Italy Overhauls Energy Market to Slash Wholesale Electricity Costs for Industry and Households

Italy is currently witnessing a significant political and economic shift as the government challenges the high costs associated with the European Union’s aggressive "green" energy policies. Prime Minister Giorgia Meloni has officially moved forward with a landmark reform package aimed at protecting both the industrial base and private households from the escalating financial pressure of carbon taxes. These taxes have been a primary driver behind the recent surge in electricity prices, creating a burden that the administration is no longer willing to ignore.

The core of the issue lies in the current regulatory framework where natural gas power plants are mandated to pay for their carbon dioxide emissions through the EU’s Emissions Trading System (ETS). These costs are traditionally passed directly to consumers, contributing to Italy having some of the most expensive electricity in the region; for example, on February 18, prices were recorded at €112.88 per megawatt-hour (MWh). The new Decree aims to restructure this by compensating gas-fired power stations—which currently provide 42% of the nation's energy—thereby facilitating a reduction in wholesale prices for all consumers, from large-scale factories to individual households, with the full effects expected by 2027.

In addition to systemic changes, the government is implementing direct measures to support the most vulnerable segments of the population. A one-time bonus of €90 has been designated for families facing the greatest economic hardship. This targeted assistance is intended to provide immediate relief while the broader structural reforms to the energy market are being phased in over the coming years to ensure social stability during the transition.

The financial backbone of this initiative is a substantial €3 billion aid package, which is being funded through the revenues generated by the ETS. This package is strategically divided, with €1.6 billion allocated to support families and €1.4 billion earmarked for the business community. Furthermore, the state is providing €250 million in financial guarantees to encourage and secure long-term contracts for lower-cost energy. The impact on the market was palpable and immediate, as year-ahead electricity prices saw a sharp decline of 15% during the month of February following the announcement.

Understanding the importance of this reform requires looking at the role of natural gas as the foundation of Italy's energy sector. Heavy industries, particularly steelmakers represented by Federacciai, have been vocal about the damage caused by sustained high energy costs. In a high-level diplomatic move on February 12, Meloni met with Chancellor Merz to discuss the urgent need for a revision of the European Union's marginal pricing model, a system whose vulnerabilities were laid bare during the 2022 energy crisis. While major utility companies such as Enel, Edison, and ERG are expected to see a decrease in their windfall profits as a result of these changes, the broader industrial landscape is poised for a much-needed recovery.

However, the path forward is not without its challenges and potential risks. There is a possibility that the European Commission could attempt to block these measures, viewing them as a form of prohibited state aid. Nevertheless, there is optimism within the Italian government, as the Commission has previously approved similar schemes in other member states. The reform represents a strategic attempt to balance the requirements of the "green transition" with the necessity of maintaining national economic competitiveness. By seeking to align more closely with the Title Transfer Facility (TTF) and reducing the country's dependence on gas imports, Italy is charting a new course. While the steel industry has welcomed the move with enthusiasm, other sectors within the energy industry have expressed concerns about the potential for market "destabilization."