Italy had 71.4 gigawatts of installed electricity generating capacity in 2004. In that same year, Italy generated 277.6 billion kilowatthours (Bkwh) of electricity, while consuming 303.8 Bkwh. Most generation comes from conventional thermal sources, with smaller amounts from hydroelectricity and other renewables. Electricity imports made up for the country’s supply shortfalls, and according to Eurostat, the largest sources of these imports are Switzerland, France, and Slovenia.

Italy began liberalizing its electricity sector in 1999, initially allowing only large customers to choose their own supplier. Liberalization has now spread to the majority of the retail market. As part of the liberalization, the Italian government began to privatize Enel, the former, state-owned power monopoly that previously controlled all aspects of the electricity sector. In 2000, the Italian government forced Enel to sell 27 percent of its generating capacity, and to that end, Enel created three new, independent generating companies: Elettrogen, Eurogen, and Interpower. Along with removing Enel's monopoly on electricity generation, distribution, and transmission, the Italian government began to divest its holdings in the company.

Terna owns the electricity transmission grid in Italy. The company was previously a wholly-owned subsidiary of Enel, but Enel has reduced its holdings in the company in order to satisfy Italy's energy liberalization goals: in 2005, Enel only held 5 percent of the shares of Terna. While Enel remains the dominant generator and distributor of electricity in Italy, other companies have emerged as significant players in the sector. The most important of these include Edison, Enipower, Acea, Energia Italia, Spain's Endesa, and Belgium's Electrabel. Many of these companies have extended their market share by purchasing the former assets of Enel: subsequent to the Enel divesture in 2000 discussed above, Endesa Italia purchased Elettrogen; Edison purchased Eurogen; and a consortium of Belgium's Electrabel, Italy's Acea, and Italy's Energia Italia purchased Interpower, rebranding it Tirreno Power.

As mentioned above, Italy gets the majority of its electricity supply from conventional thermal sources, the bulk of which are oil-fired. The high cost of oil compared to other sources of thermal generation have caused Italian electricity consumers to pay some of the highest rates in Europe. In response, power generators have begun to switch to alternative fuel sources, especially natural gas and co-firing plants burning combinations of oil, natural gas, and coal. Most new investment in electricity generating capacity in Italy has been in the form of gas-fired plants, specifically combined-cycle, gas-fired turbines (CCGFTs). Prompted by the 1986 Chernobyl incident, Italy banned nuclear power generation in a 1987 referendum.

Italy has begun to push renewable energy sources as a way to increase its generating capacity, reduce its reliance on oil-fired plants, and decrease its carbon dioxide emissions. According to Enel, Italy is the fifth-largest producer of wind energy in the world, though the country does not have the same natural advantage for wind power as other European countries. It is estimated that Italy does have one of the largest potentials for solar energy in Europe.

Italy's most promising source of renewable electricity generation could be geothermal. The first-ever geothermal power generation took place in Larderello, Tuscany at the beginning of the 20th century. According to the International Geothermal Association (IGA), Italy has the fourth-largest installed geothermal capacity in the world (795 MW), and country has over 90 percent of the total geothermal electricity capacity in the EU. Analysts estimate that Italy could have the largest, per-capita geothermal potential in the world.