Global economic conditions can significantly impact the Group’s activities due to their direct effects on the growth rates of the national GDPs of the countries in which it operates. In recent years, the stability of the euro area has been shaken by a number of adverse events, such as the COVID-19 pandemic, which has produced significant disruptions in supply chains and prompted the imposition of restrictions on economic activities, and the more recent military conflict between Russia and Ukraine. Since the economies of the euro area are among the most highly exposed to these hostilities due to their geographical proximity to the conflict area and their heavy dependence on gas imports from Russia, they have been heavily impacted both in terms of the slowdown in GDP growth and the high level of inflation. The latter was initially driven by the exponential increase in energy and commodity prices. Subsequently, the transfer of the higher costs of firms’ production factors to the prices of non-energy industrial goods generated persistent inflationary pressures, which remain a risk factor that requires careful monitoring. The increase in inflation is eroding the purchasing power of households and weighing on industrial production. In response to these inflationary pressures, the European Central Bank (as well as most of the central banks of the advanced and emerging economies) has adopted a restrictive monetary policy stance, which, if it should be tightened and prolonged, could have significant impacts on economic activity and the financial stability of the euro area.
The year 2023 will once again be marked by the evolution of events connected with the military conflict between Russia and Ukraine, with direct impacts on geopolitical and social stability on a global scale. The world context is involved in and impacted by the evolution of the military conflict, which is still causing serious social and economic consequences for the countries directly or indirectly involved. Tensions between countries have increased over the last few months, exacerbated by the fact that there is no obvious end in sight for the Russia-Ukraine conflict and the emergence of strains in Asia and other parts of the world.
On the trade front, sanctions are still in place on international trade that are influencing trade agreements between countries and industrial policies in various regions: the introduction of any new customs duties or restrictions on exports could further aggravate the current macroeconomic environment and make geopolitical conditions even more uncertain.
The main risks in respect of energy commodities primarily regard the reduction in the supply of gas to Europe. With the deterioration in relations with Russia, all of Europe’s other supply channels have become even more strategic, and any discontinuity would further drive expectations for higher gas prices. This increase would also involve coal and electricity prices, which are strongly correlated with trends in gas prices. A further source of uncertainty is the possible increase in Chinese gas demand, which could attract the supplies of LNG currently sold in Europe. The recovery of Chinese economic activity could also have repercussions on the oil market, although this could be mitigated by the possible purchase of incremental volumes directly from Russia.
The current geopolitical context will also continue to influence demand in the industrial metals sector, which is affected by the prospects of a slowdown in global economic growth and by the prolonged political and military tensions. In particular, in China, despite expectations for an upturn in demand following the post-COVID reopening of the economy, the recovery in demand in 2023 will be slow and irregular, and will greatly depend on the effect of government stimuli. Specifically, in the construction sector demand is only expected to rise starting from the second half of the year. As regards metals used in renewable energy technologies, such as metals for batteries and polysilicon, current conditions remain colored by uncertainties about the management of Chinese and global supply chains, which will continue to influence prices in the near future. Renewed strains are also expected to emerge for more energy-intensive metals, such as aluminum and steel, the prices of which remain closely linked to developments in the energy markets and the underlying geopolitical dynamics. 

The global macroeconomic environment in 2022 was characterized by a broad slowdown in the real economy, with estimated world GDP growth of around 3% on an annual basis, following the sharp post-pandemic recovery of around 6% the previous year. High levels of inflation quickly and unexpectedly impacted global economies, forcing central banks to take rapid action to adopt restrictive monetary policies, exacerbating financial market conditions. High inflationary pressures on a global scale have been driven both by demand-side pressures generated by earlier central bank measures to accommodate the recovery during the pandemic crisis, and by significant distortions in supply chains that have reduced the supply of goods. Furthermore, the military conflict between Russia and Ukraine, and the resulting global uncertainty this has engendered, has significantly impacted the energy, commodity and food markets, with direct repercussions on the prices of final consumer goods and even more evident consequences for the European energy sector, which has been directly affected by fluctuating gas supplies and consequent impact on expectations of market operators.
In the United States, strong domestic demand generated by the resilience of the labor market and high wage levels, together with a rise in energy and food prices, drove inflation on an annual basis to record levels (8%), values that had not been registered since 1981. To respond to these unsustainable inflationary pressures, the Federal Reserve reacted by implementing a restrictive monetary policy stance with numerous large increases in policy rates. However, these inflationary dynamics, accompanied by restrictive financial conditions, weighed on US economic performance, which saw GDP grow by 2.1% on an annual basis. In the euro area, macroeconomic conditions changed substantially between the 1st and 2nd Quarters, recording estimated GDP growth of 3.3% on an annual basis. In the first six months, the economic recovery exceeded expectations, supported by a strong recovery in consumption and private investment in response to the relaxation of the restrictions imposed during the pandemic. In the following six months, with the rise in uncertainty in connection with the military conflict between Russia and Ukraine and the sudden increase in energy prices, the European economies recorded a significant slowdown. The euro area has been impacted more significantly by the armed conflict than the United States due to its greater geographical proximity and heavy dependence on Russian gas. The latter factor has contributed significantly to the surge in uncertainty in the European energy markets. Finally, in response to the growing inflationary pressures (inflation stood at 8.4% on an annual basis), after more than a decade of interest rates close to zero, the European Central Bank also swiftly decided to adopt a restrictive monetary policy with repeated increases in its policy rates. This has caused financial conditions in the markets to deteriorate.
In Latin America, the first half of the year saw a significant recovery in private consumption demand for goods and services, supported by a recovery in the labor market and the substantial fiscal support provided by governments in response to the pandemic crisis. Conversely, in the second half of the year, macroeconomic conditions were characterized by the restrictive monetary policy stances adopted by the national central banks, which dampened the economic recovery. The economies of Latin America have been impacted by the rapid surge in the international prices of energy and agricultural commodities, mainly reflecting the military conflict between Russia and Ukraine. In Brazil, the economic recovery in 2022 saw GDP growth outpace expectations at an estimated 3% on an annual basis, driven by robust domestic demand supported by significant social transfers from the government and by an improvement in job growth. However, the final quarters of the year were impacted by growing inflationary pressures (inflation rose to 9.3% on an annual basis) induced by a generalized increase in commodity and food prices, forcing the central bank to roll out a rapid series of restrictive monetary measures, which have had a negative impact on the growth outlook for this year. Furthermore, the possibility that the newly elected president Lula could reverse the economic policy direction adopted by the previous Bolsonaro government, the delay in the approval of structural reforms, together with the intensification of social protests, all raise uncertainties about the actual speed of recovery in the short term and the country’s fiscal strength and long-term economic growth potential. In Chile, economic growth was more moderate in 2022, coming in at 2.8% year-on-year after the strong 11.9% increase the previous year. Last year, the Chilean government did not retain many of the generous fiscal measures implemented the previous year, which had enabled the economy to perform beyond its potential. Furthermore, growing inflationary pressures, with annual inflation reaching 11.6%, followed by a deterioration in local and global financial conditions, had a negative impact on private consumption and investment. In Colombia, the real economy continued to perform well, with GDP growth estimated at 7.8%, after the 10.7% rise recorded the previous year. However, the resilience of private consumption and investment was tested, especially in the second half of the year, by a broad increase in prices, with annual inflation amounting to 10.2%. For the Peruvian economy, the growing inflationary pressures resulting from the increase in the prices of agricultural and energy goods (the annual inflation rate stood at 7.9%), the more restrictive monetary conditions adopted by the central bank and the considerable political uncertainty linked to the agenda of President Castillo (replaced in December by Peru’s first female president, Boluarte) contributed to a deceleration of the country’s real growth, with GDP growth expected to come to 2.9% on an annual basis. After a strong rebound in the real economy in 2021, Argentina registered estimated GDP growth of 5.4% last year. The agreement with the International Monetary Fund has reduced various uncertainties concerning short-term macroeconomic policies. However, steadily rising inflation during the year (to an annual 70.7%) and the divergence between the official exchange rate and the parallel exchange rate had a major impact on the country’s consumption, private investment and foreign attractiveness.

The European gas market experienced high volatility in 2022, reflecting the outbreak of the Russia-Ukraine conflict and the consequent deterioration in relations between the European Union and Russia. On average, the TTF benchmark price rose by more than 160% compared with 2021, reflecting the uncertainty about gas flows from Russia, which gradually dwindled over the course of the year until the closure of North Stream 1, the main pipeline serving the European market, at the beginning of September. Record prices were reached during the year (over €300/MWh in August). 
In order to respond to the crisis, the European Union introduced a series of actions, including minimum storage obligations and gas price caps. The achievement of high storage percentages (above 90%) before the winter season, combined with mild temperatures in November and December, led to a sharp reduction in European gas prices in the final months of 2022.The rise in gas prices, combined with various bottlenecks along the value chain, in turn led to an increase in coal prices, which in 2022 reached an average of $290 a ton. High gas prices have made coal-fired generation more attractive, increasing its consumption.

In the first part of 2022, the oil market saw substantial increases in its price indices, reflecting optimism for the recovery of economic activity in a context in which supply appeared to be growing more slowly than demand. During the first half of 2022, the price of Brent, the European oil benchmark, repeatedly exceeded $120 a barrel, recording an average value of $104 a barrel. Starting from July, however, prices began to reverse their trend, reflecting softer demand due to the slowdown in economic activity. The average Brent price was around $99 a barrel in 2022, a 39% increase on 2021.

CO₂ prices in the ETS also rose, increasing by more than 50% on the previous year, despite the adverse impact on the index of the slowdown in economic activity in the 4th Quarter. In general, despite some uncertainties about the regulatory future of this commodity, in 2022 the European Union confirmed that the ETS is the main policy tool available in the fight against climate change. This made the commodity very resilient to market shocks, as already observed in previous years.
As happened in 2021, 2022 was also characterized by strong volatility for the metals sector, albeit with clearly different dynamics. The first half of the year, with the outbreak of the conflict between Russia and Ukraine, experienced sudden price spikes, mainly for metals such as aluminum and nickel, driven by fears of possible critical supply issues and by general strains on commodity markets. Conversely, in the second half of the year concerns about short-term growth prospects dominated.
In 2022, China was once again a protagonist in influencing the balance of the energy and commodity markets. In the first few months of the year, critical supply chain issues dominated, with the closure of Chinese ports, both inbound and outbound, as COVID management problems persisted, which pushed container and international freight prices to record levels, thereby weighing on the prices of metals. Following the easing of logistical strains, fears of a slowdown in growth dampened demand, and therefore prices, for China as well, with difficulties encountered in particular by the construction sector.
Precisely because of its high correlation with developments in economic activity, copper is an excellent example to use in describing the two different price dynamics we witnessed in 2022. Copper prices remained at historically very high levels until June, averaging more than $9,900 a ton over the first five months of the year (from the end of February to April, prices did not fall below $10,000 a ton), before reversing the trend and averaging around $8,000 a ton for the rest of the year (reaching a low of around $7,100 a ton in mid-July, a value not seen since the end of 2020).
As regards the metals used more extensively in renewable energy technologies, such as metals for batteries (lithium) or polysilicon, price dynamics have differed significantly. Following developments in 2021, prices continued to rise throughout the year, driven by market fundamentals, which have remained strained, and in particular by demand from the EV sector and energy in general, which has continued to accelerate, despite global growth fears. For example, lithium carbonate prices in China have averaged above $70,000 a ton, up from around $40,000 a ton in January to around $80,000 a ton in the final months of the year. All this underscores the continuing strength of demand for green technology and related materials, the outlook for which does not appear to be slackening. In the near future, the outlook points to an easing of tensions on the prices of these commodities as well, thanks in particular to the entry of new supplies onto the market.

In Europe, electricity consumption declined in 2022 due to high prices, especially in the industrial sector.
In the first seven months of the year, electricity demand in Italy exceeded that in the same period of 2021. However, it slowed sharply in the latter part of the year due to tensions in the energy markets, in particular the sharp rise in electricity prices, which caused a slowdown in industrial activity and consequently in electricity consumption. Italian electricity demand closed 2022 with a contraction of 0.8% compared with 2021. The decrease recorded in Spain, equal to 2.2%, was larger, due to the slowdown in the industrial and service sectors, combined with milder temperatures. Demand in Romania also fell sharply, contracting by 7.7% compared with the previous year. The countries of Latin America ran counter to the trend, with electricity demand expanding compared with 2021. The growth recorded in Argentina (+6.4%) and Colombia (+4.3%) was particularly strong, while more modest consumption increases were registered in Chile (+2.1%) and Brazil (+0.2%).

Electricity prices in Italy and Spain increased sharply compared with 2021, reflecting the rapid rise in prices on the commodity markets.
In particular, the sharp increase in the price of gas, together with lower hydroelectric generation and extensive maintenance work at French nuclear plants, drove the price of energy in Italy up 140% compared with the previous year. The increase in Spain was more limited (50%), thanks to greater renewables generation and regulatory measures introduced to limit the effects of the increase in gas prices. Consumer prices for electricity also soared compared with 2021 as a result of developments on the energy markets. The table below summarizes final market prices for the main consumption segments.

The steep increase in gas prices and the consequent commitment of the European institutions to reduce consumption of this commodity produced a sharp contraction in demand in the countries most dependent on Russian gas, above all Italy, where consumption decreased by 10% compared with 2021. The decline recorded in Spain was significantly less pronounced (-3.7%), as the ample availability of alternative sources (LNG and gas pipelines from North Africa), combined with the limited interconnection with the rest of the European continent and the policies to control gas prices adopted in advance of other European countries, kept the surge in prices much less explosive.

Compared with 2021, demand in Italy decreased by 10%. Broken down by individual segment, consumption contracted especially sharply in the distribution grids (13.8%), mainly reflecting milder temperatures recorded in the 4th Quarter, and in industry (-15%), in response to the sharp increase in market prices. Smaller, but still significant, was the decrease in the thermal generation segment (-3.1%).

In a year marked by the energy crisis and the military conflict between Russia and Ukraine, which had a significant impact on the context in which energy companies operate, the utility sector displayed broad resilience on the financial markets, partly reflecting the concrete steps implemented over the years to make an active contribution to the energy transition process.
In 2022, the markets and businesses in which the Group is present made progress along the path of the energy transition, while being exposed to greater competition and developments in the technological and regulatory fields, with the timing of these changes differing from country to country.
The business opportunities that the energy transition is generating and the strategic repositioning of certain industries towards greater sustainability mean that the utility sector is exposed to growing competitive pressures. The progress of the energy transition and the achievement of net-zero objectives at the global level depend on imparting a strong acceleration to the decarbonization of the generation mix and the electrification of final consumption.
Competition is rising in the sectors of generation and the marketing of electricity and related services and products, reflecting the strategic repositioning of companies operating in contiguous sectors, such as the automotive industry or digital technologies. While these dynamics will have an impact on the level of competition, they will also offer new business opportunities, new value pools, synergies and potential partnerships.

Defining a solid and resilient strategy is key to fueling the creation of value for all stakeholders. In a complex, rapidly changing world, assessing the evolution of the energy transition process is a fundamental input in the definition of Enel’s strategy. This assessment is particularly critical in the current environment, characterized, as discussed earlier, by growing geopolitical tensions, gas price volatility and supply chain difficulties. At the same time, the objectives of the Paris Agreement require an acceleration of the energy transition, in order to limit the increase in average global warming to 1.5 °C compared with pre-industrial levels. According to the Intergovernmental Panel on Climate Change (IPCC), “any further delay in concerted anticipatory global action on adaptation and mitigation will miss a brief and rapidly closing window of opportunity to secure a livable and sustainable future for all”.⁽⁶⁾ The recent World Economic Forum Annual Meeting⁽⁷⁾ placed the issue of energy transition at the center of action for 2023 and for the rest of the decade, inviting action to be taken on investment capacity, public measures for the implementation of longterm objectives, infrastructure suitable for the transition and implementation of decarbonization paths for firms.

While on the one hand the energy transition is proceeding along a path of disorderly policies (“disorderly transition”⁽⁸⁾) compared with expectations, on the other we are witnessing a convergence of calls for energy security, accessibility and sustainability, which is guiding everyone – political decision-makers, citizens and companies – in the same direction: towards an acceleration of the clean electrification process. In particular, the Russia-Ukraine conflict could produce an acceleration in the electrification of consumption and the development of renewables for reasons of energy efficiency and security. According to the International Energy Agency (IEA),⁽⁹⁾ we are at a “historic turning point towards a cleaner and more secure energy system thanks to the unprecedented response from governments around the world” to the energy conflict and crisis, including the Inflation Reduction Act in the United States and REPowerEU in the European Union, which add to the renewable energy achievements and targets in countries such as China and India.

The consequence has been an acceleration of the energy transition, evident in the results achieved in recent years and in the advancement of new policies. Additional renewables capacity had set a new record in 2021, increasing by 6% to nearly 295 GW. Growth expectations for 2022 and 2023 have again been revised upwards – despite supply chain challenges, construction delays and higher commodity prices than in the past – bringing expected additional renewables capacity to 320 GW (+8%), thanks to strong political support in China, Europe and Latin America. Photovoltaic power is expected to account for 60% of the increase in global renewables capacity this year, with 190 GW entering service, a 25% increase over last year.⁽¹⁰⁾ Furthermore, high energy prices have underscored the advantages of greater energy efficiency and are leading to policy and behavioral changes to reduce energy consumption, including through the electrification of final consumption (the demand for primary energy is decreasing thanks to the extraordinary efficiency of electricity as an energy vector). The global economy used energy 2% more efficiently in 2022 than in 2021, with a rate of improvement nearly four times higher than in the previous two years. Global investments in energy efficiency – such as building renovations, public transport and electric car infrastructure – increased by 16% in 2022 compared with the previous year.⁽¹¹⁾

Electric mobility has also surged: the number of electric cars in circulation tripled in just three years, reaching over 16.5 million in 2021, with a major increase in sales in China, Europe and the United States, supported by ambitious policies (for example, in Europe the “Fit for 55” package sets a goal of reaching 100% electric vehicle sales by 2035).⁽¹²⁾ Even emerging markets registered substantial growth in 2021, including Latin America, where Chile in particular has set ambitious goals for the penetration of electric mobility.⁽¹³⁾
The transition, therefore, is shifting gears, as is clear in the recent projections for the global energy system produced by the IEA. For the first time, an IEA current policies scenario (STEPS) sees a peak or plateau for all fossil fuels, associated with an increase of about 2.5 °C in global average temperature by 2100. The Announced Policies Scenario (APS) – which is more ambitious than the current policies scenario because it includes climate targets that have been announced but not yet implemented by states, as well as sectoral commitments for specific industries and corporate targets(14) – shows an increase in global average temperature of around 1.7 °C, which is compatible with the Paris minimum targets, while not reaching net zero by 2050 globally. Although the APS scenario raises hopes for the evolution of our energy system, there is still a large gap between today’s ambitions and holding the temperature increase to below 2 °C. This gap is largely connected with the need to introduce measures to implement the long-term objectives, with a view to increasing both the development ⁽¹⁴⁾ Sector commitments for specific industries and corporate targets were first included in the APS scenario in 2022. of renewables and the rate of electrification of consumption in the short term. This is all the more important with regard to the most ambitious Paris Agreement objective, namely to limit the increase in global average temperature to +1.5 °C, the achievement of which requires governments and firms to expand their decarbonization objectives even further and the public to actively participate in the energy transition process, seeking out increased efficiency and sustainability in energy consumption.

(6) IPCC, 2022. AR6. WGII, Summary for Policymakers.
(7) Davos, 2023.
(8) According to the definition of the Network for Greening the Financial System, 2022. “Scenarios for central banks and supervisors”.
(9) IEA, 2022. World Energy Outlook.
(10) IEA, 2022. Renewable Energy Market Update.
(11) IEA, 2022. Energy Efficiency.
(12) IEA, 2022. Global Electric Vehicle Outlook. (13) The National Strategy for Electromobility sets the goal of 100% zero-emissions vehicles in sales of light-duty vehicles by 2030; 100% in public transport vehicles by 2035; 100% for long-haul trucks by 2045.
(13) The National Strategy for Electromobility sets the goal of 100% zero-emissions vehicles in sales of light-duty vehicles by 2030; 100% in public transport vehicles by 2035; 100% for long-haul trucks by 2045.
(14) Sector commitments for specific industries and corporate targets were first included in the APS scenario in 2022.

Enel promotes transparency in its climate-change disclosures and works to demonstrate to its stakeholders that it is tackling climate change with diligence and determination. Enel has publicly committed to adopting the recommendations of the Task force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board and to following all published updates. The Group is also taking on board the “Guidelines on reporting climate-related information” published by the European Commission in June 2019, which, together with the TCFD recommendations and the GRI Standard, constituted the main framework for the Group’s reporting on climate change issues in 2021. Enel has been involved in a working group to develop specific recommendations to support the implementation of the TCFD guidelines concerning scenario analysis. The TCFD Advisory Council worked on the scenarios in 2020 and, since then, Enel has been involved in various initiatives of scenario analysis, sharing our experience in order to support the increasingly widespread and transparent implementation of this practice among a growing number of organizations. 

The Group develops short, medium and long-term scenarios for macroeconomic, financial, energy and climate developments in order to support planning, capital allocation, strategic positioning and the assessment of the risks and resilience of the strategy. Scenario-based planning involves defining “alternative futures” based on a number of key uncertainty variables, such as achieving the goals of the Paris Agreement. Compared with forecasting, scenario analysis provides greater flexibility and enables us to prepare for handling risks and seizing opportunities. The forecasting approach develops projections based on past trends, which therefore do not anticipate changes, nor does it incorporate assessments of risks or uncertainties. The preparation of scenarios allows companies to explore and model plausible alternative futures, designing various paths forward with different timing and options, and ultimately to support strategic decision-making with a view to maximizing opportunities and mitigating risks. This aspect is particularly relevant in the event of potential significant disruptions. 

Within the scope of defining Enel’s scenarios, the midand long-term trends have been identified and analyzed in depth, and the results of this analysis are summarized in an Industry View document for internal use. Designed to support the decision-making process and Strategic Dialogue, this document provides an overview of the structural forces and macro-trends, and the scenario and technology drivers expected to act in the sector in which Enel operates. As a result, it provides a framework for the definition of actions aimed at guiding, preventing, and adapting to changes in our various businesses, as well as at seizing related opportunities.

Benchmarking of external energy scenarios is a key starting point in order to build robust internal scenarios. There are many global, regional and national energy transition scenarios published by various providers and designed for a wide range of purposes, from government planning and policymaking to the support of enterprise decision-making processes. Benchmarking entails analyzing the scenarios produced by the external organizations in order to compare results in terms of the energy mixes, trends in emissions, and technology decisions and to identify the main drivers of the energy transition for each.

Enel’s benchmarking of external energy transition scenarios comprises the following steps.

1. Analysis of the context of global and national scenarios for the countries in which we operate. The analysis of scenarios, as well as the study of reports and datasets, is supported by constant dialogue with the analysts of the main scenario providers, which takes the form of in-depth meetings organized specifically for the Group and peer-review sessions for their main reports.

Global energy scenarios are typically grouped by family based on the degree of climate ambition, as follows:

• Business-as-usual/Stated-policies scenarios: these provide a conservative benchmark for the future and represent how the energy system would evolve in the absence of additional climate and energy policies. These scenarios currently do not manage to achieve the goals of the Paris Agreement.
• Paris-Aligned scenarios: these include a goal of limiting the increase in average global temperatures well below 2 °C above pre-industrial levels. In order to achieve this goal, this family of scenarios consider new, more ambitious policies for the decarbonization, the electrification of end uses and for the development of renewables. 
• Paris-Ambitious scenarios: global energy scenarios that take a path towards net-zero emissions by 2050, in line with the most ambitious goals of the Paris Agreement, i.e., to keep the average increase in global temperatures to 1.5 °C, albeit with various probability intervals. 

This classification of scenario families is, among other things, the outcome of work developed over the years and enhanced in 2021 through collaboration with a working group coordinated by the World Business Council for Sustainable Development (WBCSD), in which Enel participated. The project sought to develop a common and transparent approach to the use of public scenarios by enterprises operating in the energy system and to support them in using the scenarios to assess the risks and opportunities associated with climate developments in a manner consistent with the TCFD. The final result of this effort, completed in August 2022, consists of: (i) a report which provides the context for the energy scenarios and describes the shared definition of the scenario families and (ii) an online platform which brings together the variables of multiple scenarios. 

2. Data collection, data analysis and identification of scenario and energy transition drivers. Data collection involves all the main metrics of the energy system, including, for example: primary energy, total and sectoral final energy, electrical capacity (total and by technology), electricity generation (total and by technology), hydrogen production with breakdown by “color”, electric vehicle fleet, etc. The data analysis gave each provider an understanding of the key elements of the Business-as-usual/Stated-policies scenarios and led to the identification of the drivers for accelerating the energy transition in the Paris-Aligned and Paris-Ambitious scenarios. By way of example, comparing the electrification rate and share of renewables in the various scenarios, the full consensus among energy analysts is clearly that ⁽¹⁵⁾ IEA, 2022, WEO: 52%; IRENA, 2022. World Energy Transition Outlook: 51%. ⁽¹⁶⁾ IEA, 2022. WEO, Net Zero Scenario: 52%; IRENA, 2022. World Energy Transition Outlook: 51%. the main drivers for achieving more ambitious climate objectives are electrifying final uses and increasing renewable generation in both the medium and long term. In particular, in the scenarios that trend towards containing the increase in the global average temperature to 1.5 °C, the electrification rate of consumption rises to over 50% by 2050, compared with 20% in 2021.⁽¹⁵⁾ In addition, the share of renewable generation will have to reach at least 88% of the global electricity mix, compared with 28% in 2021.⁽¹⁶⁾

Source: internal elaborations based on IEA (2022), World Energy Outlook; BNEF (2022), New Energy Outlook; IRENA (2022), World Energy Transition Outlook; Enerdata (2022), EnerFuture.
(15) IEA, 2022, WEO: 52%; IRENA, 2022. World Energy Transition Outlook: 51%.
(16) IEA, 2022. WEO, Net Zero Scenario: 52%; IRENA, 2022. World Energy Transition Outlook: 51%.

3. Preparation of a summary of the data analysis and digital representation of the main metrics of the external scenarios, to provide support for management in the decision-making process for the Group’s scenario framework. The results of the activities discussed above are summarized in a document to support top management. Within the document, the scenarios of the external providers analyzed are grouped according (17) For example, the scenario SSP1-2.6 (which includes the assumptions of the scenario SSP1 and the RCP 2.6 climate forecasts) considers a slower reduction in emissions, reaching net-zero emissions in the second half of the century, and is associated with a best-estimate average increase in global temperatures of 1.8 °C by 2018-2100, with a very likely range of 1.3 °C-2.4 °C. (18) Paris Agreement, published in the Official Journal of the European Union. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:22016A1019(01)&from=EN. to the scenario families described above, with identification for each family of the areas of agreement and divergence among the providers. Together with the digital tools developed internally to visualize the different scenarios, this document provides an information base to support top management in selecting the scenario framework.

An energy transition scenario represents how the contribution of the various energy sources might evolve within a specific economic, social, regulatory and policy context and based on the technology options available. Social and macroeconomic assumptions determine the service demand, while the regulatory, policy and cost restrictions define the optimal mix of technologies needed to meet that demand. Each scenario is associated with a trend in greenhouse gas emissions.
A given long-term result in terms of the global average temperature increase may, on the other hand, be associated with various trends in greenhouse gas emissions and, therefore, to more than one transition scenario. Each energy scenario is associated, more or less strictly, to a specific climate trajectory defined by the Intergovernmental Panel on Climate Change (IPCC) and, consequently, to a range of global average temperature increase estimated to a certain degree of likelihood over a given period of time.(17) In turn, various increases in global temperatures by 2100 (and, therefore, various future scenarios of global warming) also change the trends in the other climate variables (e.g., rainfall, wind, etc.), causing changes in the intensity and frequency of the physical manifestations (e.g., heat waves, extreme rainfall, etc.). It should be underscored that these changes affect the entire globe, but the physical manifestations vary at the regional and local level.

That said, a global energy scenario is said to be Paris aligned when the overall result, in terms of trends in greenhouse gas emissions, may be associated with an average increase in global temperatures that is in line with the Paris Agreement objective of “holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C”.⁽¹⁸⁾

(17) For example, the scenario SSP1-2.6 (which includes the assumptions of the scenario SSP1 and the RCP 2.6 climate forecasts) considers a slower reduction in emissions, reaching net-zero emissions in the second half of the century, and is associated with a best-estimate average increase in global temperatures of 1.8 °C by 2018-2100, with a very likely range of 1.3 °C-2.4 °C.
(18) Paris Agreement, published in the Official Journal of the European Union.
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:22016A1019(01)&from=EN. 

Enel develops scenarios within an overall framework that ensures consistency between the energy transition scenario and the climate physical scenario:

• the “energy transition scenario” describes how energy production and generation evolve in the various sectors in a specific economic, social, policy and regulatory context;
• the issues connected with future trends in climate variables (in terms of acute and chronic manifestations) define the “physical scenario”.

The acquisition and processing of the large volume of data and information needed to define the scenarios, and the identification of the methodologies and metrics necessary to interpret phenomena that are complex and – in the case of climate scenarios – at very high resolution, require a continuous dialogue with both external and Enel internal sources. In order to evaluate the effects of physical and transitional phenomena on the energy system, for example, the Group makes use of models that, for each country analyzed, describe the energy system in terms of specific technological, socio-economic, policy and regulatory aspects.

In 2022, in order to facilitate cross-collaboration at the global and local level in the definition of physical and energy transition scenarios – ensuring constant alignment with the requirements of the TCFD – two internal cross-function communities dedicated to the physical and transition scenarios were established. Their main purpose was to discuss and define context analyses, benchmarks and hypotheses concerning long-term scenarios, identifying the relevant impact categories and developing methods for their evaluation to support the determination of strategic and industrial actions.

The adoption of these scenarios and their integration into corporate processes take account of the guidelines of the TCFD and enable the assessment of the risks and opportunities connected with climate change. The process that translates scenario phenomena into useful information for industrial and strategic decisions can be summarized in five steps:

An energy transition scenario describes how energy production and consumption evolve in a specific geopolitical, macroeconomic and regulatory and competitive context consistent with the available technological options. This corresponds to a certain trend in greenhouse gas (GHG) emissions and a climate scenario and, therefore, a certain increase in temperature by the end of the century compared with pre-industrial levels. It should be noted that the resulting scenario is not deterministic with respect to carbon dioxide emissions. For each climate scenario, the IPCC also always provides both the median value for global warming in 2100 and the very likely range (i.e., the interval covered by the fifth to ninety-fifth percentiles).

The main assumptions considered in developing the Enel energy transition scenarios concern:

• the local policies and regulatory measures to combat climate change, enhance energy security and foster sustainable development, such as measures to reduce carbon dioxide emissions and the consumption of fossil fuels, to increase energy efficiency, the electrification of consumption and the share of renewable generation; 
• the global macroeconomic and energy context (for example, gross domestic product, population and commodity prices), also considering international benchmarks;
• the evolution of energy production, conversion and consumption technologies, both in terms of technical operating parameters and costs. 

In 2022, Enel revised the framework of medium- and longterm energy transition scenarios, defining scenario narratives on the basis of three main scenario “signposts”, i.e., the main drivers of uncertainty with respect to macroeconomic and energy developments: the achievement of the Paris objectives, the evolution of geopolitical tensions connected with the Russia-Ukraine conflict and the management of the COVID pandemic.
The benchmark scenario for the Group’s long-term planning, called the Paris scenario, is therefore:

• a Paris-Aligned scenario calling for achievement of the objectives of the Paris Agreement, i.e., keeping the increase in the global average temperature below 2 °C compared with pre-industrial levels, with a level of climate ambition that is significantly higher than business as usual, but without necessarily assuming the global achievement of the Net Zero 2050 target, given the current global level of cumulative ambition;
• a scenario which assumes that the geopolitical tensions boosted by the Russia-Ukraine conflict will have lasting effects, resulting in an acceleration of electrification and renewables use, as well as greater use of LNG, to increase the security of supply in the new context, especially at the European level;
• characterized by low or endemic COVID, with high vaccination rates and no need for large-scale lockdowns. 

The climate ambition that characterizes the benchmark scenario assumes growing electrification of consumption and further development of renewables, thanks in part to the policies adopted to enhance energy security (e.g., REPowerEU and the Inflation Reduction Act in the United States). In this scenario, governments, businesses, organizations and the public around the world participate effectively in the common effort to mitigate greenhouse gas emissions.
As for the possibility of assuming achievement of the more challenging Paris Agreement objective, i.e., to stabilize global average temperatures to within +1.5 °C, as a benchmark for long-term planning, there remain evident uncertainties that a number of countries could remain on business-as-usual trajectories, thereby slowing the decarbonization process towards net-zero emissions by 2050. Given this premise for the external context, the Enel Group operates a business model and has defined strategic guidelines that are in line with the maximum ambition of the Paris Agreement objectives, i.e., they are consistent with an increase of 1.5 °C in the average global temperature by 2100, as certified by the Science Based Target initiative (SBTi). Enel has set a goal for 2040 to achieve zero direct emissions (Scope 1), with totally renewable electricity generation and zero emissions connected with retail energy sales (Scope 3). 

The assumptions for trends in commodities prices feeding the benchmark scenario are consistent with the external scenarios that achieve the objectives of the Paris Agreement. More specifically, we assume sustained growth in the price of CO2 through 2030, caused by a gradual reduction in the supply of permits as demand increases, as well as a significant decrease in the price of coal due to declining demand. As for gas, we expect pricing pressures to lessen in the coming years as we see a realignment between global supply and demand. Finally, we are forecasting a gradual stabilization in oil prices, with demand expected to peak by around 2030.

Alternative scenarios to the benchmark framework have been defined on the basis of the degree of climate ambition assumed at the global and local level. These comprise: a Slower Transition scenario, characterized by a slower transition speed, and an Accelerated Transition scenario, with greater ambition compared with the benchmark scenario, in particular as regards some certain characteristic features of the energy transition, such as the rate of electrification of final consumption, the penetration of green hydrogen and attitudes of final customers towards more sustainable consumption models (e.g., a modal shift in views of public/private transport). These scenarios are used for determining sensitivities in assessing investments, strategic stress tests, risk assessment and identification of business opportunities.

Enel’s benchmark scenario, the Paris scenario, covers all the geographical areas in which Enel operates and thus has a climate ambition that is in line with the objectives of the Paris Agreement, supported by a growing electrification of energy consumption and the development of renewables capacity. 
The scenarios have been defined at the local level using two complementary approaches:

• in the main countries in which we operate, a “bottom up” approach has been employed, using models fundamental to simulating the long-term equilibrium of the entire energy system, imposing an explicit limit on the trend in CO₂ emissions for the country. The values of the scenario variables of relevance to the activities of the Group (including electricity demand, electrification rates, renewable and distributed-generation capacity, the number of electric vehicles, and the production of green hydrogen) were then calculated using dedicated models over a time horizon to 2050, with a view to minimizing costs for the system, imposing a constraint on CO₂ emissions; 
• for the rest of the countries involved, the main scenario variables were determined by applying statistical analysis to internal and consensus data in relation to external scenarios aligned with the objectives of the Paris Agreement as provided by national and international accredited bodies. 

The definition of internal transition scenarios was prompted by the need for greater modeling flexibility and greater geographical and operational granularity for the main variables that impact Enel’s different businesses compared with the scenarios that the main external providers can provide. The latter are typically produced and published at a global or regional level, with some exceptions for particularly large countries, which only rarely correspond to the countries in which the Group is present or has an interest.

Under the Paris scenario, European countries show a downward trend in emissions consistent with the European “Fit for 55” package thanks to a greater electrification of energy consumption supported by an increasing contribution of renewables in the energy mix.

Italy
In Italy, the Paris scenario, which is more ambitious than the current national plan (National Integrated Energy and Climate Plan 2020), calls for an increase in electrification to 30% by 2030 (as against 22% in 2021), with renewable energy generation meeting more than 70% of electricity demand (compared with about 55% under the Italian national plan). The Slower Transition scenario is constructed on the assumption that we remain substantially anchored to the provisions of the current National Integrated Energy and Climate Plan in terms of the ambition to reduce emissions, a less optimistic macroeconomic scenario than the Paris scenario, especially in the very first few years, and greater pressures of prices and supply of fossil fuels and commodities.
The Accelerated Transition scenario retains the ambition of the Paris scenario with regard to decarbonization while assuming a more effective review of authorization procedures for renewable plants, which produces a slight increase in the trend in installations, a more rapid reduction in the cost of green hydrogen production technologies and the consequent greater penetration of that source in hard-to-abate sectors, in place of blue and gray hydrogen (hydrogen produced from gas, respectively with and without the use of CCS technologies). In addition, the public devotes greater attention to climate change, which fosters greater “climate awareness” in our personal behavior, such as the modal shift in the transport sector (increased use of low-emission transport, e.g., public transport).

Spain
For Spain, the ambition level defined under the national plan is in line with achievement of the Paris Agreement objectives. As such, the Paris scenario calls for an electrification rate of 32% by 2030 (compared with 24% in 2021) and the development of renewables capacity that would bring the percentage of electricity demand met by renewable energy to over 80% (compared with 53% in 2021). By contrast, the alternative Slower Transition scenario assumes a delay in the implementation of policies for greater penetration of renewables and electric technologies, especially as regards private cars. The Accelerated Transition scenario retains the ambition of the Paris scenario, providing for more rapid implementation of authorization procedures for renewables. In addition, the scenario assumes greater incentives for the electrification of buildings and full implementation of the national green hydrogen strategy, which would enable the acceleration of the construction of renewable plants coupled with electrolyzers before 2030.

Brazil
For Brazil, the Paris scenario, which is more ambitious than the current national plan (Plano Decenal de Expansão de Energia 2031, 2022) in terms of emissions reduction, would see an increase in electrification to 25% in 2030 (compared with 22% in 2021), with renewable generation meeting more than 88% of electricity demand (compared with the 82% envisaged in the national plan). The Slower Transition scenario is constructed on the basis of an assumption that emissions will grow in line with the trend in the current national plan, with hydro generation expanding less than new thermal capacity (gas), and a less optimistic macroeconomic scenario compared with the Paris scenario, especially in the very first years. The Accelerated Transition scenario goes beyond the ambition of the Paris scenario as regards decarbonization, assuming an acceleration in the definition of the regulatory framework for the construction of offshore wind farms, with greater exploitation of the potential of this technology, a more substantial increase in the penetration of distributed solar generation and greater development of green hydrogen production technologies.

Chile
As far as Chile is concerned, the Paris scenario is consistent with the Net Zero scenario defined in the government’s PELP document (Planificación Energética a Largo Plazo) in terms of emissions reductions, and includes ambitious targets relating to the production and export of green hydrogen. Similar to the government scenario, it calls for the closure of all coal-fired power plants by 2035 and an increase in the CO₂ tax, achieving high levels of electrification of transport through a ban on the sale of conventional vehicles by 2040 and mandatory 100% electrification of the city bus fleet from 2040.
The Slower Transition scenario takes a more measured approach, focusing on the application of current measures and policies, which are less ambitious than those included in the Paris scenario.
The Accelerated Transition scenario achieves net-zero emissions by 2050 and, compared with the Paris scenario, envisages an acceleration of the electrification of all sectors of the economy, including transport, bringing forward the ban on the sale of conventional vehicles to 2035, setting more ambitious goals for the export of green hydrogen, requiring that 100% of the electricity generation mix be renewable by 2050, phasing out coal by 2030 and raising taxes on CO₂ emissions further.

(19) Calculated using the efficiencies indicated above and the average values for 2021 reported by Eurostat for retail gas and electricity prices, respectively equal to €0.0854/MWh and €0.231/MWh. https://ec.europa.eu/eurostat/databrowser/view/nrg_pc_202/default/table?lang=en. https://ec.europa.eu/eurostat/databrowser/view/nrg_pc_204/default/table?lang=en.

Within the framework delineated above, each scenario narrative has been developed so as to ensure consistency between the energy transition scenarios and the climate scenarios.
Under the scenarios, the role of climate change is always the most important and generates effects both in terms of transitioning the economy towards net-zero emissions and in terms of physical impacts, which may be: 

• acute phenomena, namely short-lived but intense phenomena, such as flooding, hurricanes etc. with potential impacts on assets (e.g., physical losses and business interruptions);
• chronic phenomena related to structural changes in the climate, such as the rising trend in temperatures, rising sea levels etc., which may cause persistent changes in the output of generation plants and in electricity consumption profiles in the residential and commercial sectors.

The projected future behavior of these phenomena is analyzed by selecting the best data available from the output data of climate models at different resolution levels and historical data.

The Group has selected three of the global climate pathways developed by the Intergovernmental Panel on Climate Change (IPCC), which are in line with those of the IPCC’s sixth Assessment Report (AR6). These scenarios are associated with emission patterns linked to a level of the Representative Concentration Pathway, each of which is connected to one of the five scenarios defined by the scientific community as Shared Socioeconomic Pathways (SSPs). The SSP scenarios include general assumptions concerning population, urbanization, etc. The three physical scenarios analyzed by the Group are as follows:

• SSP1-RCP 2.6: compatible with a range of global warming below 2 °C from pre-industrial levels (1850-1900) by 2100 (the IPCC forecasts an average of about +1.8 °C from 1850-1900). In the analyses that consider both physical and transition variables, the Group associates the SSP1-RCP 2.6 scenario with the Paris and Accelerated Transition scenarios.
• SSP2-RCP 4.5: compatible with an intermediate scenario that calls for an average temperature increase of about 2.7 °C by 2100 from pre-industrial levels. The RCP 4.5 scenario is the one that is most representative of the world’s current climate and political landscape and correlated transition assumptions. This scenario forecasts global warming in line with the estimates of temperature increases that consider current policy around the world.⁽²⁰⁾ In the analyses that consider both physical and transition variables, the Group associates the SSP2-RCP 4.5 scenario with the Slower Transition scenario.
• SSP5-RCP 8.5: compatible with a scenario where no particular measures to combat climate change are implemented. This scenario forecasts an increase in global temperatures of about 4.4 °C from pre-industrial levels by 2100.

The Group considers RCP 8.5 to be a worst-case climate scenario used to assess the effects of physical phenomena in a context of particularly significant climate change, but it is currently deemed not very likely. This RCP 2.6 scenario is used both to assess physical phenomena and perform analyses that consider an energy transition consistent with most ambitious mitigation objectives.

The analyses carried out for the physical scenarios considered both chronic and acute phenomena. For the description of specific, complex events, the Group considers data and analyses of public bodies, universities, and private-sector entities.

The climate scenarios are global and must be analyzed at the local level in order to determine their impact in the areas of relevance to the Group. Among active partnerships, collaboration is under way with the Earth Sciences Department of the International Centre for Theoretical Physics (ICTP) in Trieste. As part of this collaboration, the ICTP provides projections for the major climate variables with a grid resolution of varying from about 12 km to 100 km and a forecast horizon running from 2020 to 2050. The main variables are temperature, rain and snowfall, and solar radiation. Compared with past analyses, current studies are based on the use of multiple regional climate models: the one of the ICTP along with five other simulations, which have been selected as being representative of the set of climate models currently available in the literature. The output of this set is representative of the average of the various climate models. This technique is usually used in the scientific community to obtain a more robust and bias-free analysis, mediating the different assumptions that could characterize the individual model.
For certain specific climatic variables, such as wind gusts, the Group also uses other providers specialized in that particular phenomenon.
In this phase of the study, future projections have been analyzed for Italy, Spain and all countries of interest to the Group in South America, Central America and North America, obtaining – thanks to the use of the set of models – a more highly defined representation of the physical scenario. Similarly, the Group is also analyzing data related to climate projections for Africa, Southern Asia and Southeast Asia, thereby covering all of the main geographical areas in which the Group is present at the Group level.
The ICTP is also providing science support to interpret all other climate data we gather. We are using climate scenarios for the countries of interest to the Group to allow for a uniform assessment of climate risk.
Some of these phenomena entail high levels of complexity, as they depend not only on climate trends but also on the specific characteristics of the territory and require further modeling to obtain a high-resolution representation. For this reason, in addition to the climate scenarios provided by ICTP, the Group also uses natural hazard maps. This tool makes it possible to obtain, with a high spatial resolution, recurrence intervals for a series of events, such as storms, hurricanes and floods. As described in the section “Risks and strategic opportunities associated with climate change”, these maps are widely used within the Group, which already uses historical data to optimize insurance strategies. In addition, work is under way to be able to take advantage of this information developed in accordance with climate scenario projections.
Finally, the Group has acquired the tools and capabilities needed to autonomously gather and analyze the raw output published by the scientific community, so as to have a global, high-level view of the long-term trends in the climate variables of interest to us. These sources include the output from the climate and regional models CMIP6⁽²¹⁾ and CORDEX.⁽²²⁾ CMIP6 is the sixth assessment of the Coupled Model Intercomparison Project (CMIP), which is a project of the World Climate Research Programme (WCRP) and of the Working Group of Coupled Modelling (WGCM), which provides raw climate data from global climate models.
These are used to assess standard global measurements at a resolution of about 100x100 km. The Coordinated Regional Climate Downscaling Experiment (CORDEX) also falls within the scope of the WCRP and generates regional climate forecasts at a higher resolution.

(20) Climate Action Tracker Thermometer, stime di riscaldamento globale al 2100 considerando le attuali “Policies & actions” e “2030 targets only” (aggiornamento novembre 2022).
(21) https://www.wcrp-climate.org/wgcm-cmip/wgcm-cmip6.
(22) https://cordex.org/. 

In addition to using high-resolution data to analyze the impact of physical phenomena, the Group has also designed a higher-level analysis framework that enables us to obtain a country-level assessment of trends in certain global climate hazards in a manner that is consistent across all regions. More specifically, we have adopted a modular approach that will enable us to progressively upgrade our analyses by including new physical phenomena and refining both the data and our methodologies. At present, four climate phenomena are included: two related to extreme temperatures; one related to intense rainfall; and one related to drought. The possibility of introducing other phenomena such as extreme wind and sea level rise is also being evaluated. The phenomena are assigned a numerical index based on the global distribution to a resolution of about 100x100 km and are summarized in a composite index. This has enabled us to include a dimension related to climate change in the Open Country Risk model. This enables the tool to include both the aspects considered by the Country Risk models and those aspects related to the physical risks considered in the model as a cause of environmental and economic stress in a given country. The Open Country Risk model is described in greater detail in the section “Macroeconomic and geopolitical trends”.

Acute phenomena: a selection of acute phenomena in Italy were analyzed, including fire risk, extreme rainfall and heat waves. Of these, the first two were characterized using standard metrics widely used in the literature. For heat waves, the standard metrics were supplemented by an ad hoc metric for Enel Grids, correlating extreme past ⁽²³⁾ The average number of days per year experiencing the following conditions were calculated by province: at least five consecutive days with a minimum temperature above the ninety-fifth percentile of the historical distribution (1990-2020) and at least 18 °C. These five days must also have no rain and at least one must have a maximum temperature above the ninety-fifth percentile of the historical distribution (1990-2020). This metric was calculated for all of Italy at the original resolution of the climate data (~12 km x 12 km). The high-resolution data were then aggregated at the provincial level, considering events persisting in the same period over multiple pixels within the same province as a single heat wave and taking the maximum amplitude as the duration by combining the different pixels. phenomena that could potentially damage underground grids.⁽²³⁾ The results in the RCP 2.6 scenario are shown in the figure. We see the average number of days a year experiencing a heat wave tending to increase compared with historical data, with more intense heat waves in the areas that already suffer most from the phenomenon today. The situation is also worsening in the RCP 4.5 and RCP 8.5 scenarios.

Extreme rainfall was assessed by calculating changes in daily rainfall above the ninety-fifth percentile, calculated as average millimeters per year in the periods being analyzed. In all the scenarios, in 2030-2050 extreme rain is forecast to increase, accompanied by a slight decrease in the annual total of daily rainfall excluding extreme events. The increase is the greatest in the North-east and along the Tyrrhenian coast.
As seen in previous analyses published by the Group, heat waves and fire risk will change significantly, both increasing under the various climate scenarios considered. Fire risk is described by the Fire Weather Index (FWI), an indicator widely used internationally that takes account of temperature, humidity, rainfall, and wind in order to calculate an estimate of fire risk. Figures provided by the ICTP may be used to describe the trend in fire risk in order to support the business in properly managing this risk. Studies that examine the changes in the 2030-2050 forecasts compared with 1990-2020 show that, under all scenarios, there is an increase in the number of high-risk days (index > 45) in summer. This change mainly impacts the islands and southern Italy, where the increase in high-risk days goes from about +6 to +8 days compared with historical values.

Chronic phenomena: chronic temperature changes can be analyzed to obtain information about the potential effects on the cooling and heating demand of local energy systems. As was done in 2020, the thermal requirement was measured using Heating Degree Days (HDDs), i.e., the sum, for all days of the year with a T_average ≤ 15 °C, of the differences between the internal temperature (with T_internal assumed to be 18 °C) and the average temperature, and Cooling Degree Days (CDDs), i.e., the sum, for all days of the year with T_average ≥ 24 °C, of the differences between the T_average and the T_internal (assumed to be 21 °C), respectively, for heating and cooling requirements. The country averages have been calculated as an average over the country, weighting each geographical node by population thanks to the use of the Shared Socioeconomic Pathways (SSPs) associated with each RCP scenario. The figure shows CDDs calculated for Italy at high resolution for the historical data and the average variation expected in the RCP 2.6 scenario. The distribution of the population used as a weight for the calculation at the national level is also shown.⁽²⁴⁾ In ⁽²⁴⁾ Note that population density changes in the various SSPs, while population distribution by geographical area is virtually unchanged. general, in 2030-2050 CDDs show a rising trend, always exceeding the historical data, with increases in all the various scenarios: RCP 2.6 (+~45%), RCP 4.5 (+~80%) and CPR 8.5 (+~110%). Conversely, HDDs declined, with a fall of 8% in the RCP 2.6 scenario, 12% in SPC 4.5 and 16% in SPC 8.5 compared with the period 2000-2020.

With regard to total rainfall, changes in this phenomenon in the areas of interest for the Group’s hydroelectric power generation have been analyzed. This analysis, which compared the 2030-2050 forecast with 1990-2020, points to no significant change, with a generalized slightly downward trend in Central and Southern Italy under the RCP 2.6 scenario.

(23) The average number of days per year experiencing the following conditions were calculated by province: at least five consecutive days with a minimum temperature above the ninety-fifth percentile of the historical distribution (1990-2020) and at least 18 °C. These five days must also have no rain and at least one must have a maximum temperature above the ninety-fifth percentile of the historical distribution (1990-2020). This metric was calculated for all of Italy at the original resolution of the climate data (~12 km x 12 km). The high-resolution data were then aggregated at the provincial level, considering events persisting in the same period over multiple pixels within the same province as a single heat wave and taking the maximum amplitude as the duration by combining the different pixels.
(24) Note that population density changes in the various SSPs, while population distribution by geographical area is virtually unchanged.

Acute phenomena: for Spain, the analysis first focused on acute rainfall, calculated as average annual millimeters of rain in the reference periods.⁽²⁶⁾ As can be seen in figure, which compares 2030-2050 with 1990-2020, this acute phenomenon will already undergo variations across most of the country in the RCP 2.6 scenario. In particular, intense rainfall will increase in the north, while it will decrease in the southeast. In the other scenarios, heavy rainfall will decrease throughout the south of the country (in RCP 8.5 this reduction also affects the northwest).

(25) The observed data used in the analysis were aggregated country-level ERA5 data from January 1950 to September 2022.
(26) Extreme rainfall is represented by the sum of daily rainfall above the ninety-fifth percentile of the historical distribution over a given period.

As regards fire risk, the area of Spain that will see the greatest increase in the number of days per year with FWI > 45 (i.e., extreme risk) compared with past trends is the central-south in all future scenarios. This increase is greater in the more extreme scenarios (RCP 8.5) than in the RCP 2.6 scenario. As seen in previous analyses published by the Group, heat waves are expected to be more widespread geographically and more frequent in 2030-2050, particularly in the southern regions of the country. (27) The map on the right in the figure is based on NASA data for the Normalized Difference Vegetation Index for the period June 2021 - June 2022. The NDVI quantifies vegetation by measuring the difference between near-infrared light (which the vegetation strongly reflects) and red light (which vegetation absorbs). This is a good indicator of vegetation growth and density. The more the NDVI increases, the more abundant and healthier the vegetation. Chronic phenomena: the analysis of heating and cooling needs has been refined and updated in the same manner as for Italy. For the period 2030-2050, compared with 1990-2020, we estimate a reduction in Heating Degree Days (HDDs) under all scenarios within a range of about -10% under RCP 2.6 to about -20% under RCP 8.5, with RCP 4.5 falling in the middle. The data also confirm the increase (+34%) in Cooling Degree Days (CDDs) under the RCP 2.6 scenario and increases of 61% and 87%, respectively, under the RCP 4.5 and RCP 8.5 scenarios.

We have analyzed changes in total rainfall in the areas of interest for the Group’s hydroelectric power generation. This analysis found that the figures do not change significantly when comparing the RCP 2.6 scenario (2030-2050) with the historical period (1990-2020), showing a slight generalized decline.

Acute phenomena: fire risk, measured as the number of days per year with FWI > 45 (extreme risk), varies from area to area. As shown in the following figure on the left, a comparison between the RCP 2.6 scenario (2030-2050) and the historical period (1990-2020) shows the number of days at high fire risk increasing in most of Brazil and in the Atacama desert. In the remaining areas of South America, the risk remains unchanged or decreases slightly. It is interesting to note how fire risk increases primarily in areas with the lowest values for the current Normalized Difference Vegetation Index (NDVI) (as can be seen in the following figure on the right),⁽²⁷⁾ i.e., areas with little vegetation. An exception is represented by some areas of the Amazon, in central Brazil, where there is both a significant increase in the number of days at extreme fire risk and extensive vegetation. Combining the fire risk index and vegetation data is important, as the latter can serve as fuel and increase the probability of a fire spreading.

(27) The map on the right in the figure is based on NASA data for the Normalized Difference Vegetation Index for the period June 2021 - June 2022. The NDVI quantifies vegetation by measuring the difference between near-infrared light (which the vegetation strongly reflects) and red light (which vegetation absorbs). This is a good indicator of vegetation growth and density. The more the NDVI increases, the more abundant and healthier the vegetation.

In order to study the phenomenon of extreme temperatures, we have used the Warm Spell Duration Index (WSDI).⁽²⁸⁾ Comparing 2030-2050 with 1990-2020, the figures point to a significant increase in heat waves even under the RCP 2.6 scenario, particularly in certain areas of Brazil, in Colombia, in Peru, and in northern Chile. This increase in extreme temperatures is expected to be even more accentuated under the more extreme scenarios (RCP 8.5). With regard to extreme rainfall, we have considered daily rainfall above the ninety-fifth percentile, as was done for Italy and Spain. Future changes in this acute phenomenon are less uniform. Under the RCP 2.6 scenario, certain areas, such as northern Brazil and northern Argentina, are expected to experience declines compared with the historical period, whereas other areas, such as western Colombia and certain areas of Brazil and Peru, are expected to see an increase in extreme rainfall.

Chronic phenomena: a study was conducted of the potential changes in heating and cooling demand connected with chronic temperature changes. Here, too, we calculated the changes in Heating Degree Days (HDDs) and Cooling Degree Days (CDDs) for 2030-2050 compared with 1990-2020 based on data from six models at a resolution of 25x25 km. The country averages have been calculated as an average over the country, weighting each geographical node by population using the Shared Socioeconomic Pathways (SSPs) associated with each RCP scenario. In each country studied, CDDs increased progressively across all scenarios: under the RCP 2.6 scenario, they increase by 35% in Chile,(29) but by only 13% and 18% in the other countries considered. Under the RCP 4.5 scenario, the increases were 113% in Chile and just over 25% for Argentina, Brazil and Peru, settling at 18% for Colombia. The increase in CDDs compared with the historical values is even more significant under the RCP 8.5 scenario. As for HDDs, the RCP 2.6 scenario points to considerable reductions in Colombia (-52%), Brazil (-21%), and Peru (-14%), with a slight decline in Chile (-5%). This trend is even more pronounced under the RCP 4.5 scenario: ~-62% in Colombia; ~-27% in Brazil; ~-20% in Peru and -8% in Chile.

(28) The WSDI considers heat waves with at least six consecutive days with a maximum daily temperature above the ninetieth percentile of the historical distribution.
(29) In Chile the percentage increase is more marked than in the other Latin American countries because the absolute values of CDDs are very low. In fact, in the historical data, CDDs are very close to zero in almost the entire country, with values of just a few degrees Celsius per year in the central area only.

Changes in total rainfall in the areas of interest for the Group’s hydroelectric power generation have been analyzed. The analyses, which compare 2030-2050 forecasts with the historical period 1990-2020, show a downward trend in Argentina and Colombia. Brazil is projected to experience a slight increase or decrease in total rainfall under RCP 2.6 depending on the group of catchment areas basins considered. By contrast, rainfall in Peru will remain substantially unchanged in RCP 2.6. Finally, as with Argentina and Colombia, the projections for Chile also point to a reduction in total rainfall in the scenario with the lowest emissions, but this may have already manifested itself in recent years (with a real decrease on historic norms).

(30) Garreaud et al. (2019), “The Central Chile Mega Drought (2010-2018): A climate dynamics perspective”.
(31) Boisier et al. (2015), “Anthropogenic and natural contributions to the Southeast Pacific precipitation decline and recent megadrought in central Chile”

Acute phenomena: for North America and Central America, we first assessed changes in frost days, i.e., the average number of days of frost per year,⁽³²⁾ in the various future scenarios (2030-2050) compared with the historic period (1990-2020). (32) More specifically, frost days are days on which the minimum temperature Tmin is < 0 °C. As can be seen from the maps in the figure below, frost days will primarily decrease in the western part of the macro-region, with greater variations in terms of magnitude in more extreme RCP scenarios. Note that the decrease in frequency does not rule out an increase in the intensity of this acute phenomenon, an issue the Group is currently investigating.

Heat waves have been evaluated using the WSDI, as with South America. Comparing 2030-2050 with 1990-2020, we find a significant increase in days experiencing a heat wave even in the RCP 2.6 scenario, especially in Central America and along the west coast of North America. The increase in the WSDI will be even more pronounced in RCP 8.5. The annual number of days with high fire risk, i.e., with FWI > 45, remains substantially unchanged in most of the macro-region in the RCP 2.6 scenario (2030-2050) compared with 1990-2020. In the western areas of the United States and Mexico, however, the number of high-risk days is expected to rise, with greater increases for more extreme scenarios. Finally, acute precipitation expected will increase across most of North America under the RCP 2.6 scenario compared with historical data. The magnitude of these increases varies from area to area. In Central America, intense rainfall will decrease even in RCP 2.6 in the central part of the region. In other areas, precipitation will remain unchanged or increase slightly.

Chronic phenomena: as shown in the figure below, the average annual temperature increases in all future scenarios (2030-2050) from historical levels (1990-2020). In general, the increases are greater in RCP 8.5 than in RCP 2.6. The areas that will experience the most warming are in the far north in all RCPs.

Comparing the various RCPs (2030-2050) and the historical model (1990-2020), expected total annual rainfall tends to decline in Central America, while in North America it will remain the same or increase depending on the area.

(32) More specifically, frost days are days on which the minimum temperature T_min is < 0 °C.

The use of integrated energy system models makes it possible to quantify the individual service demand of a country. This level of detail therefore makes it possible to discriminate the specific effects that a change in temperature can have on energy demand. For this purpose, the Paris, Slower Transition and Accelerated Transition scenarios described above have been expanded to include the effect that temperature increases, measured in terms of Heating Degree Days (HDDs) and Cooling Degree Days (CDDs), have on energy demand (total, not just electricity) for residential and commercial heating and cooling. By defining a benchmark scenario consistent with achieving the Paris objectives and with Europe’s commitment to reduce greenhouse gas emissions,⁽³³⁾ we were able to associate HDDs and CDDs consistent with the RCP 2.6 scenario with the Paris scenario. The same was done with the Accelerated Transition scenario, which, similarly to the Paris scenario, sees the achievement of net-zero emissions by 2050, but is characterized by a faster decline in emissions. HDDs and CDDs consistent with RCP 4.5 were instead associated with the Slower Transition scenario, because it corresponds to a slower decline in greenhouse gas emissions. To stress the analyses further, the latter scenario was also associated with RCP 8.5.
For Italy, as regards the separate effect of the transition, in the Slower Transition scenario electricity demand is approximately 8% lower on average in 2031-2050 compared with Paris. If we exclude the effect of electricity demand for green hydrogen production, for which the two scenarios have different levels of ambition in accordance with their different decarbonization trajectories, the change in electricity demand declines to 5%. It should be emphasized that green hydrogen is a more efficient solution from an economic and climate point of view in the Slower Transition scenario as well. What changes between the two scenarios is the speed of penetration into the energy matrix, with only a marginal change in the value at 2050. In the Accelerated Transition scenario, the slightly higher level of climate ambition of Paris is achieved not only through faster electrification, but also lower consumption as a result of the adoption of more “climate aware” behavior by consumers: electricity demand will increase on average in the period 2031-2050, but numerically by less than 1%.
The percentage differences between the Slower Transition and Paris scenarios for Spain are smaller than for Italy. This reflects the fact that for Spain the existing national energy plan already specifies ambitious climate objectives, so the Slower Transition scenario does not differ significantly from the Paris scenario. Consequently, less variability is expected in the evolution of the energy system and therefore of electricity demand in the 2031-2050 period. In fact, electricity demand in the Paris scenario is located between the Slower Transition – which shows a change in demand of less than 3% on average – and the Accelerated Transition scenario – which indicates a change in demand of more than 3% on average in the period 2031-2050. If we exclude the impact of electricity demand for hydrogen production, the delta decreases to around -2% for the Slower Transition scenario. Bear in mind that the level of demand for green hydrogen remains similar to Paris in both comparative scenarios, while the speed of penetration of the technology varies.
For both countries, the speed of the energy transition has a much greater impact on the level of electricity demand than the effects of the increase in temperature deriving from climate change: the analyses performed show how an increase in temperature deriving from climate change causes demand to increase by less than one percentage point for both Italy and Spain. Conversely, decarbonization and energy efficiency policies, together with technological innovation, greater social responsibility and the consequent switch from fossil to electric technologies (for example electric cars and heat pumps), will play a substantial role in the evolution of electricity demand and of the energy mix in general.

(33) European Commission - Fit for 55: https://www.consilium.europa.eu/it/policies/green-deal/eu-plan-for-a-green-transition/.

In order to further investigate the effect of temperature on the transition scenarios and at the same time expand the range of assumptions regarding climate change, a sensitivity analysis was conducted by associating the Slower Transition scenario to RCP 8.5 in addition to RCP 4.5. Assuming such a further increase in temperature would lead to changes in demand of +1.0% for Italy and +0.4% for Spain respectively, with a total impact of -7.2% and -2.4% with no change in the energy transition impact. 

Note that in future years greater than expected electrification of heating in buildings could change both the sign and the size of the temperature effect in both countries. It is therefore necessary to monitor developments in the share of electrification of heating during the annual review.

In Latin America, the impact of temperature trends, quantified through the Heating Degree Days (HDDs) and Cooling Degree Days (CDDs) metrics, was estimated using econometric forecasting models based on historical elasticity for Argentina and Colombia, as well as the use of integrated energy system models for Brazil and Chile, similar to the approach adopted for Italy and Spain, as discussed above. Econometric forecasting models based on historical elasticity were used for Argentina, Colombia and Peru. In the case of Brazil, the alternative transition scenarios (Paris, Slower Transition and Accelerated Transition) obtained through an integrated energy system model have been expanded to include the effect of rising temperature on energy demand for cooling purposes in the residential and commercial sectors. HDDs and CDDs consistent with RCP 2.6 have been associated with the Paris and Accelerated Transition scenarios, while those consistent with RCP 4.5 were associated with the Slower Transition scenario. To stress the analyses further, the latter scenario was also associated with RCP 8.5. As regards the transition effect considered individually, electricity demand in the Slower Transition scenario is approximately 19% lower on average in 2031-2050 compared with the Paris scenario, given the different levels of ambition of the two scenarios in both 2030 and to 2050. If we exclude the effect of electricity demand for the production of green hydrogen, the delta is reduced to 15%. In the Accelerated Transition scenario, the slightly higher ambition of Paris is achieved via faster electrification. Accordingly, the electricity demand delta in 2031-2050 averages around a positive 8%. Also in this case, the speed of the energy transition has a much greater impact on the level of electricity demand than the effects of the increase in temperature deriving from climate change. The analysis shows that any increases in temperature caused by climate change have a negligible effect on electricity demand in Brazil. Considering the integrated view, the potential effect of more ambitious transition scenarios has a more significant impact on electricity demand than the increase in temperature resulting from climate change.

In order to investigate the effect of temperature on transition scenarios further and at the same time expand the range of assumptions regarding climate change, a sensitivity analysis was carried out by associating the Slower Transition scenario with RCP 8.5 in addition to RCP 4.5. For Brazil, an assumption of a further temperature increase produces an increase of 0.1% in demand, with a total demand impact with no change in the energy transition impact of -19%.

As with Brazil, the alternative transition scenarios (Paris, Slower Transition and Accelerated Transition) obtained through an integrated energy system model for Chile have been expanded to include the temperature increase effect on energy demand for cooling purposes in residential and commercial sectors. HDDs and CDDs consistent with RCP 2.6 have been associated with the Paris and Accelerated Transition scenarios, while those consistent with RCP 4.5 were associated with the Slower Transition scenario. To stress the analyses further, the latter scenario was also associated with RCP 8.5

As regards the transition effect considered individually, electricity demand is approximately 24% lower on average in 2031-2050 in the Slower Transition scenario compared with Paris, given the different levels of ambition of the two scenarios. This difference is mainly due to assumptions regarding the achievement of the country’s ambitious targets for green hydrogen production after 2030 set out in the document Planificación Energética Nacional de Largo Plazo (PELP). If the effect of electricity demand for hydrogen production – for which the two scenarios have different levels of ambition in relation to the different decarbonization trajectories – is omitted, the difference declines to 7.7%. In the Accelerated Transition scenario, the greater ambition compared with the Paris scenario energy transition is achieved through the implementation of more stringent decarbonization policies to achieve more electrification, greater penetration of green hydrogen in industry and transport and increased exports of hydrogen. This leads to an average increase of 41.2% in electricity demand over the baseline of the Paris scenario in 2031-2050. Excluding the effect of electricity demand connected with the production of green hydrogen, electricity demand is an average of 6.1% higher than in the Paris scenario in the 2031-2050 period.

The speed of the energy transition has a much greater impact on the level of electricity demand than the increase in temperature caused by climate change. Decarbonization policies together with technological innovation and greater social responsibility will play an active role in the evolution of the electricity sector and the energy mix in general.

The analysis shows that Argentina could experience an increase in demand due to higher temperatures, with prospective demand rising by an estimated 0.4% to 0.8% (calculated as the average of the demand forecasts for the 2030-2050 period). This estimate is highly dependent on the impact of macroeconomic factors on electricity demand in this country, leaving these forecasts subject to a significant degree of uncertainty given the volatility involved. The same considerations can also be extended to Colombia, where despite the positive elasticity of electricity demand to temperatures, the expected rise in temperature would still have less impact than that attributable to economic growth, of between 0.1% and 0.9%. In fact, in Colombia, historical evidence still shows a strong coupling between the growth of electricity demand and GDP growth, with demand from the industrial sector accounting for around 50% of electricity consumption. Furthermore, the variability of the macroeconomic context could have repercussions on the electrification of the residential and service sectors, which represent the most immediate drivers of the increase in electricity demand in the event of an increase in temperatures.