UPDATE 1-Italy power prices highest in Europe

(Releads with power market data on electricity prices)

By Svetlana Kovalyova

MILAN Jan 14 (Reuters) - Italian power prices were the highest in Europe in 2008 despite demand falling for the first time since 1981, its power market operator and grid said.

Power exchange IPEX's average price of electricity purchase (PUN) jumped 22.5 percent to 86.99 euros per megawatt hours (MW/h), with biggest rises registered in off-peak hours on working days and during holidays, IPEX operator GME said in a report on Wednesday.

"The average power purchase price on the Italian electricity bourse remained higher than on other European bourses, but compared to 2007 the price delta (difference) reduced to an 10 euros per MW/h on average," GME said.

Power volumes traded on IPEX rose 4.8 percent to 232.6 million MW/h last year and the market liquidity rose to 69 percent from 67.1 percent in 2007, GME said.

Electricity volumes traded outside the bourse in bilateral contracts fell 4.3 percent last year, it said.

DEMAND DROPS

Electricity demand in Italy edged down 0.7 percent year-on-year in 2008 to 337.6 million MW/h, the first fall in annual power demand since 1981, power grid operator Terna (TRN.MI) said in a separate statement late on Tuesday.

In December, Italy's power demand fell 6.5 percent to 26.6 million MW/h as average temperatures were about 1 degree Celsius higher than a year ago and despite one more working day compared with December 2007, Terna said.

On a like-for-like basis, the December fall would have been 6.7 percent, it said.

Domestic power production met 86.3 percent of demand last month. At 23.5 million MW/h, the domestic output fell 8.7 percent from a year ago.

Cheap hydroelectric output soared 64.1 percent in December from a year ago while wind power generation jumped 15.5 percent. Fossil fuel power output fell 16.7 percent, Terna said.

(Reporting by Svetlana Kovalyova; editing by Sue Thomas)