Italy plans gas price cap for power plants

The Italian government plans to introduce a price cap on gas used for electricity generation starting in 2027. This decision follows the European Court of Justice’s validation of a similar measure used by Spain and Portugal in 2022, which aimed to control rising energy costs during a crisis.

European Commission backs the plan

Prime Minister Giorgia Meloni has secured a principle agreement from the European Commission on this measure, which was previously used during the pandemic and the 2022 electricity price crisis. The government is now working to finalize the details, with hopes to implement the cap by January 2027, when a new price crisis is expected to peak.

Gas price cap details

According to the Italian government, the price of gas used for electricity production would be capped at around 59 euros per megawatt-hour. This would serve as both a ceiling and a trigger for activating the cap. The measure is expected to last at least one year and would apply to gas used in power plants.

Impact on electricity prices

Gas accounts for more than 70 percent of electricity prices in Italy, compared to just 20 percent in France. The government aims to reduce household energy bills by 10 percent for those with contracts tied to wholesale prices, a situation that is rare in France.

Iberian experience and current prices

Spain and Portugal had implemented stronger measures in 2022, capping gas prices at 40 euros per megawatt-hour when market prices exceeded 120 euros. Current gas prices are around 90 euros per megawatt-hour, and they are expected to be around 70 euros per megawatt-hour in 2027. This creates a gap between the cap and the market price, smaller than in 2022.

Legal validation of Iberian measures

The European Court of Justice recently rejected an appeal against the Iberian price cap, confirming that the measure targeted wholesale prices. The court noted that lower retail prices were a possible outcome but not guaranteed. The Italian government claims all savings will be passed on to consumers.

Spain’s approach and consumer relief

Spain has already provided 5 billion euros in energy aid and has limited the increase in regulated tariffs this autumn-winter to 15 percent, down from a planned 45 percent. Similar to France, this action focuses on household prices rather than market mechanisms.

Criticism from energy lobby

Eurelectric, an energy industry lobby group, warned against following Italy’s approach, calling the price caps "de facto subsidies for gas power plants." The group argued that Italy’s stronger grid connections could allow some savings to flow to other countries rather than directly to Italian consumers.