Italy: Energy Release 2.0 relieves companies with high electricity consumption and benefits sustainability

published on 3 December 2024 I reading time approx. 5 minutes

Not only the German, but also the Italian energy-intensive industry has suffered greatly from high electricity and gas prices in recent years and is considering emigrating or calling for the energy transition to be postponed in order to give companies more time to adapt. To counteract this and also drive forward the expansion of renewable energies, the Italian Ministry for the Environment and Energy Security (MASE) issued a decree on 23.07.2024 approving the so-called Energy Release 2.0, thereby modifying the existing mechanism. The Energy Release 2.0 represents an important opportunity for energy-intensive companies in Italy and aims to promote the installation of new renewable energy plants and offer energy-intensive companies the opportunity to purchase electricity at reduced prices. The modified mechanism is based on the objectives of the National Energy and Climate Plan PNIEC and Article 1, paragraph 2, of Legislative Decree no. 181/2023, converted by Law no. 11/2024, the so-called Energy Decree 2023, and is also very interesting for the Italian subsidiaries of German companies that are recognized as energy-intensive (energivoro) in Italy and also want to meet ESG requirements through the mechanism.

With the publication on the institutional website of the Ministry, the decree regulating a mechanism for the realization of new electricity generation capacities from renewable energies by energy-intensive end customers has entered into force; the GSE recently issued the corresponding implementing regulations and published the call for tenders on 14.11.2024. This means that companies now have until 13.01.2025 to send their expressions of interest to the GSE, stating, among other things, the amount of electricity they wish to purchase. The so-called energivori include more than 4,000 companies in Italy that are entered as such in the CSEA register because they have an annual electricity consumption of at least 1 GWh and meet the other legal requirements. They now have the opportunity, either themselves or via an aggregator, to initially purchase electricity and the corresponding guarantees of origin from the GSE at a fixed price (for a term of 36 months) and then reimburse the same amount of electricity over a term of 20 years by committing to building new renewable energy plants themselves or via third parties.

Scope of application and procedure

The mechanism becomes particularly interesting through the possibility of energy-intensive end customers joining together in a group, i.e. as an aggregate under an aggregator, which carries out the entire process for them and which also takes over the construction of the new renewable energy plant: they do not have to realize the new renewable energy plant themselves, but can leave this to a third party with whom they are only connected via the aggregator and who concludes a separate contract with the GSE. The conclusion of an offtake agreement with the GSE and the conclusion of a return agreement with the GSE is envisaged; both can be concluded by the energy-intensive company or by the aggregator for several companies; the return agreement can also only be concluded with the GSE by the third party who is the plant operator.

It is stipulated that the new generation capacity from renewable energy sources must have a total capacity that is at least twice as high as that covered by the surrender agreement to be concluded with GSE and that it must be achieved through the construction of new photovoltaic, wind and hydropower plants with a minimum capacity of 200 kW each or through the upgrading or modernization of photovoltaic, wind and hydropower plants that enable an increase in capacity of at least 200 kW.

The newly installed systems must be commissioned within 40 months of signing the offtake agreement with GSE.

Withdrawal and return contract

Expressions of interest can be submitted until 13.01.2025; GSE will then evaluate them and inform the companies (or the aggregator) how much electricity has been allocated to each of them and conclude the withdrawal contracts with the companies (or the aggregator), which function as CFD - Contracts for Difference - i.e. similar to a virtual PPA. The GSE will calculate the difference between the delivery price of €65/MWh (which is not adjusted for inflation) and the average monthly electricity market price for a period of 36 months using the allocated electricity volume. If the difference is negative (because the market price is higher than €65/MWh), the GSE will pay the amount to the end customer; if the difference is positive, however, it will demand a refund of the same amount from the end customer.

Although the GSE will not physically send the allocated amount of electricity to the energy-intensive end customer, it will send the corresponding guarantees of origin for 36 months in accordance with MASE Decree No. 224/2023. It should be noted that the amount of electricity requested in the expression of interest on an annual basis may not exceed the average annual consumption that is relevant for entry in the CSEA list.

After signing the withdrawal contract, and within the 40-month period - within which the new generation capacity must also be realized - the end customer/aggregator/third party plant operator must conclude the return contract with the GSE, which provides for the obligation to return to the GSE the electricity it has paid in advance and the equivalent value of the corresponding guarantees of origin. This repayment is made over a period of 20 years from the commissioning of the new RE plant at a repayment price equal to the sales price of €65/MWh without inflation-related revaluation.

As mentioned above, both contracts can also be concluded by the energy-intensive end customer in aggregated form: In this case, an aggregator is designated by a special agreement to act as a contractual partner with the GSE. Furthermore, it is also possible for the return contract to be concluded directly by a third party that has built the plant, instead of with the end customer or the aggregator.

As usual, suitable collateral corresponding to the value of the energy advanced must be provided for the conclusion of both contracts. In this context, it should be noted that, in accordance with Regulation (EU) No. 2831/2023, the end customer may receive a contribution to the so-called “de minimis” aid to cover the costs of the guarantee required by the GSE. This contribution can be requested up to 50% of the guarantee itself and up to a maximum amount of EUR 300,000 for each company within the overall ceiling of EUR 100,000,000.

Implementation rules and invitation to tender

The recently published implementing rules regulate:

the procedure for the submission of expressions of interest, including the application forms;
the procedure for the allocation of electricity as an advance;
the withdrawal and return contract to be concluded with the GSE and the system of guarantees required;
the arrangements for the reimbursement of electricity received in advance;
the conditions under which the final consumer may reduce the amount of electricity advanced and the possible redefinition of the new generation capacity required for the return.

In the invitation to tender published on 14.11.2024, in addition to the application deadlines, the GSE also communicated the available quantity of electricity (23 TWh) and the corresponding guarantees of origin that will be available to the GSE as part of the expected production over the next three years and it remains to be seen how many applications for participation there will be and what quantities of electricity will be requested in these.

The quantity of electricity to be advanced by GSE and the associated guarantees of origin will be allocated to end customers on an annual basis in proportion to the total quantity applied for. If the total quantity of electricity applied for under the procedure exceeds the quantity of electricity available to the GSE, a pro rata allocation is made on the basis of the applications submitted. If a company does not receive a sufficient quantity of electricity in this way, it can waive the mechanism.

Conclusion

We consider participation in the allocation procedure for energy-intensive companies to be extremely interesting once the entire regulatory framework has been announced, particularly the case of aggregation and the participation of one or more third parties that are already in the process of constructing new renewable energy plants. The conclusion of the first contracts is planned for spring 2025.