power plants and participating in research
projects abroad. ENEL is already far along in discussions
with France's electricity monopoly EDF on becoming a
research partner to develop the next generation of nuclear
reactors in France. Fifty ENEL engineers are reportedly
already working on the project. (Note: Such a partnership
would be part of a larger agreement allowing EDF to expand
into Italy and allowing ENEL to acquire a percentage of the
French electricity market). Another sign of Italy's re-
engagement in long-term research is that the national
research center ENEA reportedly is regrouping nuclear
engineers who had been diverted to other functions. Also
Italy's Ministries of Productive Activities and the
Environment signed with the U.S. Department of Energy an
agreement May 17 on nuclear waste management technologies.


13. The 2004 Marzano law (named after former MPA Minister
Marzano) now allows Italian companies to invest in nuclear
plants abroad (the 1987 referendum prohibited such
investments). ENEL, Italy's state-controlled electricity
conglomerate, has already purchased two plants in Slovakia,
and engineering company Ansaldo is participating in the
construction of plants in Romania and Bulgaria. These were
described to us as investments of minor economic relevance,
but of strong political significance. Our contacts believe
that even a center-left GOI would not stop investment
abroad or research programs here in Italy.


14. Separately, supporters of nuclear power generation
also face resistance from Italy's parastatal oil and gas
conglomerate ENI. ENI is said to be lobbying hard against
ENEL's reopening the "nuclear file," since pursuing a
nuclear option would reduce both ENI's market and its
political clout.

Comment
--------------


15. In discussing the possibility of Italy's "rethinking
nuclear" with Italian experts, we found strong support for
the idea and, further, that such elites view nuclear power
generation as the most desirable alternative to oil-
generated electricity. However, these experts also believe
that the public is still not ready for a full-fledged
nuclear program in Italy. Nevertheless, the issue is
reemerging as a legitimate topic among many Italians,
especially after the countrywide electricity blackout in
September 2003 cemented the public perception that Italy
has become excessively dependent on foreign electricity
imports.


16. We share the view that it is highly unlikely Italy will
launch a full-fledged nuclear power plant construction
program in the short term. Even should the 2006 election go
to the center-right, it is not certain that a decision to
reinvigorate nuclear energy could overcome major political
and social resistance.


17. However, the parameters of discussion have widened
sufficiently to allow for various options to be discussed,
with the likelihood in the short-to-medium term that
nuclear energy research will be revived in Italy and that
there will be increased Italian investment in nuclear
energy projects abroad to diminish Italy's dependence on
foreign-owned (although not foreign-produced) electricity.
Even if the GOI were to shift to the center-left, we judge
that Italy is likely to increase its engagement in nuclear
power generation abroad. It is now evident to most Italians
that, if nuclear power cannot be produced at home, Italy
will need to purchase power from nuclear plants abroad.
End comment.

Sembler


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2005ROME01807 - Classification: UNCLASSIFIED