Deregulation, price hikes, and passing the buck

The Opposition has made a commitment to introducing a similar liberalisation of the electricity and gas market in Malta if it is elected to power. Such a change would free a future government from any obligation in the electricity sector. The price of electricity would rise but a future Prime Minister would blame operators for the rising cost of living.

The Italian government has announced that the retail electricity and gas markets will be liberalised from January 2024.

Up to now, like Malta, Italy had a derogation that allowed it to keep one price for all consumers as the distribution network was not liberalised. The right-wing Meloni government has announced that no further derogation will be sought from European rules, that ask for a liberalised electricity and gas market.

What does this measure – which, here in Malta, is the main policy idea of the Nationalist Party in the energy field – imply? In simple terms, while so far there has been a single, controlled price of electricity and gas in Italy, now consumers will have to find and choose a firm from where to buy their electricity and gas – just like they do for products like their mobile telephone service. Where no choice is made, the customer is switched automatically to an operator chosen by the regulator for that area.

Consumer organisations are warning families to be very careful in their choice as new companies that have hatched since the liberalisation was announced are offering several options. But, as with bundled services, in several of them there is an element of deception, such as an initial low price that then turns into a high price for the rest of the contract, as well as advertisements highlighting very low rates without saying that they only apply for certain limited night-time hours, whereas ignoring the high prices at normal times.

The head of the Consumer Association, Consumerismo, Luigi Gabriele, claims that now that the regulated price will be removed, there will be an increase in prices. This will happen because now the price benchmark has been removed and firms have all the incentive to make their prices less transparent, such that consumers will find it difficult to compare operators’ prices. He argues that it will become very difficult to understand which is the most agreeable offer. This is also in view of the fact that when someone enters into a contract with an operator it will not be easy to just cancel the contract if one realises that they have made a mistake.

So far, the reports seem to imply that Italians will be bombarded with around two thousand different offers, as all companies around Europe will be able to offer their services. Besides the issue that consumers will find it very difficult to choose, there are worries that with energy generation and distribution now separate, the two services will become more expensive as firms will want to make a profit on generation and on distribution, whereas till now one area used to subsidise the other. Consumer associations have said that, out of these two thousand offers, only two hundred seem to be more convenient than the present price. But even then, households will need to choose wisely which contract suits them – whether it is a fixed-price one, or one with the price moving in line with the international market.

It is worth recalling that Italy already has the sixth highest electricity price in Europe. The chance is that Italian customers will end up being more disadvantaged. Among others, it seems that electricity prices will differ by region dependent on how expensive provision is there and the size of the market. 

The Italian government’s decision has led to internal discord within Italy’s ruling coalition. Some parties, such as the Northern League, are claiming that the Government should have asked for another derogation, particularly due to the high inflation environment that Italian households are already suffering from. At the same time many Italian families are deeply worried about this change as they fear what will happen to them if they choose badly and end up worse off on this essential service.

Here in Malta, the Nationalist Opposition has made a commitment to introducing a similar system if it is elected to power. As it will do with the Italian government, such a change would free a future Maltese government from any obligation in the electricity sector. The price of electricity would rise but a future Prime Minister would blame operators for the rising cost of living.

Photo: ANSA

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