Prepared by Energy Team
In consistency with the provisions set forth under Articles 6 and 7 of the Legislative Decree No. 199 of 8 November 2021 on the promotion of the use of energy from renewable sources (the “Legislative Decree 199/2021”),the Ministry of the Environment and Energy Security (the “MASE”) is currently interacting with the EU Commission with the aim of introducing new support schemes for the production of electricity from renewable sources and specifically from photovoltaic, wind, hydroelectric and residual gas from purification processes power plants.
Reference is made to the so-called FER X Decree, which first draft has been circulated a few weeks ago by the MASE, and that aims to introduce new National incentives for the promotion of renewable sources with significant innovations compared to the previous support schemes enacted by the Italian legislator including the Ministerial Decree of 4 July 2019 (so called, DM FER 1).
In this context, the purpose of this Newsletter is to provide a concise and schematic summary of the essential features related to such incentive mechanism together with some preliminary comments on its potential impacts over the Italian renewable market.
Subject matter
The incentive mechanisms provided for by the Decree FER X are dedicated to the following four renewable technologies: (a) solar PV plants; (b) wind farms; (c) hydroelectric power plants; (d) power plants for the treatment of residual gas from purification processes.
These power plants may have access to the incentives’ schemes regardless their nominal power capacity; as a matter of fact, both small-scale power plants (i.e. having a nominal power capacity ≤ 1 MW – “impianti di piccola taglia”) and large-scale power plants (i.e. having a nominal power capacity > 1 MW – “impianti di grande taglia”) are eligible for such support schemes.
The relevant power capacity is relevant to the modalities through which these can access to the incentive mechanisms: while small-scale plants can directly access to the incentive tariffs (thus in a simplified and quicker way), large-scale power plants shall take part in competitive procedures launched by the GSE.
Based on the current draft of the FER X Decree the GSE should launch at least two competitive procedures per year.
For small-scale power plants, there is an available financed power capacity contingent of 5 GW, while for power plants having a power capacity above 1 MW, the overall available financed power contingent is 62.15 GW, of which 45 GW for PV plants, 16.5 GW for wind power plants, 0.63 GW for hydroelectric plants, and 0.02 GW for sewage treatment gas.
Such measures apply until 31 December 2028 or, for small-scale power plants, until the achievement of the available financed contingent which, as said, is equal to 5 GW.
The incentives’ tariffs
As anticipated the incentives’ tariffs regulated under the FER X Decree are allocated through direct access (for small-scale power plants) and competitive procedures (for large-scale plants).
In line with the structure of the previous DM FER 1, the tariffs vary depending on the relevant renewable technology to be developed.
| Renewable source | Power Plants’ conventional service life (years) (Vita utile convenzionale degli impianti) | Investment costs (€/kW) | Strike price (“Prezzo di esercizio proposto”) €/MW |
| PV | 20 | 900 | 85 |
| Wind power | 20 | 1.300 | 80 |
| Hydroelectric | 20 | 4.800 | 110 |
| Residual gases from purification processes | 20 | 7.000 | 100 |
The FER X also provides for quite significant corrective factors for PV plants and, namely:
- an extra premium of 35 €/MW for PV plants built for replacing asbestos or eternit; and
- an extra premium of 10 €/MW for on-roof installations having a nominal power capacity up to 1 MW.
These extra premiums can be cumulated.
Incentive tariffs’ payment methods
The incentive tariffs provided under the FER X Decree are paid by the GSE as follows:
- for power plants having a nominal power capacity lower than 200 kW, the GSE directly provides for the withdrawal and sale of electricity, paying, on the net production fed into the grid, the awarded price (“prezzo di aggiudicazione”) in the form of an overall feed-in tariff (“tariffa omnicomprensiva”);
- for power plants having a nominal power greater than 200 kW, the electricity produced remains at the disposal of the producer which can value it on the market and the measure foresees a “two ways contract for difference”: namely, the GSE calculates the difference between the awarded price and the greater among 0 (zero) and the reference price of the Day-Ahead Market (“Mercato del Giorno Prima”) determined during the relevant trading period and in the market area in which the contracted plant is located, and:
- if this difference is positive, the GSE pays a fee equal to the aforementioned difference on the basis of the net production fed into the grid;
- if this difference is negative, the GSE compensates or requires to the beneficiary a consideration equal to such difference based on the net production fed into the grid.
Entry requirements
For the purposes of getting access to the incentive tariffs regulated under the FER X Decree, the following requirements shall be met:
- obtainment of the permitting title for the construction and operation of the plant[1];
- obtainment and acceptance of the grid connection estimate;
- compliance with the performance requirements and the National/EU environmental protection regulations for the observance of the DNSH principle;
- obtainment of a declaration from a bank attesting the financial and economic capacity of the participant in relation to the size of the intervention also considering the expected profitability of the initiative and the financial and economic capacity of the corporate group to which the participant belongs, or, alternatively, the commitment of the same bank to finance the intervention.
In addition, about PV plants:
- these must newly constructed and made of newly constructed materials;
- photovoltaic modules must be placed on the market by manufacturers of Electrical and Electronic Equipment who are members of individual or collective management systems as provided for by Legislative Decree No. 49/2014;
- for systems whose modules are installed on buildings with asbestos roofing or otherwise containing asbestos, these surfaces shall be completely removed.
Preliminary comments
If, on one hand, the FER X draft Decree structure is quite like that of the DM FER 1, on the other hand, there are some new provisions which worth to be highlighted given their potential impacts on the market.
Reference is made to the following profiles regulated under the FER X draft Decree:
- periodic updating of tariffs on the basis of the Statistic National Institution (“Istituto Nazionale di Statistica” – “ISTAT”) annual rate so to take into account: (i) the inflation recorded in the timeframe between the date on which the competitive bidding process is held and the date of expected entry into operation of the plant, with a 100% indexation on the award price; (ii) the inflation recorded in the course of the contract duration starting from the entry into operation of the plant, with a partial indexation of the award price commensurate with the share of O&M costs assessed as a percentage on the basis of the relevant technology;
- payment of tariffs is guaranteed on the basis of the electricity that can be produced by the plant in lieu of the net input production in cases of plants subject to shutdowns in order to resolve local grid constraints and/or due to force majeure as well as in the event of zero or negative zonal prices on the Day-Ahead Market (“Mercato del Giorno Prima”);
- with the aim of guaranteeing the availability in the different future periods of predefined amounts of energy from renewable sources in line with the decarbonization objectives and the need to ensure the security of the electricity system at the lowest cost for the end users Terna and the GSE shall formulate: (i) proposals for the power capacity contingents to be made available in the next 5 years, subdivided by technology; (ii) proposals for the coefficients to be applied to the price reduction bids submitted for each market area and relevant to the definition of the ranking list.
The power capacity contingents and the coefficients shall be determined by Terna and the GSE by considering factors such as the expected development of the electricity demand, the allocation between regions of the renewable energy National targets (cf. Art. 20, Par. 2, D.Lgs 199/2021), the expected production for each renewable technology and the submitted permitting applications.
Such decisions to be taken by Terna and the GSE could be particularly significative for the next investment choices of the market operators considering that these may have an impact over the power plants’ location and technologies.
On this, some associations and, namely, Italia Solare has underlined the need to integrate such parameters to be considered for the contingents and coefficients’ definition by also including the already granted permitting titles; this because the permitting titles granted in North Italy averagely refer to power plants having a power capacity lower than those authorized in Center or South Italy with reflects on the investment costs even in the light of the reduced insolation of the North Italy regions. For such reasons Italia Solare suggests introducing coefficients aimed at stimulating the construction of a greater number of renewable projects in the North Italy regions[2].
The above-mentioned profiles shall be read together with the recent changes introduced by the Law Decree No. 181/2023 (converted with amendments by Law no. 11/2024) through which also PV plants with modules placed on the ground in agricultural areas regardless of their power have been included among those eligible for the support mechanisms regulated by Legislative Decree 199/2021, including, therefore, the incentive tariffs provided by under the FER X Decree.
In few words the FER X Decree could represent a considerable driver for the future renewable investment decisions resulting, few years later the last incentive schemes, in an increasing attention towards the regulated revenues as potential alternative to the PPA market.
As of today it seems in any case too early to make predictions also considering that the FER X Decree is still a preliminary draft and, as a result, could be subject to amendments and/or integrations even in light of the green light that need to be expressed by the EU Commission according to the state aid regulation and/or the opinions of the Italian Regulatory Authority for Energy, Networks and Environment (“ARERA”) and the State-Regions Unified Conference (“Conferenza Unificata Stato-Regioni”).
[1] It is possible to get access to the incentives’ tariff also by producing the positive Environmental Impact Assessment Resolution, if any (provvedimento favorevole di valutazione di impatto ambientale, ove previsto) in place of the permitting title (cf. Article 3, Paragraph 4 of the FER X Draft Decree).
[2] Please see the note submitted by Italia Solare to the MASE on 19 March 2024.
Let’s Talk
For more information