Current developments in energy efficiency in Italy

In a nutshell:

Many enterprises with high energy consumption and thus, also many subsidiaries of German enterprises have already implemented energy efficiency measures or plan to do so with regard to buildings and equipment.  Of great importance for the decision whether to implement such measure or not is the access to the funding mechanism based on so-called White Certificates and regulated mainly by the Ministerial Decree of 28 December 2012, because the funding affects the profitability of a given project.

How the White Certificates scheme works 

Under the White Certificates funding scheme, enterprises that have implemented energy efficiency measures are granted the right to obtain White Certificates in a number that corresponds to the amount of primary energy (assessed using tonnes of oil equivalent units) saved owing to implementing such measures. Depending on the respective type of measure, energy savings are determined on a lump-sum basis, by way of analytical calculation or exact measurement. Certificates are issued over a certain period of time, that is, five or eight years, and the type of the implemented measure determines the funding period in the individual case.

The enterprise may register for participation in the funding scheme by itself if it is an energy intensive enterprise in the meaning of the framework legislation and if it has appointed an energy manager or has been certified to ISO 50001. Enterprises that do not meet these conditions must collaborate with a so-called ESCo (Energy Service Company)  which takes over the necessary reporting on accrued  savings and the management and sale of White Certificates.

The certificates can be sold to so-called “Obliged Companies”, i.e. to energy and gas supply companies (and its subsidiaries) which are legally obliged to annually save a certain minimum amount of primary energy  – also assessed using tonnes of oil equivalent units. The energy savings must be evidenced by submitting the sufficient number of White Certificates to the competent authority; enterprises have also the possibility to additionally purchase White Certificates if they are not successful in achieving the minimum savings through their own measures.  White Certificates can be additionally purchased either by concluding direct contracts with the holders of White Certificates or on the stock exchange operated by Gestore dei Mercati Energetici S.p.A. (GME) Thus, the price for White Certificates is not determined by the state but results from demand and supply in the market.

Figure 1: Development of the prices for White Certificates between 2006 and 2015
(Click to enlarge)

During the first months of 2016, the average prices for certificates ranged between EUR 122 and EUR 126 with the minimum and maximum prices being, respectively, EUR 105 and EUR 155. The price increase is the result of, among others, the developments that took place within the last months. Those developments will be presented below.

The role of GSE

In 2013, GSE, a public law institution, took over  the entire management of the White Certificates funding scheme from Autorità per l‘energia elettrica il gas e il  sistema idrico (AEEGSI). GSE, which reports directly to the Ministry of Economic Development, is competent for qualifying projects for inclusion in the funding scheme, periodic certification of savings (and issuing of the relevant White Certificates).  At the same time, GSE has been tasked with monitoring whether individual projects are implemented correctly from a technical and administrative standpoint.

The last months have seen an increased number of conflicts with GSE, which may lead to a crisis in the funding scheme, in particular in respect of the minor market participants, and this could, in turn, result in a consolidation of the market. Overall, it can be stated that GSE is increasingly rejecting applications for admittance to the funding scheme or is subsequently withdrawing certificates already issued.

Currently, besides smaller problems regarding projects for which savings are calculated on a lump-sum basis or by analytical means, severe problems are also being frequently reported with projects where savings are measured exactly. This is an alarming signal, in particular because such projects have a particularly high saving potential  and require high investment and operational costs. A large part of those projects were implemented in the industrial sector (in particular, in the steel industry, food industry, chemical industry, petrochemical industry, paper and ceramics manufacturing and wood processing industry); according to official figures released by GSE, in 2015 alone they made up 68% of the projects for which applications were filed.

Problems that often occur are: so-called PPPM [Proposta di Progetto e Programmadi Misura: proposed process and programme for the measuring of energy savings] are not approved (i.e. approval of the application for admittance to the funding scheme), GSE's web portal is not updated and this renders it impossible to the participants to submit the necessary RVC [request to verify and certify the savings] (i.e. the application to be regularly filed with GSE during the entire funding period for the generated savings to be actually measured and certified, which is the basis for determining the number of White Certificates to be issued), and RVCs are rejected or are not processed within the appropriate period provided for by the law.

The reason behind this situation, which has led to numerous legal disputes with GSE, is an incomplete legislative framework. This includes e.g. the lack of a Ministerial Decree determining new guidelines for establishing the criteria and procedure for issuing certificates. In the meantime, until the Decree is adopted, the guidelines of AEEGSI [Autorità per l'energia elettrica il gas ed il sistema idrico] of 2011 apply which, however, have proved insufficient in view of the development of the funding mechanism and the exponential increase in the number of applications during the last years (according to GSE figures, in 2010, 800,000 White Certificates were granted for projects with exact measuring of saving ,whereas 2014  saw as many as six million certificates).

GSE applies noticeably stricter criteria and parameters than the authority that had been in charge of the verification of applications in the previous years. Whether GSE’s decisions are always within the limits of permissible discretion will have to be determined on a case-by case basis. For example, GSE introduced the “profitability” criterion with regard to some projects and refused to issue White Certificates for projects with an extremely short investment payback time (three years or less).

Besides, the “measure additionality principle” is applied to many projects: when calculating the number of White Certificates to be obtained a corrective coefficient is used in order to ensure that gross energy savings are reduced by savings that would have accrued anyway, i. e. without funding, due to the natural market development and the legal situation. This should ensure that funds are obtained only for savings generated exclusively by the project . GSE, however, implements this principle in a very restrictive way.

The current development also affects the subsidiaries of German enterprises that either have implemented energy efficiency measures in their establishments or are planning to do so. Therefore, contracts are currently being revised and, where necessary, improved, or subsequent agreements on the provision of collaterals are being concluded with regard to many projects in order to prepare for the consequences of a possible dispute with GSE. If the worst comes to the worst and if a dispute with GSE cannot be settled through negotiations, one will have to take recourse to the administrative courts. However, the first reliable decisions can be expected no sooner than at the beginning of the next year.