Italy adopts temporary power market measures to combat price impact

Italy's government passed a series of temporary measures designed to combat the impact of high energy prices into law Jan. 27, including a contentious article introducing a windfall tax on renewable generation.

The "Urgent Support Measures" bill, published in the State Gazette, contains three main articles designed to contain costs in the energy sector.

The first of these will apply to the first quarter of 2022 and reduce system costs for large users with more than 16.5 kW contracted by eliminating the system cost element on their bills. The expected Eur1.2 billion ($1.3 billion) support will be met largely by diverting income from CO2 auctions. The measure will also be applied to public lighting and electric vehicle recharging points.

A second measure comes in the form of a tax credit for companies that have seen their energy costs increase more than 30% compared to 2019. This will be equivalent to a 20% contribution of their energy purchased and consumed in Q1. The financial impact of this is seen at Eur540 million, according to the State Gazette.

These two measures follow a previous support package of Eur5.5 billion which was applied to the first quarter.

Clawback measure

The third and most contentious measure is an effective "clawback" on renewable income running from Feb. 1 to Dec. 31, 2022.

The measure impacts PV plants that have fixed tariffs under the Conto Energia scheme, as well as hydro, geothermal and wind installations that are not part of the contracts for difference schemes.

The refund will be based on a differential, calculated by the Renewable Energy Agency (GSE), of the plant's income compared with its average hourly price from when it entered service, with a start limit of January 2010 up to Dec. 31, 2020, adjusted for inflation.

Any supply contracts agreed before the approval, which are not linked to the spot price, will generally be exempt, according to the decree.

The clawback has come under fire from the European Federation of Energy traders which on Jan. 27 urged its withdrawal from the law, calling it "inconsistent with the European Commission's recent toolbox and with the guidelines of the Agency for the Cooperation of Energy Regulators."

The measure is likely to lead to distortions in the market which introduces discrimination based on generating technology and would adversely affect hedging strategies and long-term contracts including power purchase agreements, EFET said.