EXPLAINED: How Italy has avoided a huge hike in gas prices - for now

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EXPLAINED: How Italy has avoided a huge hike in gas prices - for now
A person turns up the heat in Germany. Photo by Ina FASSBENDER / AFP

Italy’s energy regulator on Thursday announced that gas prices have dropped by 13 percent - despite predictions of a 70 percent increase. Here’s why and what it means for residents.


Energy bills have been soaring in Italy as in the rest of Europe recently, and the trend was only expected to continue over the course of the cold season.

But Italian energy regulator Arera announced on Thursday that gas bills had in fact decreased by an average of 12.9 percent in October - a surprise drop after research company Nomisma Energia predicted a massive 70 percent rise.

READ ALSO: Italy’s energy giant reports huge profit as more price hikes expected

The news will come as a welcome relief to households and businesses in Italy, which is heavily dependent on natural gas as an energy source.


But many analysts, and Arera president Stefano Besseghini, say the respite from rising costs will be short-lived, as it is mainly the result of unusually warm weather throughout October making it possible to delay switching on the heating.

“Let's not let our guard down,” said Besseghini in a statement on Thursday, predicting price rises to come between November and January.

Hand turning knob on boiler

Many analysts say the respite from October’s price decrease will be short-lived as bills are expected to rise again in the coming months. Photo by Ina FASSBENDER / AFP

He added that “the cost of gas for October recorded a drop compared to the previous quarter but the percentages must not be misleading. The numbers ​​remain very high compared to the past.”

While many households will now receive a lower than expected bill for gas usage in October, and prices are down compared to the third quarter of 2022, the cost over the past 12 months (November 2021 - October 2022), was 67 percent higher than in the previous year.

The gas price rise this time was also contained by a change to the way Arera updates its energy tariffs.

The regulator has long published gas price reviews on a quarterly basis, but from October this changed to monthly.

Arera’s tariffs impact the prices paid by consumers, particularly those on a ‘protected’ or Maggior Tutela contract - which is approximately 36 percent of households, or 7.3 million residents out of a total of 20.4 million.

Changes to the price of gas will no longer be calculated based on the price of the Title Transfer Facility (or TTF, the exchange point in the Netherlands used as a reference for the entire European market), but from the average prices on the Virtual Exchange Point (PSV), the main Italian gas market.

Arera said this change means it will be able to “promptly pass on to customers the benefit of any European initiatives to contain the prices of energy commodities”, including a proposed EU-wide gas price cap that has been under discussion for months.

READ ALSO: How much are energy prices rising in Italy this autumn?

After reaching the record price of €350 per megawatt hour (MWh) in August, today gas in Europe is trading at around €100 per MWh.

Arera’s gas tariffs will no longer be calculated based on the price of the Netherlands’ Title Transfer Facility (or TTF) but from the average prices of Italy’s Virtual Exchange Point (PSV). Photo by Ida Marie ODGAARD / Ritzau SCANPIX / AFP

Davide Tabarelli, president of Nomisma Energia, said Arera’s change was “a good choice”.

"If the update had been made using the old system, at the end of September we would have had an increase of up to 200 percent,” he told news agency Ansa on Tuesday.

He added that the timing of the change "was also a stroke of luck, as it happens that the new system comes into force just as there is a drop” in European gas prices.


Electricity prices will continue to be revised quarterly, he noted, though a monthly update "could theoretically have also been applied to electricity”.

“Too bad it wasn’t,” he added. “If we had done it for electricity too, we would have already seen some price drops on the bill: instead we have to wait for January and hope prices stay low.”

Tabarelli stressed however that lower consumption was key to keeping energy prices down in winter.

Subsidies have the effect of "supporting consumption which, instead, must decrease" to encourage lower gas prices and to contain the risk of an energy shortage, he said.

If mild temperatures soon give way to a cold snap as predicted "and if Russia cuts [gas supplies] to zero, which is possible since we are at war, then rationing is assured”, he said.

Demand for gas has also been lower because of the fact that gas storage facilities across Europe have now been filled to around 95 percent capacity, according to reports.

But gas stores are not thought to be not sufficient to meet energy demand throughout the winter, and Europe doesn’t have the capacity to import large quantities of liquefied gas, experts point out.


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