Italy Approves 18-Month Gas Power Generation Price Compensation Measure

en.Wedoany.com Reported - On November 9, the Italian government approved a new energy bill decree, planning to implement a compensation measure for natural gas power generation costs for up to 18 months starting from January 2027. The measure sets the reference price of natural gas used for power generation at 58.9 euros per megawatt-hour and compensates eligible gas power generation companies for part of their fuel procurement costs. Gilberto Pichetto Fratin, Italy's Minister of Environment and Energy Security, estimates that the measure will reduce electricity prices by an average of approximately 15 euros/MWh, benefiting residential households as well as industrial and commercial users.

Under the approved plan, gas power generation companies will still purchase natural gas at market prices, but when bidding in the wholesale electricity market, they must reduce the degree to which natural gas costs are passed through to electricity prices in accordance with the compensation mechanism. On that day, the Dutch TTF natural gas market price was approximately 82.2 euros/MWh, higher than the policy reference price of 58.9 euros. Power generation companies can receive partial compensation for the difference, with the scale of compensation subject to regulatory rules.

The Italian Regulatory Authority for Energy, Networks and Environment (ARERA) will be responsible for formulating compensation calculation and payment rules. The compensation mechanism is based on the difference between the European natural gas benchmark price and the policy reference level, while also taking into account actual power generation costs and electricity market operating conditions. The related costs will be raised mainly through surcharges on the electricity system, with exemptions applicable to some electricity consumption under fixed-price contracts.

The energy bill decree will also restrict power producers from influencing market prices by reducing available generation capacity. The regulatory authority will further develop corresponding market supervision rules and strengthen oversight of generation capacity declarations and wholesale electricity trading behavior. The government also requires that price benefits generated by cost-reducing renewable energy generation be passed through more fully to end consumers.

The Italian government plans to gradually phase out the relevant arrangements before the compensation measure expires, in order to reduce the risk of sudden electricity price increases when the policy ends. This plan is a revised version formed after multiple rounds of consultations between Italy and the European Commission on energy market intervention rules. It mainly adjusted the previous compensation design centered on carbon emission trading costs, shifting the support focus to fuel procurement costs for natural gas power generation.

Italian power generation companies have raised objections to the compensation funding sharing mechanism, arguing that the new electricity system surcharges and related cost arrangements may affect corporate revenues. The energy and climate research institute ECCO estimates that the policy's actual savings for an average household may be only about 1.4 euros per month, lower than the intuitive expectation corresponding to the average wholesale electricity price reduction announced by the government.