Can Italy decarbonise without raising bills? A scenario-based assessment of renewable, flexibility and adequacy policies on power system costs through 2035

This paper assesses the potential evolution of the Italian electricity market under two alternative policy configurations: long-term Contracts for Difference (CfD), reflecting recent reforms, and pure merchant investment under the System Marginal Pricing (SMP) regime. Motivated by recent energy price volatility and investment uncertainty, we investigate whether Italy’s policy shift can achieve key objectives: supporting decarbonisation, enhancing energy security and ensuring affordability. We employ the NET model — a system-dynamics framework calibrated on national data and policy targets — extended to incorporate CfD auctions, the MACSE storage-procurement mechanism, capacity-remuneration tools and Terna’s planned grid upgrades. Using 12-year Monte Carlo simulations (2024–2035), we compare outcomes in terms of renewable energy deployment, system-cost efficiency and consumer-price dynamics, and test robustness via sensitivity analyses. Our results demonstrate that renewables reduce consumer bills and narrow future price volatility, yet neither CfD nor SMP alone meets the National Energy and Climate Plan’s 2030 decarbonisation target — a shortfall driven by low ceiling prices in CfD auctions and moderate fossil-fuel price forecasts under SMP. While electricity price differences between the two market designs remain modest, beyond a certain RES penetration threshold, CfD is more effective at containing price spikes, whereas SMP facilitates faster long-term price declines via accelerated RES investment. These findings imply that policymakers should periodically recalibrate CfD auction parameters — particularly ceiling prices — to maintain alignment with evolving market conditions. Conversely, relying solely on merchant initiatives risks subjecting policy targets to uncontrolled fossil-fuel price fluctuations.