New Incentive Scheme for RES produced energy

Italy

The long-awaited new incentive scheme for energy produced through RES, whose first draft dates back to March 2018, has been finally implemented by decree of the Italian Minister of Economic Development dated 4 July 2019, published in the Official Gazette of the Italian Republic on 9 August 2019 (the “FER 1 Decree” or the “Decree”). The Decree provides for specific incentives for the 3-year period 2019-2021 and appears to be in line with the previous Ministerial Decree of 23 June 2016 (which regulated the last incentive scheme for RES projects other than PV projects), confirming several provisions therein included.

1. The main provisions of the FER 1 Decree

The FER 1 Decree reintroduces incentives for photovoltaic plants (7 years after the last relevant incentive scheme adopted by Ministerial Decree of 5 July 2012) and more in general focuses on the following renewable energy sources:

  • Onshore wind;
  • Photovoltaic;
  • Hydroelectric;
  • Plants fuelled by landfill and gas residues from purification processes;

The FER 1 Decree reintroduces of the overall average annual cost for incentives, equal to 5.8 bn Euro applicable to all renewable energy sources regulated under the Decree (that is the same threshold set by the 2016 decree which, however, did not include PV projects). Once such annual threshold will be reached, no further incentives will be granted according to the Decree.

Registers and auctions

According to the FER 1 Decree, RES projects may have access to incentives through registration with specific registers managed by the GSE or, depending on the size of the project, through auctions organised and managed by the GSE.

The Decree reduces the power threshold which allows access to incentives through registration to all those projects whose power capacity is less than 1 MW (under the 2016 decree, the threshold was set at 5 MW). Therefore, new plants with a capacity below 1 MW will access via registers, whilst plants whose power capacity is equal or in excess of such threshold will access through auctions. Moreover, the FER 1 Decree eliminates direct access for small plants, discouraging very small investments.

With specific regard to the new incentives for photovoltaic plants, these shall apply provided, inter alia, that the relevant PV plant meets the following conditions:

  • is new and built with new components;
  • is not ground-mounted on agricultural land.

The Decree sets out the following seven rounds of register and auction procedures according to the following schedule:

 Round No. Notice opening 
 1  30 September 2019
 2  31 January 2020
 3  31 May 2020
 4  30 September 2020
 5  31 January 2021
 6  31 May 2021
 7  30 September 2021

Specific provisions deal with the deadlines for the submission of the applications and the subsequent publication of the rankings as well as with the documents to be submitted along with the relevant applications in order to participate to the register/auction procedures.

The Decree also provides and confirms the so called “double-security mechanism”, as already set out by the 2016 decree, which consists of an obligation for the applicants – both in case of applications via register or auction procedures - to deliver a provisional guarantee to the GSE during the application submission phase and a final guarantee after the admission to incentives.

Registers

The Decree groups the plants into the following four distinct categories by energy source:

  • Group A: i) wind and ii) photovoltaic plants;
  • Group A2: photovoltaic plants whose PV panels fully replace asbestos roofed buildings;
  • Group B: i) hydroelectric and ii) gas-powered plants;
  • Group C: plants falling in Group A i) category and Group B that need to be fully or partially renovated.

With specific regard to wind and photovoltaic plants (Group A), the maximum power capacity which may be incentivised under the Decree, is equal to 770 MW.

With reference to the rankings, as far as Group A plants are concerned, priority will be given, inter alia, to:

  1. the construction of plants on landfills, quarries, or on contaminated sites (new first criterion);
  2. the reduction of the tariff offered by the applicant;

The FER 1 Decree also provides that if the plants do not enter into operation within specific deadlines (for instance 24 months for on-shore wind farms and 19 months for photovoltaic plants), a tariff reduction of 0.5 % per each month of delay will be applied for a maximum of 6 months.

Auctions

The Decree identifies three different categories of plants by energy source:

  • Group A: i) wind and ii) photovoltaic plants;
  • Group B: i) hydroelectric and ii) gas-powered plants;
  • Group C: plants falling in Group A i) category and Group B that need to be fully or partially renovated

and, with specific regard to Group A plants, sets the maximum power capacity which may be incentivised under the Decree at 5,500 MW. Among the requirements necessary to participate to the auction procedures, the new Decree confirms the principle whereby applicants shall have adequate financial and economic soundness to be proved through a statement of a bank or adequate capitalization of the relevant applicant. More specifically, the applicant shall meet at least one of the following requirements:

  1. submit a statement of a bank confirming the financial and economic capability of the applicant in relation to the envisaged size of the RES project, taking into account the expected profitability of the project and the financial and economic capability of the applicant’s group or, alternatively, a commitment by the same bank to finance the project;

  2. prove adequate capitalisation, in terms of fully paid-up share capital and/or contributions for future capital increase (versamenti in conto futuro aumento capitale). The minimum amount of such capitalization is established as follows in relation to the anticipated investment:
  3. i. 10% in case of an investment up to Euro 100 MIO;
    ii. 5% on the part of the investment exceeding Euro 100 MIO and up to Euro 200 MIO;
    iii. 2% on the part of the investment exceeding Euro 200 MIO.

As for the rankings in the auction procedures, the envisaged priority criteria are, inter alia, the following:

  1. the offered percentage reduction on the base tariff. Unlike the 2016 decree (which set the reduction percentage threshold at 40%), such percentage shall not exceed 70% nor be lower than 2%;
  2. the legality rating;
  3. the building of the plant on landfills, quarries or mines, or on contaminated sites.

The FER 1 Decree also confirms that if the plants do not start operating within the specific deadlines set out thereunder (for instance 31 months for on-shore wind farms and 24 months for photovoltaic plants), the applicant will lose the right to benefit from the relevant incentive tariff.

2. New Incentive Tariffs

The new incentive tariffs provided under the Decree for PV and wind projects are the following:

  • For solar energy plants, the base tariffs are:
    • Euro 105 Euro/MWh for plants above 20 to 100kW;
    • Euro 90 for plants above 100kW to less than 1MW and
    • Euro 70 equal or above 1 MW.
  • For on shore wind farms, the base tariffs are:
    • Euro 150 Euro/MWh for plants above 1 to 100 kW,
    • Euro 90 for plants above 100kW to less than 1 MW and
    • Euro 70 equal or above 1 MW.

According to the Decree, incentive periods shall last for 20 years for all renewable sources except for hydroelectric plants, whose incentive periods may last 25-30 years, depending on the characteristics of the plant.

The wind and solar tariffs will be reduced by 5% each year starting from 1 January 2021.