The ‘Bollette’ decree, with its highly complex system, has resulted in savings of just 20 euros a year

How much is the new energy bill decree worth? According to Minister Gilberto Pichetto Fratin, the saving for consumers will be around 15 euros/MWh (compared with a wholesale energy price of around 250 euros/MWh). In reality, the technical report itself suggests caution: the overall benefit is unlikely to exceed 10 euros/MWh on an annual average basis in 2027. The measure amends a previous decree from February (before the war in Iran), when the government had attempted to neutralise the impact of the ETS on electricity prices. The EU Commission had said no, but had left the door open for emergency measures, given that gas prices had skyrocketed in the meantime due to the blockade of the Strait of Hormuz. After lengthy negotiations, officials at the Ministry of the Environment reached an agreement on a revised version of the Iberian ‘gas price cap’. The mechanism rests on two pillars: one structural and the other transitional. The first, which draws on the February text, provides for the relief of certain charges relating to the transport of gas used in thermal power stations.

The second measure, incorrectly referred to as a price cap and with a maximum duration of 18 months, provides for a subsidy to thermal power producers when the price of gas exceeds 58.9 euros/MWh (yesterday the TTF stood at around 84 euros). Over the next six months, the threshold is set to rise gradually.

The two mechanisms are distinct but operate in a similar way: both reduce costs for thermal power producers. When this ‘discount’ is reflected in wholesale energy prices, the effect spreads to all electricity, including that produced from other sources. To finance the subsidy, the decree takes two approaches: gas transmission charges are included in everyone’s bill; whilst compensation for the additional gas costs is borne by wholesale buyers (including industries and utilities, which may then pass these on only to end customers on variable-price contracts). The decree allows for certain exceptions, such as fixed-price contracts entered into before it came into force (the so-called PPAs). However, it must comply with one restriction: ‘to limit fluctuations in cross-border electricity trade’. In practice, it must not drive prices down to the point of transforming our country from an importer into an exporter. If that were to happen, Italian consumers would end up subsidising those in neighbouring countries. It is, above all, the setting of the ‘ceiling’ – which is the responsibility of ARERA – that is complicated: if set too early, it risks becoming misaligned with gas prices, which are constantly changing; if set at the last minute, it risks destabilising the forward markets, without which it would be impossible for operators to hedge against future price fluctuations and make fixed-price offers.

Let’s try to work this out. The technical report provides some details, but we need to distinguish between two aspects: on the one hand, who benefits from the two measures; on the other, for how long. The discount on gas transport charges for power stations benefits everyone, and the associated costs are recouped through a surcharge on end-users’ bills. In contrast, the ‘tope’ mainly affects customers on variable-price contracts: those on fixed-price contracts, by definition, continue to pay the agreed amount, at least until the contract expires. The second aspect is time. The effect of the first measure (which, we reiterate, is structural) is an annual average of around 5 euro/MWh, almost double the 3 euro/MWh attributed by the report on the original decree. The ‘cap’, on the other hand, depends on the TTF. The technical report, citing ‘the forward price curve’, states that it will apply ‘from January to July’, with a decreasing reimbursement – as prices are expected to fall due to the summer – and estimates a net benefit of around 7 euro/MWh. From August onwards, gas prices are expected to fall below the cap, at which point the mechanism will cease to operate automatically. Attempting a yearly average calculation, total savings are estimated at less than 10 euro/MWh, translating into a benefit for an average household (with annual consumption of 2 MWh) on a variable-rate contract of no more than 20 euro per year. Obviously, the situation may be different for businesses, as their consumption is much higher.

One is therefore led to ask: was it really necessary? The government devised this system for a political purpose, namely to neutralise the ETS. Europe blocked the way, so Giorgia Meloni changed the objective but retained the structure. At this stage, the decree risks being ineffective, difficult to implement and even open to legal challenges. When the government’s focus shifted from the ETS to the energy crisis, it would have been better to change the instrument entirely. During the 2022 crisis, Italy (and subsequently the rest of Europe) sought to contain prices by imposing a cap on inframarginal rents: in practice, when market prices exceeded a certain threshold, it obliged producers using renewable sources to return the surplus. The effect is identical to the ‘floor’, but the mechanism is reversed: the floor lowers inframarginal returns by subsidising thermoelectric producers, whilst the cap on returns acts as a sort of tax and makes resources available to the system that can be passed on to consumers, offsetting price rises. Unlike the tope, the cap poses no issues of compatibility with European law nor any difficulties in implementation, as it would simply be a matter of reviving resolutions that have already been in force and have worked. Furthermore, it does not leave the issue of passing on the benefit to consumers unresolved; to ensure this, the government has devised a specific clause which, rather than providing clarity, could generate further confusion regarding regulations already in force (the REMIT regulation on ‘capacity retention’).

Draghi’s cap had a number of flaws, the main one being an excessively low threshold, but this can easily be corrected: for example, by setting the cap at 100 or 120 euros/MWh. Under such conditions, it could today generate benefits far greater than those of the tope, without creating uncertainties in cross-border flows and without raising doubts or uncertainties about its operation or consequences. It is not a perfect measure, but it is a less flawed solution than the cap: if attention had focused on the objective rather than the instrument, it could already be in force, helping to protect consumers and probably causing less unease among producers.