FER X Decree: what’s new in the updated draft in circulation

published on 11 June 2024 | reading time approx. 7 minutes

Last May 31, a new draft of the so-called FER X Decree was circulated, which - after the various Conto Energia and FER Decree decrees of a few years ago - is again aimed at providing incentives for the construction of power generation plants from the main renewable sources. The measure is set in a context, namely that of the renewable energy market, which has changed profoundly compared to the past and which is developing - especially with regard to so-called utility scale plants - in a grid parity logic, thus without relying on incentives. Despite this, all operators look - even in the presence of fluctuations in energy prices - with great interest to incentives and thus to the FER X Decree, the contents of which we intend to summarize in this paper.

The draft FER X Decree will aim to provide incentives for the construction of power generation plants from renewable sources, namely photovoltaics, wind power, hydroelectric power and residual gases from sewage processes.

As a reminder, the support mechanism provided by the FER X Decree implements what is provided for in Legislative Decree No. 199 of November 8, 2021, which, in turn, transposed Directive (EU) 2018/2001 on the promotion of the use of energy from renewable sources ("RED II") into our law and which in Title II regulates support schemes and instruments for the promotion of renewable energy.

Specifically, RED II regulates in Articles 6 and 7 the specific criteria with which support mechanisms must comply, providing in particular for the regulation of auction procedures for plants above 1 MW and direct access for plants below 1 MW.

Types of procedures to access support mechanisms

Precisely in implementation of Articles 6 and 7 of RED II, the current draft of FER X Decree provides two different procedures for accessing support mechanisms depending on the capacity of the plants, namely:

direct access for plants with a capacity less than or equal to 1 MW, up to a maximum quota of 10 GW (versus 5 GW in the previous text and, therefore, increased following criticism during the public consultation phases);
access following participation in competitive procedures through downward auctions, to be announced by 2028, for plants with a capacity higher than 1 MW, for a total quota of 57.15 GW (quota, however, reduced by 5 GW compared to the text of the draft circulated in early March) divided as follows:

Technology	Estimated total quotas 2024-2028 (GW)
Photovoltaic	40
Wind power	16,5
Hydroelectric	0,63
Residual gases from purification processes	0,02
Total	57,15

Requirements for access to incentives

For the purpose of access to support mechanisms, the following requirements must be met and guaranteed:

plants with a capacity less than or equal to 1 MW must have started work after the entry into force of the FER X Decree and possess the performance and environmental protection requirements necessary to comply with the principle of Do No Significant Harm (DNSH) as well as the requirements in Annex 2 of the draft RES X Decree; while
plants with a capacity of more than 1 MW must ensure possession of a permit (or, alternatively and at the request of the participant, a favorable environmental impact assessment measure); final acceptance of the estimate for connection to the electricity grid; the performance and environmental protection requirements necessary to comply with the principle of Do No Significant Harm (DNSH); and a statement issued by a banking institution certifying the financial and economic capacity of the participant in relation to the scale of the intervention.

New plants for which construction work has begun before submitting the application to the GSE cannot participate in the auctions.

On the other hand, interventions of reactivation of decommissioned plants, complete reconstruction and upgrades of existing plants are allowed, it being understood that, for the latter, access to the support mechanism is allowed limited to the new section of plant attributable to the upgrade.

Incentive tariffs and disbursement methods

As for the tariffs, which are either directly recognized or auction-based depending on the capacity of the plants, for 2024 are as follows:

Renewable source	Power	Operating price	Higher operating price	Lower operating price
	MW	Euro/MWh	Euro/MWh	Euro/MWh
Photovoltaics	≤ 1 > 1	93 85	- 95	- 70
Wind power	≤ 1 > 1	93 85	- 95	- 70
Hydroelectric	≤ 1 > 1	130 90	- 105	- 80
Residual gases from purification processes	≤ 1 > 1	100 85	- 100	- 75

The operating price corresponds to the feed-in tariff received by RE plants that have direct access to the incentive.

The higher and lower operating prices, on the other hand, are the reference prices that are applied in the auction process. The upper operating price is intended to ensure appropriate remuneration for RE plants in the presence of particularly high cost conditions, while the lower operating price is used for more favorable cost conditions.

Furthermore, in the new draft, the additional premium for photovoltaic systems that replace Eternit has been reduced from EUR 35/MWh to EUR 27/MWh.

The amount of electricity supported in each tender will be determined on the basis of the bids received and their price. The quota in each procedure is determined on the basis of a demand curve drawn up by the GSE in accordance with the information in Annex 2 of the FER X Decree.

With reference to the way the tariffs are disbursed, the GSE, for plants with a capacity of 200 kW or less and unless otherwise requested by the responsible party, disburses an all-inclusive tariff (the energy is thus fully remunerated with the incentive, which also includes the selling price). For plants, on the other hand, with a capacity of more than 200 kW, the electricity produced remains at the disposal of the producer, who independently provides for its valorization in the market, and the tariff is a two-way contract for difference.

In order to account for inflation, the award price is updated by the GSE based on the annual rate of change in consumer prices for blue- and white-collar households as measured by Istat.

For the purpose of access to competitive procedures, applicants must offer a percentage reduction on the operating price of not less than 2 per cent. The FER X Decree then provides, in the case of exceeding the quota made available for the individual procedure, certain priority criteria for the auctions, including the removal of eternit and asbestos for photovoltaics, the construction of the plants in suitable areas, the presence of storage systems, the signing of a power purchase agreement (PPA) with a duration of at least 10 years, and the anteriority of the last date of completion of the application for participation in the procedure.

The current draft of the RES X Decree then regulates an accelerated evaluation procedure for plants above 10 MW, through which the GSE reviews the project in parallel with the conduct of the single authorization process.

In addition, the draft stipulates, for plants with a capacity of more than 6 MW, mandatory enablement for the provision of dispatching services, while for plants with a capacity less than or equal to 6 MW, the aforementioned enablement is optional.

Entities that have had access to the support mechanism provided by the measure under review may renounce it before the end of the entitlement period. In this case, said entities will be required to pay to the GSE a fee that is proportional and increasing according to the total power of the plant and decreasing according to the remaining period of contracting. The consideration to be paid to the GSE will in any case be no more than 15 per cent (and no longer 20 per cent as indicated in the previous draft) of the standard investment cost of the plant contained in Annex 1 of the draft FER X Decree.

Deadlines for the commissioning of facilities and delay penalty

Following the publication of the rankings, new plants will have to come into operation within 34 months for wind power, 21 months for photovoltaic (deadline raised to 26 months for photovoltaic plants whose modules are installed to replace asbestos or eternit roofing) and 54 months for hydroelectric and sewage gas. Plants undergoing refurbishment, on the other hand, will have to come into operation within 39 months for hydropower (deadline raised to 48 months if it involves geological work in tunnels aimed at improving environmental impact and for reservoir plants with a capacity of more than 10 MW) and 27 months for sewage gas. For plants in the ownership of the Public Administration, the above deadlines are increased by 6 months.

In case of delay in the commissioning of the plants, a penalty will be applied corresponding to the reduction of the award price equal to 0.2 per cent for each month of delay for the first 9 months and 0.5 per cent for the next 6 months, up to a maximum of 15 months. Once this period is exceeded, one lapses from the ranking list and the GSE will retain the deposit paid. In addition, should the plant subsequently be readmitted to the incentive mechanisms, the GSE will apply a 5 per cent reduction to the awarded tariff.

Cumulability with other forms of incentives

Finally, the draft FER Decree X stipulates that the support mechanism can only be combined with:

for new construction facilities only, capital grants not exceeding 40 per cent of the investment cost;
guarantee and revolving funds;
Tax relief in the form of tax credit and tax deduction from business income of investment in machinery and equipment.

In cases of cumulability with other forms of incentives, the award price will be remodeled.