The country's market regulator may have to introduce mechanisms to narrow the PSV-TTF spread, writes Iris Petrillo
A draft decree from the Italian government has reignited a debate on market intervention aimed at tackling the country's high gas prices with the hope of aligning them with northwestern European hubs — a goal already at the core of proposed regulatory interventions in the past. But market participants are casting doubt on the effectiveness of the scheme and its alignment with EU rules.
The proposed measures would require market regulator Arera to introduce at least one of two mechanisms to narrow the PSV-TTF spread — setting negative tariffs for entry capacity at the Passo Gries interconnection point with Switzerland, or a "liquidity service" that would essentially act as a spread cap.
Negative tariffs for entry capacity at the Passo Gries point aim to reduce costs incurred by firms transporting gas from northern Europe to Italy and in turn further integrate the Italian market into the European internal gas market, according to the draft. This measure could cost €100mn-150mn/yr, a market participant estimates, based on capacity costs and physical flows on the route last year. The government plans to recoup the cost by adjusting transmission tariffs, probably at the domestic exit points. The second option consists of a mechanism through which firms offer predefined daily quantities of gas at a guaranteed TTF-PSV spread — decided through a competitive auction but within a range set by Arera. The firms then would inject the sold volumes into the Italian grid at one or more entry points or through the use of gas held in storage.
Italy's PSV gas hub historically has commanded a premium to more liquid northwest European hubs such as the TTF, as its mix of mostly Russian, north African and LNG supplies typically required some additional flows from northwest Europe to meet residual demand. The loss of Russian supplies in recent years — albeit partially offset by Azeri imports and the commissioning of new LNG import capacity — has cemented the need for flows along the route, with entry flows at Passo Gries having rebounded to an annual average of 19.7mn m³/d in 2022, including a monthly peak of 44.8mn m³/d in July, from just 5.7mn m³/d in 2021, before edging slightly lower in the following two years.
With Italy's persistent reliance on Passo Gries flows, the structural PSV premium to the TTF stems from the accumulation of several entry and exit tariffs along the Transitgas route. Opaque capacity allocation and regulatory practices on the Swiss pipeline complicate the calculation of overall transport costs along the route, but shippers booking transport capacity from the Netherlands to Italy on a monthly basis in July would have paid a combined fee of €4.475/MWh, based on the results of a recent capacity auction from transmission system operator Fluxswiss. The PSV-TTF front-month basis was €3.175/MWh on 13 June, the day on which the capacity auction was held.
New plan, old problems
The plan has drawn criticism from market participants, who fear the measures could distort competition within the Italian market, and may also find opposition from grid operators of other European markets or the EU itself.
Intervening on the PSV-TTF basis by spreading the Passo Gries capacity cost on all exit points from the Italian grid could disadvantage importers sitting on pipeline and LNG long-term contracts through other routes. Each of the proposed mechanisms could also prove costly to consumers, as a result of higher network charges aimed at recouping the cost of implementing the mechanisms — an effect that could be exacerbated, in the case of the liquidity service, if Arera were to overestimate the volumes of gas offered to firms. Some have also questioned how compatible the scheme is with EU regulations — particularly the first option, which would directly contradict the EU network code's requirement that the same tariff methodology is applied at all entry points.
The proposed measures are reminiscent of a previously mooted plan for a "liquidity corridor" that was proposed in 2017 as part of Italy's latest energy strategy update but never implemented. The original scheme sought to target the same issue through a slightly different mechanism, under which the government would have mandated system operator Snam or another regulated body purchase long-term capacities on the France-Italy, Germany-Italy and Netherlands-Italy routes and offer the purchased capacity as bundled products through auctions, with a low or zero reserve price.
At the time, regulatory bodies and market participants had raised similar concerns. The Italian Competition Authority asserted that the corridor was anti-competitive against firms importing through other routes and that the reduction in transport costs ultimately would be passed on to final consumers. It also stated that the intervention may be incompatible with European state aid rules, in a document later endorsed by Arera. Such opposition and a later change of government eventually resulted in the plan being abandoned.
But unlike the old scheme, the latest proposal is being presented in the form of a government decree, which may become law as early as this month when the Council of Ministers returns from its summer recess. If approved, the legislation will need to be ratified by parliament within 60 days and later implemented by Arera, which could implement the measure by the beginning of 2026, although it would have no specific timeline in which to act.
| Netherlands-Italy monthly transmission fee, Jun | €/MWh | ||
| Fee | Multiplier | Total | |
| Exit from Netherlands | 0.43 | 1.50 | 0.65 |
| Entry into Germany | 0.77 | 1.25 | 0.96 |
| Exit from Germany | 0.77 | 1.25 | 0.96 |
| Transitgas capacity booking | 1.34 | - | 1.34 |
| Transitgas fuel gas | 0.01 | - | 0.01 |
| Passo Gries entry into Italy | 0.43 | 1.30 | 0.56 |
| Total | 4.48 | ||
