Italy moves to set a reference threshold for gas costs at power plants

Italy is set to approve a decree this week that targets high gas-linked electricity costs by introducing a temporary cap of around €60 per megawatt-hour on gas used by gas-fired power stations. The move is intended to limit the impact of elevated gas prices on electricity bills for households and businesses, following a political agreement with European Union authorities.

The cabinet is expected to meet on Thursday at 1600 GMT to discuss and possibly approve the scheme. Energy Minister Gilberto Pichetto Fratin has said he will present a summary of the plan at the meeting, after outlining the approach to industry representatives.

Under the upcoming framework, gas for power generation will continue to be purchased at the market price set on the Dutch TTF hub, but utilities running gas-fired plants will be reimbursed for any difference between that exchange price and the capped level of about €60 per megawatt-hour. This is intended to allow producers to offer electricity at lower prices on the wholesale market while maintaining the viability of gas-fired plants.

In parallel, Rome is preparing a temporary decree that sets a reference threshold for the cost of gas bought by thermal power plants, with the state refunding the difference between this threshold and the market price. This threshold does not constitute a market cap on gas prices, but acts as a benchmark for refunds aimed at reducing wholesale power prices.

Officials have indicated that reimbursements to utilities will be funded through increased system charges embedded in electricity bills paid by households and companies. The measure therefore shifts part of the cost into regulated components of bills while seeking to lower the energy component driven by gas prices.

The Italian energy regulator ARERA is tasked with checking that refunds are fully reflected in the offers made by power plants on the wholesale market, with the possibility of repayment obligations and penalties if they are not. ARERA is also assessing a role for grid operator Terna and state energy services company GSE in calculating and paying the reimbursements.

The scheme focuses first on lowering wholesale electricity prices rather than directly changing retail tariffs. Any reduction in wholesale prices is expected to reach end-users depending on the type of contract they hold, with variable-price customers and many businesses identified as the first to benefit, while fixed-price customers have so far been largely shielded from recent increases.

On the Italian wholesale market, gas-fired plants frequently set the marginal price for all electricity producers, including renewable generators. By reducing the effective gas cost for these plants, the government aims to bring down the overall wholesale price level as experienced across the market.

The measures form part of the broader ‘Dl Bollette’ bill, which is before the Council of Ministers with amendments focusing on the cost of the gas price cap and the mechanism for recovering funds. The current approach, based on imposing costs on producers while benefiting energy-intensive businesses, has become a central point of contention.

Elettricità Futura, the association of electricity producers, has publicly criticized elements of the initial text and highlighted concerns that a cap on gas prices could impose uncertain and potentially significant costs on producers, including those that adopted fixed-price contracts. The Ministry for the Environment and Energy Security is examining changes such as introducing a threshold below the market price to limit the share of costs recovered from producers to the gap between the cap and this new threshold.