Italian ministry issues energy cap proposal

The Italian Ministry of Ecological Transition (Mite) has sent its proposal to the EU to cap energy prices by introducing a maximum price at which natural gas can be traded.

The cap would cover all physical and financial transactions and should be high enough compared to pre-Ukraine war levels in order to be attractive for producers and exporters, it says in a document obtained by Kallanish.

The cap would be at well above energy production costs, so as to represent a strong incentive to keep on producing and exporting. In 2017-2020, Italian electricity prices never exceeded €30/MWh. The cap value should be high enough to continue to encourage energy savings and fuel switching, as member states would have to continue to rapidly reduce their dependence on Russian gas, the ministry recommends.

The measure should be complemented by a public compensation mechanism “to refund importers of the difference between international prices above the cap and the cap for marginal resources required to ensure security of supply … An appropriate and coordinated framework for demand management and allocation criteria should be included to be triggered both in the case of achievement of the cap level [and] in the case of physical shortage of natural gas supply.”

The ministry is also calling for a substantial reduction in the extra profits generated by gas exports to Europe, limiting the financing of the invasion of Ukraine by Russia. TTF spot prices have risen from €20/MWh at the beginning of 2021 to more than €200/MWh on average in August, with spikes in recent weeks at above €300/MWh. “In countries exposed to marginal gas prices also in the electricity sector, the increase has resulted in increasing power prices from €50-60/MWh up to above €600/MWh,” the document concludes.

Representatives from across European industry have written to the European Commission asking for the swift imposition of a cap on gas prices and their decoupling from electricity rates. The letter, signed also by European steelmakers association Eurofer, underlines that gas prices peaked recently at a level 15 times higher than pre-crisis rates. It also indicates that European prices are ten times higher than in the US, as well as above Asian prices (see Kallanish 8 September newsletter).

Natalia Capra France