Home
Internal
Incentives, which, in accordance with Decreto FER 1 (in force since 10/08/2019), are to be awarded, overall, in seven procedures to be held between 2019 and 2021, are not granted for the produced electricity but for the electricity that is injected into the grid. Incentives are granted for PV power plants with a capacity of at least 20 kWp, wind power, certain types of hydropower, and biomass gas. For other technologies, such as geothermal energy and CSP, legislative efforts are being made to introduce regulations on incentives. Incentives are available only to power plants in the case of which registration has been applied for after obtaining all project-related rights (building and operating permits and grid connection permit from public authorities) but before the start of their construction (< 1MW), or to power plants that took part in a tariff auction (> 1MW) and that are new power plants or have been repowered. PV power plants on agricultural areas are not eligible for any incentives.The reference rate of the tariff for electricity injected into the grid depends on the energy source and is between €70/ MWh and €155/MWh. The payment of the tariff is suspended if the zonal market price is nil or negative for over 6 hours. Based on the previous decrees, a great number of renewable energy systems have been installed, which now account for 20% of the energy market. Because of this trend, the secondary market is now flourishing.
In the past, there were cases where power plants that participated in the procedure were eventually not built, so now guarantees are required to confirm the seriousness of the project. Certain technologies (e.g. photovoltaics) are already so mature that they can be profitable without incentives. It remains to be seen whether the incentives created under FER 1 will catch on. Not all power plants and technologies, such as biomass, are eligible for incentives; also the existing power plants are not eligible for incentives under Decreto FER 1. The tariff works in two directions: if the zonal market price is above the rate of the incentive tariff, the operator must repay the difference and this payment obligation of the operator involves a certain element of risk.
In the coming years, the reference rate of the incentive tariff will be reduced. Overall, the profitability of projects covered by FER 1 is comparable to that under other marketing models. Although there is political will to continue the incentives granted under FER Decrees, the process of transitioning to PPA models has already begun.
The self-consumption model is incentivised in a traditional way. Decreto FER 1, however, incentivises self-consumption by special tariffs and premiums only in the case of PV power plants with a capacity of less than 100 kW. In addition, operators may run one or several power plants with the maximum nominal capacity of 20MW generating electricity from renewable resources or CHP (combined heat and power) as private networks (Sistemi Efficienti di Utenza). The requirement for that is that the private network must be connected to a power system of a final off-taker and be located on a single property owned by the final off-taker or which the final off-taker is otherwise entitled to use. The electricity consumed as part of the network is not subject to general system fees, or transmission and network balancing charges.
The changeable and not always clear statutory provisions create legal uncertainties. Collective self-consumption, i.e. the pooling of several power plants operated for self-consumption for joint supply, is currently possible only among members of the same group of the local society.
As Italy is more and more implementing the EU guidelines regarding national regulatory frameworks (the implementation is planned to be completed by the end of 2019/2020), power plant operators will be able to store the produced electricity and sell it on to third parties (e.g. neighbours). In addition, self-consumption and energy communities are being implemented based on RED II.
In Italy, there are no special legal regulations concerning PPAs. From the regulatory point of view, there are thus no special legal barriers to signing PPAs. Renewable energy installations in direct proximity of and directly connected to the electricity off-taker are the simplest form of power plants [for PPAs]. Also a market of corporate- and merchant PPAs has emerged.In Italy, PPAs have existed in practice since 2016/2017 and most of them are simple agreements with usually short contract periods and refer to the sale of electricity to a wholesaler. Since most of the power plants covered by those PPAs already receive funding mostly in the form of incentive tariffs and, moreover, the return to the ritiro dedicato scheme is always possible, the short contract periods are usually not a problem.
Tailor-made hedging solutions are only starting to be offered. In practice, it is difficult to plan the volume of the electricity that will be fed into the grid. Also the network service costs should be taken into account when calculating profitability.
The incentivisation of signing PPAs with long contract periods is being driven forward, e.g. through the establishment of marketing platforms in which operators of renewable energy installations can participate in order to be able to offer the produced electricity to customers. Moreover, the regulatory authority plans to introduce respective models for long-term PPAs so as to reduce the administrative effort for companies and to make it easier for them to obtain financing.The existing renewable energy installations whose incentive period will end in the foreseeable future will play an increasingly important role in PPAs, because most of them will already have repaid their financing loans and will produce electricity virtually at no cost, except the usual maintenance and operating costs, and will be able to sell such electricity to external customers.
Leasing has been very popular in the area of CHP and photovoltaic power plants for many years. The market has been dominated by energy service companies (= contracting companies). There is no special regulatory framework for that. In practice, the operating lease model is the most common model where no bank financing is used. Under this model, the electricity requirement of the lessee is determined, based on which the type and the capacity of the PV power plant is then determined. The lessee does not incur any start-up costs and pays lower costs for the supply of electricity in the long term, because, instead of an electricity bill, the lessee pays only a monthly charge for using the power plant, which is deductible for tax purposes.
As with all lease transactions, the lessee must provide a security to the lessor. In Italy, a “Diretto di Superficie” right (a kind of an easement) for areas on which the PV power plant is installed can be established in favour of the lessor.
It should be expected that the lease market will continue to grow, because self-consumption enjoys great interest not only among companies but also private households.
There are diverse models to use as part of direct marketing in Italy. On one hand, as part of the so-called ritiro dedicato, power plant operators can sell electricity to GSE (Gestore dei Servizi Enertici S.p.A.) for the price determined by the energy regulator.
The closer the end of the incentive periods of the old power plants (normally an incentive period is 20 years), the stronger the need for operators to deal with the issue of marketing in order to achieve attractive returns.
RED II is being implemented. It should be expected that the use of direct marketing models with innovative sales structures will increase.
Back to main page
Svenja Bartels
Partner
Send inquiry
Gennaro Sposato
