Italy: Issue of the new decree on the incentive regime for renewable energy sources

In a nutshell:

On 23 June 2016, the Ministry of Economic Development signed the Ministerial Decree on the incentive regime for renewable energy power plants (except for photovoltaics); it will take effect within the next days. The decree which had long been awaited by enterprises and consultants in the energy sector finally creates the prerequisites for new investment opportunities in this sector in Italy; the previous decree (Ministerial Decree of 6 July 2012) had provided for financial incentives for large energy plants (except for photovoltaic systems) only until 2015 (annual capacity quotas eligible for incentives).

Summary and scope of application of the new decree

The incentive mechanism does not deviate from the previous regime under the decree of 6 July 2012. The following has virtually not changed at all:

An all-inclusive tariff including the revaluation of power sale as well as incentives
Limitation of the average annual cumulative costs of the incentives for this type of plants to EUR 5.8 billion
The applicable procedures for accessing the incentives (direct access, registry procedure, competitive auction procedures)
Different eligible capacity quotas apply depending on the type of renewable energy source, except for photovoltaics

Besides, the new decree of 23 June 2016 will not replace the “old” Ministerial Decree of 6 July 2012, which will remain applicable and effective in respect of plants that have placed themselves in a good position for obtaining the incentives on the ranking lists created as part of the registry procedure and the tender procedures; the “old decree” will also benefit from the tariffs established by the above-mentioned decree. The decree of 23 June 2016 (hereinafter “Decree”) provides that applications for access to the incentive scheme will not be accepted anymore after 31 December 2016 (applications relating to plants with direct access to the tariffs will not be accepted after 31 December 2017). Alternatively, the date of reaching the EUR 5.8 billion threshold is decisive in the respective case.

Procedure governing the access to incentives

According to the Decree, the procedures under the incentive regime will follow the same path as those provided for in the Ministerial Decree of 6 July 2012, that is, they will depend on plant capacity:

Figure 1: Procedure for the access to incentives

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Smaller plants will continue to have direct access to incentives in the meaning of Article 4 §3. The category of “small” plants includes in particular, but is not limited to:

Wind energy plants and offshore plants of up to 60 kW;
Hydropower stations with a licensed nominal capacity of up to 50 kW, (this limit has been raised to 250 kW in respect of the cases specifically provided for in the same paragraph);
Biomass plants [according to Article 8 § 4 items a) and b)] with a capacity of up to 200 kW and biomass plants with a capacity of up to 100 kW.

With regard to medium-scale and large energy plants, the Decree contains specific provisions regulating two types of tender procedure (publication as per Decree probably on 20 August 2016, see figure 2).

The eligible tariffs will be granted by way of reverse auction procedures. In the case of large plants (more than 5 MW) these procedures have been split depending on the plant technology. Medium-scale plants will have to file an application for entry into the relevant registers.

In respect of tenders by way of entry in the register, Articles 9 and 10 provide as follows:

The rankings determined on the basis of the tenders will be fixed, provided that no participants in a favourable position waive their position; such waiver must be declared to GSE (state-owned energy supplier) within six months after the date of publication.
New priority criteria (such as an unfavourable position in the registers provided for in the Ministerial Decree of 6 July 2012)
The period of delay in the commissioning of a plant is reduced from 12 to 6 months

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For tender procedures where the price component is crucial, Articles 12-15 of the Decree provide that the offered prices may not be lower than 40% of the basic auction price; submission of a statement issued by a bank confirming the participant’s economic and financial standing (finance brokers are not allowed to issue such statements); exclusivity of bank guaranties; introduction of a new priority criterion, that is, at least two “stars” in the legal compliance ranking according to Article 5 of Decree-Law No. 1/2012 as amended by Law No. 27/2012; recovery of the final deposit amount (a variable percentage of between 30 percent and 50 percent, depending on how fast GSE is informed about the decision; in any case, GSE must be informed within 12 months after the date on which the ranking list was published) by GSE if the participant refrains from project implementation.

The Decree confirms the allocation of capacity quotas to the respective types of renewable energy sources according to the advantages provided for under the incentive regime and stipulates the new calculation of the capacity value:

Capacity quotas eligible for incentives after entry in the register:

Wind energy onshore: 60 MW
Hydro energy: 80 MW
Geothermal energy: 30 MW
Biomass and biogas: 90 MW
Offshore energy: 6 MW
Thermal use of solar energy: 20 MW

Capacity quotas eligible for incentives via reverse auctions:

Wind energy onshore: 800 MW
Wind energy offshore: 30 MW
Geothermal energy: 20 MW
Thermal use of solar energy: 100 MW
Biomass and waste: 50 MW

Capacity quotas eligible for incentives due to improvements made:

Wind energy onshore: 40 MW
Hydro energy: 30 MW
Geothermal energy: 20 MW

Tariff rates

Article 7 (4) of the Decree provides that GSE, if requested, collects the electric energy fed into the grid by plants with a capacity of up to 500 kW. This takes place by granting a comprehensive incentive tariff for the generated net energy fed into the grid, which is established depending on the source of energy, type of project and plant capacity. This results in a clear reduction in the capacity threshold which must be reached for the said tariff to be granted (in fact, the Ministerial Decree of 6 July 2012 grants access to incentive tariffs to plants with a capacity of up to 1 MW).

Moreover, Article 17 (4) of the Decree provides deadlines for the commissioning of fully or partly renovated onshore wind energy plants, hydropower stations and geothermal plants. If the deadlines are not kept, the incentive tariff will be reduced by 0.5 percent per month within a maximum delay period of eight months, except for a period for which a plant must discontinue its operations due to the work that must be performed as a result of an officially confirmed natural disaster.

Schedule 1 includes exemplary amounts stipulated in the Decree for some types of renewable energy sources. For more information please see annex 1 of the Decree on RE.

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Provisions on photovoltaic systems

Even though the Decree does not expressly address photovoltaic power plants, it nevertheless contains provisions that also apply to such plants. In particular, Article 30 (“Interventions in plants under operation”) stipulates that GSE will update and publish the procedural provisions regarding the maintenance and modernisation of plants eligible for incentives, including photovoltaic systems, within 90 days from the effective date of the Decree. The aim is to ensure the efficiency of power plants and, at the same time, to avoid any activities that could lead to an excessive increase in the costs of incentives. The procedures correspond to the criteria established in Article 30, including e.g.:

Admissible is maintenance work increasing the nominal capacity of the entire plant, individual machines or parts thereof, and of the first engines (if any) by no more than 1 percent. With regard to plants with a nominal capacity of up to 20 kW an increase of up to 5 percent is allowed.
In the case of replacement either new or regenerated spare parts must be used.
Subject to certain exemptions, maintenance work that results in replacing the main components of the plant must be communicated to GSE within 60 days upon completion of such work (the main components of photovoltaic systems are modules and inverters).