The FER 2-Decree: new subsidies for offshore wind energy and other innovative renewable energy sources

​​​​​​​​​​​​​​​​​​​​​​​​Published on 5th December 2024​

The so-called ARR 2 decree, which was adopted by the Ministry for Ecological Transition (Ministero per la Transizione Ecologica - MiTE) on 4 June following approval by the European Commission, was signed by the Ministry of Environment and Energy Security (MASE) and the Ministry of Agriculture, Food Sovereignty and Forestry (MASAF) on 2 July and published on the MASE website on 12 August, coming into force the following day. 

Before explaining the content of the new decree, it is worth giving an overview of the objectives and innovations of the decree in question. The ARR 2 decree belongs to the group of measures aimed at achieving the energy transition through the supply from renewable sources. In this sense, it represents the implementation of Legislative Decree no. 199/2021, which in turn transposes the RED II Directive into Italian law.

Specifically, in addition to the ARR 1 and ARR X decrees (the latter still in draft form), the ARR 2 decree is dedicated to energy sources that are not yet fully developed and are characterised by higher operating costs than those covered by the aforementioned decrees. The FER 2 decree aims to establish an incentive system for the construction of geothermal plants (in this respect, subsidies are conceivable for existing plants characterised by innovation or reduced emissions as well as for new plants to be built that emit zero emissions), offshore wind power¹, biomass, biogas and thermodynamic solar plants, floating offshore or floating photovoltaic installations on inland waters, as well as tidal, wave and other forms of marine energy installations, which, in addition to the structural requirements set out in Article 3 of the Decree, are innovative and have a reduced impact on the environment and the landscape.
 
In this context, it should be noted that liquid biofuels (vegetable oils and animal fats), which require particularly high production costs, are not included in the decree as innovative sources with a lower impact, as they are subject to a gradual phase-out.

The procedure for accessing the subsidies recognised by the ARR 2 decree provides for quotas to be planned in advance on a five-year basis in order to ensure the stability and efficiency of the measures. In particular, in the five-year period 2024-2028, there should be at least one tender per year for biogas and biomass plants, while for plants from the other subsidised energy sources, at least three award procedures must be tendered by 31 December 2028. The deadline for submitting applications for access to funding is 60 days from the date of publication of each call for tenders. The ranking of the accepted funding projects is to be published within 90 days. he concrete implementation of the decree, through step-by-step tenders by the GSE, should make it possible to subsidise a total capacity of 4,590 MW² (subject to change if a review shows that the subsidy at the level awarded is wholly or partially unnecessary), of which 150 MW is earmarked for the renewal with innovations of existing geothermal plants.

​Procedure​	Type of plant	​Kat.	​Power output [kW]	Contingents 2024-2028 [MW]
​​A​ ​	​Biogas	​New installations​	L≤300	​150​​ ​​ ​​
	​​​​​​Biomass	New installations​​	​​L≤1.000​
​B	​Thermodynamic solar energy - Small systems	​New installations​	​L≤300	​5
​B-1	​Thermodynamic solar energy -Medium/large systems	New installations​	​L>300	​75
​C	Traditional geothermal energy with innovations	​New installations​	All outputs	​100
​C-1	Emission-free geothermal energy	New installations​	​All outputs	​60
​D	Floating- PV	New installations​	All outputs	​50
​E ​	​Off-shore Floating-PV	New installations​	All outputs	​​200 ​
	Tides, waves and other forms of ocean energy	​New installations​	All outputs
​E-1​	​Off-shore Wind	New installations​	All outputs	​3.800
​ F​	​Traditional geothermal energy with innovations	​Renovations	All outputs	​150

The procedures are carried out electronically, with different ways of participating depending on the size of the installation to be subsidised.

The decree requires the formulation of an offer that includes a percentage reduction in the base tariff in order to select the most advantageous initiatives in terms of cost reduction (in any case not less than 2% in relation to the reference tariff, with the exception of installations with a capacity lower than 300 kW, for which this minimum threshold does not apply) and from the point of view of environmental sustainability.

Similarly to what is foreseen, for example, in the draft decree FER X³, the possibility of access to an accelerated assessment has been introduced for large installations with a capacity of more than 10 MW, which provides for a parallel assessment of the single authorisation procedure and the suitability of the project to meet the minimum requirements for eligibility for support, with the involvement of the GSE from the outset. The 10 MW limit does not apply to installations owned by local authorities financed by the National Recovery Plan (PNRR).

Furthermore, precisely because of the higher specific costs of the technologies covered by the ARR 2 decree and in view of the need for lengthy and complex phases in the development of the corresponding projects, it was considered appropriate not to provide for deposits for the plants participating in the procedures.​

For each technology, the decree sets out the specific minimum requirements for participation in the corresponding procedures (see Annex 2).

These so-called ‘differentiated’ requirements - the review of which is carried out by the GSE before the publication of the ranking lists in each procedure - aim to demonstrate the degree of innovation and the impact of each technology on the environment. An estimate of the size and design of the installation itself is also taken into account, in addition to the ‘general’ requirements such as (i) the authorisation title for the construction and operation of the installation and (ii) the final accepted cost estimate of the connection to the electricity grid.
With regard to the minimum operating requirements and emission levels specifically established for traditional geothermal energy, the decree refers to the content of Regional Law no. 7 of Tuscany of 5 February 2019, to which we refer.

As far as emission-free geothermal energy is concerned, the criteria of complete reinjection of the geothermal fluid into the same source formations must be met and there must be no process emissions in this respect.
 
For biogas plants, special covers are required for the fermentation residues and recovery systems of the plants. The priority recovery and self-consumption of the heat produced, the use of certain by-products⁴ listed in the decree in specified minimum percentages and the fact that at least 51% of the products and by-products used must come from the farms building the plant are mandatory.

These systems can only be subsidised if their output does not exceed 300 kW, in contrast to biomass systems, for which a maximum output of 1,000 kW is permitted.

If they exceed certain dimensions, thermodynamic solar thermal systems must be equipped with a sufficiently powerful storage system in accordance with the decree and may not use toxic, very toxic or harmful substances or preparations either as a heat transfer medium or as a storage medium.
 
For biomass-fuelled installations, the heat produced must be recovered and mainly consumed on site or fed into an efficient district heating system and dust emissions must be limited. Provision is made for the use of certain products and by-products⁵ not processed into pellets, which are supplied under agreements that take into account the origin of these products and by-products. These must guarantee a reduction in greenhouse gas emissions of at least 70 per cent compared to the fossil reference fuel and take into account certain distances⁶ from the installation.

In the case of floating photovoltaic systems, the modules must come from manufacturers that participate in individual or collective WEEE (waste electrical and electronic equipment) management systems.

Finally, ad hoc conditions are foreseen for installations located in other EU Member States or in countries bordering Italy with which the European Union has signed a free trade agreement, recognising the possibility of participating in the procedures also for transnational projects.
 
In order for the subsidies to be fully recognised, the installations to be built, which are the subject of the best-rated projects in the respective ranking list, must in any case be put into operation within the maximum construction and/or - if applicable - renovation deadlines specified in the decree for each type of technology, as follows⁷.

Plant typologie​	​Type of intervention	Maximum duration
Biogas	Construction of a new plant	1 Months
​Biomass	Construction of a new plant	​31 Months
​Traditional geothermal energy with innovations ​	Construction of a new plant​	​51 Months
	​​Renovation	​36 Months
​Emission-free Geothermal energy	Construction of a new plant​	​60 Months
​Floating-PV	Construction of a new plant​	​36 Months
​Off-shore wind energy	​Construction of a new plant​	​60 Months
​Off-shore floating PV	Construction of a new plant​	​43 Months
​Tides, waves and other forms of ocean energy	Construction of a new plant​	​36 Months
​Thermodynamic solar system	Construction of a new plant​	​55 Months
​​* For installations owned by the public administration, the deadlines are extended by a further six months.

It should be noted that, depending on the severity of the delay, delays in construction and/or renovation may lead to reductions in the subsidy tariffs or, if they last longer than nine months, to the loss of the subsidy itself (and, in the event of a new application for the same installation, to a 20% reduction in the tariff).

Operation is deemed to have commenced from the date on which the first commitment that makes an investment irreversible is entered into: In this context, the decree mentions, for example, the ordering of materials or the start of construction work on the plant. In addition, the commissioning of the plant must be notified within 30 days of commissioning, while the maximum duration of the tests prior to the commercial commissioning of the plant is specified in the operating regulations. The three months within which the GSE must begin to disburse the subsidies are calculated from the deadline for notifying the expiry of the latter.

The level of the subsidy tariffs is set differently depending on the capacity of the system.
In particular, for installations up to 300 kW (this threshold will be reduced to 200 kW from 1 January 2026), the decree provides for a flat-rate tariff.

For installations with a capacity of more than 300 kW, however, the subsidy tariffs are calculated in accordance with the EU guidelines on state aid for climate, energy and the environment using the so-called ‘two-way’ mechanism, i.e. the difference between the recognised tariff and the hourly price is calculated by zone.

This results in the possibility of both a payment to the operator and a payment by the operator.
Finally, as far as the duration of the subsidy period is concerned, the decree links this to the useful life of the installation, as shown in the table below.

The tariff can only be combined with certain other categories of aid, namely capital grants for newly constructed facilities that do not exceed 40% of the investment costs (in this case with reductions in the tariff granted), guarantee and operating funds and tax benefits in the form of tax credits or tax relief on business income for investments in machinery and equipment.

If you wish to waive the subsidies, this is possible before the end of the entitlement period, provided that the subsidies utilised up to the time of waiver are reimbursed in full. This refund will be verified by the GSE and is a prerequisite for the right to waiver itself.

Once the ARR 2 decree comes into force on 13 August, a functionally independent party must be appointed within 180 days to draw up an evaluation plan for the functioning of the decree, including an interim evaluation by the end of 2026 and a final evaluation by 31 March 2028. The enactment of the regulations specifying the standard (‘regole operative’) is now expected.

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¹ Of these, non-floating installations anchored on fixed foundations must keep a minimum distance of 12 nautical miles from the coast.

² This amount of eligible energy has been increased compared to previous drafts of the decree.

³ Cf. Art. 7 of the latest draft of ARR Decree X, which is currently still being discussed internally and will then be submitted to the European Commission for review.

⁴ See Table 1 Part A (by-products to be used for at least 80 %) and Part B (to be used for the remaining part).
⁵ According to the products and by-products listed in Table 2, Part A (for at least 80%) and Part B (for the rest).
⁶ See Annex VII, Part A1 of Legislative Decree No. 199 of 2021.

⁷ These maximum periods are calculated excluding downtime caused by force majeure.

⁸ The reference tariffs are automatically reduced by 3 % per year.