Bankinter | Giorgia Meloni is considering a plan to lower electricity prices that could have a negative impact on the sector. The plan being considered by Italian Prime Minister Giorgia Meloni consists of intervening in the functioning of the electricity market to eliminate the impact of CO2 costs from bills.
The marginal cost of generation from a combined cycle gas plant is what sets the price of electricity on many days of the year within the marginalist pricing system of the electricity pool. This cost has two components: gas and CO2 emission rights.
By eliminating the CO2 component, the cost of combined cycle gas would be reduced, and therefore so would the pool price. Combined cycle power companies would be compensated for this elimination of the CO2 allowance cost with direct aid and tax measures.
Bankinter analysis team’s view: Bad news for the sector if these measures are finally approved. At current gas prices (€33/MWh) and CO2 allowance prices (€72/tonne), the marginal cost of a combined cycle power plant would be €42/MWh. The gas component would represent €18.2/MWh and the CO2 component would reach €23.8/MWh. By eliminating the impact of the CO2 cost (Meloni scenario), the cost of combined cycle would be reduced from €42/MWh to €18.2/MWh.
With a gas price of €40/MWh and the same price for CO2 allowances, the marginal cost of a combined cycle power plant would be reduced from €46/MWh to €22/MWh by neutralising the CO2 component.
At the moment, it is only a proposal and has not been approved either in Italy or at EU level.
Within the electricity sector, the companies that would not be affected if these measures were adopted at EU level would be those groups exclusively dedicated to transport infrastructure (Enagas Redeia, Terna, etc.), as they are not exposed to the generation/marketing business. The groups where the impact would be most limited would be those with a larger proportion of their business in distribution networks, those with more long-term electricity sales contracts (PPAs) or those with greater marketing activity (they market more energy than they produce and could offset this measure with a potentially higher marketing margin). This group would include Iberdrola, Endesa, E.On, RWE and Naturgy. Renewable energy companies that sell most of their electricity directly to the pool (Acciona Energía, Solaria, etc.) would be more affected. These companies are currently the ones that benefit most from the marginalist system and the automatic transfer of CO2 to the final pool price.
