In light of growing public concern about climate change and environmental protection, renewable energy has evolved into a major industry and a key contributor to the transition of the energy sector to a low-carbon economy. Globally, an increasing number of countries are investing in renewables, striving to research and develop efficient technologies and encouraging their application.2
Italy is one of these countries. Its renewable energy sources (RES)3 sector continues to undergo momentous change. Over the past decade, there has been a substantial increase in renewable energy projects in Italy, resulting in the use of more RES in all sectors. In 2018, 17.8 per cent of the overall energy consumption in Italy came from RES used in the electrical, thermal and transport sectors.4 According to the latest available figures, published in early 2020, RES consumption in Italy between 2005 and 2018 increased from 10.7 million tons of oil equivalent (Mtoe) to 21.6Mtoe. Simultaneously, factors such as the economic recession, the enhancement of energy efficiency and particularly favourable climatic conditions have led to a contraction in energy consumption.5 Among EU countries, Italy is the one that has most considerably decreased its overall energy consumption, going from 141Mtoe in 2005 to 121.5Mtoe in 2018 (a 14 per cent decrease).6
The decrease in consumption, in conjunction with the increase in RES, is expected to have a significant impact on reducing the country's high level of dependency on energy from foreign countries7 and, consequently, to lead to improvements in energy security and diversification. The expansion of RES also represents a significant driving force for the country's industrial supply chain, offering tangible opportunities for industrial activities addressing two aspects of the green growth economy: job creation and economic development in sustainable development.
The share of RES in the Italian energy mix has more than doubled in the past decade, outpacing the EU8 and Italian government's9 RES targets for 2020. This did not occur in a vacuum. The Italian government has supported renewable energy projects with a variety of economic incentive schemes that have streamlined administrative procedures for the construction and operation of RES plants (e.g., green certificates) and have favoured RES plants over traditional thermoelectric plants in many respects (e.g., priority dispatch). The generous incentive schemes led to an unmatched level of development in renewable energy projects between 2011 and 2014, particularly with respect to photovoltaic power.10 Following this development, the Italian government reduced direct economic incentives11 and the development of non-programmable RES – and photovoltaics in particular – seems to have stabilised.12 In contrast, the development of wind farms, while still noteworthy, has been much more linear over time.13 This scenario is in a state of flux, as 2019 was marked by the entry into force of the Ministerial Decree of 4 July 2019, which enacted a comprehensive reform by introducing new incentive schemes for RES plants (see Section II).
The most recent data on the Italian energy industry indicates that Italy continues to play a pioneering role in the use of RES.14 Combined statistics for 2018 confirm that the role of RES has continued to expand within the Italian energy mix, finding widespread use in the production of electricity, as thermal energy for heating and cooling, and as biofuels employed in transportation. Specifically:
- RES-produced electricity in 2018 amounted to 33.9 per cent of the national electricity consumption, which is much higher than the targets set in the Italian National Renewable Energy Action Plan for both 2018 (24.6 per cent) and 2020 (26.4 per cent). In 2018, the main contribution to the production of electricity from RES was provided by hydroelectric power (42 per cent), followed by solar photovoltaics (20 per cent), bioenergy (17 per cent), wind power (16 per cent) and geothermal energy (5 per cent).15
- Thermal energy's share of total RES consumption in 2018 amounted to 19.2 per cent, surpassing the targets set in the National Renewable Energy Action Plan for both 2018 (13.6 per cent) and 2020 (17.1 per cent). The main RES used for heating is solid biomass (approximately 7Mtoe, without considering biodegradable waste), which is mainly firewood or pellets employed for domestic heating. Heat pumps also play an important role (2.6Mtoe), but contributions from other types of RES are still relatively limited.16
- RES used in transportation amounted to 2.4Mtoe in 2018, which represents 7.7 per cent of the overall energy used in transportation, an increase from the previous year (6.5 per cent).17
The growing prominence of RES is also confirmed by the data on RES power generation capacity and the share of RES in energy consumption. Provisional estimates released by Italian renewables association Anie Rinnovabili indicate that from January 2019 to November 2019 newly installed solar, wind and hydroelectric capacity reached 1GW (21 per cent more than in 2018).18
The latest aggregate data (December 2019) shows that in 2018, Italy's RES installed capacity amounted to approximately 54.3GW, corresponding to a 2 per cent increase from 2017. In 2018, RES plants generated around 114TWh, a 10.5TWh increase from 2017 (10.1 per cent more than 2017). This trend is mainly linked to the strong growth in energy production from hydroelectric plants (34.8 per cent more than 2017), which compensates for the decreases in other types of RES and, in particular, in solar photovoltaics (7.1 per cent less than 2017). In 2018, just under 72 per cent of Italy's RES installed capacity was provided by hydroelectric and photovoltaic plants, with power generation capacity of 48.8TWh and 22.7TWh respectively (i.e., 62 per cent of the overall RES-produced electricity in 2018).19
Overall consumption from thermal energy RES amounted to 10.66Mtoe, a slight decrease compared to 2017 (4.9 per cent less). Of the heat produced from RES, 91 per cent is consumed directly by households and businesses (through individual boilers, stoves, heat pump appliances and thermal solar panels), while the remaining 9 per cent consists of thermal energy produced by energy conversion plants powered by RES and destined for third-party consumption (e.g., plants powered by biomass connected to district heating networks).20
In 2018, energy generated from solar thermal sources and biodegradable waste increased by 4.6 per cent and 6.9 per cent respectively, compared to 2017. However, solid biomass contracted by approximately 7.0 per cent. Despite the slight decrease in usage compared to the previous year ( a decrease of 2.0 per cent), heat pump systems remain very significant: the renewable energy supplied in 2018 was around 2.6Mtoe, which corresponds to 24.3 per cent of the overall RES-produced thermal energy.21
In 2018, slightly more than 1.4 million tons of biofuels were released for consumption (18 per cent more than the previous year), amounting to 1.25Mtoe. Of these biofuels, 97.3 per cent were from biodiesel, only 2.6 per cent were from bio-ETBE22 and those from bioethanol and bio-methane were negligible. However, there was an increase in bioethanol consumption, which increased from 20 tons in 2017 to 1,200 tons in 2018.23
The territorial allocation of RES production is not consistent. For instance, distribution of RES-produced electricity in 2018 significantly differed between the three main macro-areas of the country: Northern Italy (53.3 per cent), Central Italy (14.6 per cent), and Southern Italy (32.1 per cent, including the main islands of Sicily and Sardinia).24 In 2018, Lombardy was the Italian region with the highest production of RES-generated electricity (17,094GWh), representing 14.9 per cent of the overall power generation capacity. In Northern Italy, Lombardy was followed by Piedmont (9.9 per cent), while Apulia was the frontrunner in the south (8.3 per cent). Lombardy was the leader for installed power capacity for RES-generated electricity (15.4 per cent of the capacity installed in the country), followed by Piedmont (8.7 per cent) and Veneto (6.4 per cent). Tuscany, thanks mainly to the exploitation of geothermal sources, was instead the region with the highest installed RES capacity in Central Italy (4.2 per cent). In Southern Italy, Apulia was the leader (10.2 per cent), followed by Sicily (6.5 per cent) and Campania (5.2 per cent).25
II THE YEAR IN REVIEW
Key legislative developments in the renewable energy sector in the second half of 2019 and the first half of 2020 included the following.
The 2020 Budget Law26 contains several provisions confirming energy efficiency's position on the Italian energy agenda as a strategic driver for economic growth:
- the Law has extended until 31 December 2020 tax deductions for RES-related expenses incurred when refurbishing buildings, and for interventions aimed at enhancing energy savings, with particular regard to RES installations, including photovoltaics;27
- the Law repealed Article 10, Section 3 ter of Decree-Law No. 34/2019 (known as the 'Growth Decree'), which had enabled homeowners who qualified for a 50 per cent income tax rebate related to sustainable house building or renovation facilitating cost-effective transformation of existing buildings into nearly zero-energy buildings to transfer the award to qualifying installers or suppliers of rooftop photovoltaic systems.28 Arguably, the provision was repealed because the tax rebate could take up to 10 years to materialise, meaning that it ultimately benefited mainly large installers and suppliers with significant financial resources;29
- the Law introduced a 15-year incentive for existing biogas-powered electricity production plants built by agricultural entrepreneurs and put into operation by 31 December 2007, provided that they do not already benefit from other public energy incentives;30
- as from 1 January 2020, the Law requires that when renewing used vehicles at least 50 per cent of road transport vehicles bought or rented by public administrations (with some exceptions) should be electric, hybrid or hydrogen powered;31 and
- it grants commercial road haulage companies incentives to renew their vehicles through the purchase of electric, hybrid, natural gas or liquefied petroleum gas powered vehicles. The incentives ranging from €4,000 to €400,000 are allocated for the year 2020 and will be provided until resources are exhausted.32
The Ministerial Decree of 28 June 2019 (the Capacity Market Decree), approved by the Ministry of Economic Development, following a favourable opinion issued by the Italian Regulatory Authority for Energy, Networks and the Environment (ARERA),33 approved the regulations governing the system of compensation for electric energy production capacity contributing to the phasing out of coal. The regulations primarily cover (1) the supplementary payments made to large electric power production plants on account of their capacity to produce energy in the event of structural security issues; and (2) the incentives to be awarded to demand management operators on account of their capacity to reduce their own consumption. The mechanism is based on centralised auctions, through which system operators cover future capacity demand through reliability option contracts. These are later settled at the short-term market price at which the capacity is accepted for sale. The maximum values set for the premium and the exercise price will aim to reduce system costs and the financial burdens placed on consumers, and will be subject to verification of the effects produced.
The Ministerial Decree of 4 July 2019 (the RES1 Decree)34 aims to support the production of electric power from RES by creating schemes for accessing incentives that stimulate effectiveness, efficiency, and sustainability of costs. Technologies eligible to benefit from the incentives under the RES1 Decree are wind (onshore only), solar photovoltaic, hydroelectric (running water and reservoir or basin), and sewage gases. The RES1 Decree followed the adoption of the National Energy Strategy in 2017 and the Capacity Market Decree in 2019, and is in line with the Integrated National Energy and Climate Plan published in 2020 (see Section III.i). The RES1 Decree is expected to provide for the construction of plants with a total capacity of 8,000MW, increasing the production of RES-generated power capacity by around 12 billion kWh and stimulating approximately €10 billion in investments. Additionally, the RES1 Decree aims to encourage the application of long-term sale contracts, known as power purchase agreements (PPAs), for the procurement of renewables by the public sector, through ad hoc measures to be laid out imminently in an inter-ministerial decree.
The RES1 Decree was followed by a number of implementing regulations:
- ARERA Resolution No. 341/2019/R/efr of 30 July 2019, which set out the ways in which the state-owned energy services manager (GSE) can purchase electric power fed into the grid by plants with access to incentives through the feed-in tariffs provided for under the RES1 Decree. Annex A to the Resolution stipulates that (1) the methods used by GSE to purchase and sell electric power in the market shall be similar to those currently established under ARERA Resolution No. 404/2016/R/efr; and (2) compensation for imbalances suffered by GSE with respect to the electricity generated by RES plants receiving all-inclusive fixed feed-in tariffs shall be borne by all those producers who have access to the same feed-in tariffs with the same methods used for simplified purchase and resale agreements;
- GSE Operating Regulations of 23 August 2019 for enrolment in registers and auctions, established under Article 21 of the RES1 Decree and Article 7 of ARERA Resolution No. 341/2019/R/efr;35
- GSE Operating Regulations of 27 September 2019 for accessing incentives;36 and
- ARERA Resolution No. 64/2020/R/gas of 17 March 2020, updating the rules governing the connection of bio-methane plants to natural-gas networks, as previously defined by ARERA Resolution No. 27/2019R/gas of 29 January 2019.
A draft ministerial decree (the RES2 decree) specifically dealing with new incentives for energy produced by RES not falling within the remit of the RES1 Decree (namely biomass and geothermal sources) is being negotiated.37
Key corporate transactions in the renewable energy sector in the past year included the following:
- In October 2019, Italian fund Green Arrow Capital acquired a 320MW portfolio of RES projects (including solar and wind power generation) from London-based investment company Quercus Investment Partners, bringing Green Arrow Capital's portfolio of RES assets to around 400MW.
- In November 2019, Ellomay Capital Ltd, a renewable energy and power generator and developer of projects in Europe and Israel announced that a framework agreement had been entered into between its wholly owned subsidiary Ellomay Luxembourg Holdings Sàrl and an established and experienced European developer and contractor.
- In December 2019, Italy's A2A Renewables, a unit of the utility company A2A SpA, entered into an agreement to buy a 1GW solar development pipeline from Chinese photovoltaic module maker Talesun as part of its push to start building subsidy-free solar projects. In the course of 2020, A2A Renewables plans to start building a large-scale project at an unspecified site in Foggia province in Southern Italy.
- In December 2019, Enertronica Santerno SpA, an Italian company that designs and markets power generation equipment, announced that through its wholly owned subsidiary Progetti International SpA it had signed a €4.7 million turnkey supply contract for 10 photovoltaic plants, of 1MW each, mostly located in the Lazio region of Central Italy;
- In December 2020, Sonnedix, an independent solar power producer, acquired a portfolio of six solar photovoltaic plants, with a combined capacity of 6MW, from Fondo PPP (an Italian closed-end fund devoted to the development of infrastructure in public–private partnerships, managed by Fondaco SGR). The fixed tilt and biaxial solar plants are all located in the Apulia region; and
- In March 2020, Italian lender Intesa San Paolo provided a €55 million credit facility to Canadian Solar for a 151MW portfolio of 12 solar power projects across Central and Southern Italy.
The statistical data published by GSE in December 2019 and referring to 2018 shows the impact of the different types of renewables on the overall RES power generation capacity.38
In the photovoltaic sector, the total national power generation capacity in 2018 increased by 7 per cent from 2017, in line with the upward trend that started in 2016. Data released by Italian renewables association Anie Rinnovabili and from grid operator Terna indicates that the geographic distribution of newly installed solar photovoltaic plants also signals a shift towards bigger projects. Since 2012, the industry has been steered by commercial rooftop installations in better-off northern regions (Lombardy, Veneto and Emilia-Romagna). Nonetheless, in 2019, land-rich southern region Apulia dominated, featuring 178MW of newly installed solar power generation capacity, followed by Sardinia (102MW) and then Lombardy (89.1MW), Veneto (80.7MW) and Emilia-Romagna (57.4MW).39 Despite the changing shape of the Italian solar photovoltaic market, most installed photovoltaic plants (about 92 per cent) have a power capacity inferior to 20kW and 37 per cent range between 200kW and 1MW. Overall, in 2018, the power capacity of photovoltaic plants represented 37 per cent of the country's RES plants.40 For 2019, provisional estimates indicate that installed photovoltaic plants in 2019 reached an overall capacity of approximately 558MW, a higher figure than that in 2018 (437MW).41 Residential solar photovoltaic systems (up to 20kW) made up 43 per cent of new installed power in 2019.42
In the wind sector, between 2004 and 2018, the production of electricity from wind sources increased almost tenfold, going from 1,847GWh to 17,716GWh. In 2018, the production remained substantially unchanged (0.1 per cent less than 2017),43 despite a slight decrease in the number of small wind turbine installations because of the cessation of direct incentives for plants with power equal to or below 60kW from 31 December 2017. This proved an impediment to investments in small wind farms, which are not yet economically viable without incentives.44 At the end of 2018, 5,642 wind farms were installed in Italy, most of which (92 per cent) are small in size, with a power capacity of less than 1MW. Of the 10,265MW installed in Italy at the end of 2018 (19 per cent of the entire national RES plants), 86 per cent was concentrated in 308 wind farms of power greater than 10MW. Data for 2019 shows that during 2018 production from wind power was equal to 17,716GWh, corresponding to 15.5 per cent of the total RES-generated electricity. Of the electricity produced by wind farms, 90 per cent was from plants with a power capacity exceeding 10MW, 6 per cent was from plants with a power capacity of between 1 and 10MW and the remaining 4 per cent was from plants with a power of below 1MW. For the construction and operation of wind farms, environmental and geographical characteristics of the sites (e.g., wind strength and accessibility) are of the utmost importance. For these reasons, the presence of wind farms is not uniform throughout the national territory: in particular, 96.8 per cent of the country's overall wind power is concentrated in Southern Italy. The region with the highest installed wind power capacity is Apulia, with 2,523.3MW, followed by Sicily and Campania with 1,892.5MW and 1,443.2MW respectively. Basilicata is the region with the highest percentage of wind farms on the national territory (25 per cent), followed by Apulia (20.8 per cent).45
For 2019, provisional estimates indicate that wind power generation capacity has continued growing, amounting to 413MW (39 per cent more than 2018).46
Hydroelectric power production varies greatly because of meteorological and climatic conditions. Between 2004 and 2018, it grew by an average annual rate of 0.7 per cent.47 In 2018, however, it reached 48,786GWh, a sharp increase compared to 2017 (34.8 per cent more).48 According to data published at the end of 2019, hydroelectric plants accounted for 35 per cent of the energy produced by the country's installed RES plants. At the end of 2018, 4,331 hydroelectric plants were in operation in Italy: in most cases, these are small plants with a generation capacity of less than 1MW.49 The geographic distribution of hydraulic plants has remained substantially unchanged: 55 per cent of the country's plants are located in the northern regions of Piedmont and Lombardy and in the provinces of Trento and Bolzano.50
Provisional figures for 2019 indicate that the generation capacity for hydroelectric power was equal to 37.1MW and 32 per cent of plants had a capacity of less than 1MW.51
Regarding energy produced from biomass (including solid urban waste, agroforestry residues, vegetable oils and biogas), between 2004 and 2018, installed capacity increased by an average annual rate of 10.1 per cent. After continuous and sustained growth since 2008, a slowdown started in 2014, with rather limited annual increases in both the number and power capacity of plants.52 During 2018, the production from bioenergy amounted to 19,153GWh, equal to 16.7 per cent of the overall RES production. Of the electricity from bioenergy, 42.8 per cent was produced in plants with a power of greater than 10MW, 42.5 per cent in those with a power of less than 1MW and the remaining 14.7 per cent in plants belonging to an intermediate category of between 1 and 10MW.53 At the end of 2018, most of the plants powered by bioenergy were located in Northern Italy (72.8 per cent of the total).54
For 2019, provisional estimates indicate that production from bioenergy amounted to 29MW and, as at November 2019, 49 new plants had been installed.55
With respect to geothermal energy, December 2019 data indicates that in the past three years the number of geothermal power plants has remained unchanged (34 plants). Most of those plants have a capacity of less than or equal to 20MW.56
III THE POLICY AND REGULATORY FRAMEWORK
i The policy background
In implementing Directive 2009/28/EC, the Italian legislature set a 17 per cent target for the share of RES in the energy mix by 2020.57 Italy achieved this national objective for the first time in 2014, well in advance of the 2020 target date.
In November 2017, the Ministry of Economic Development, published the National Energy Strategy, a 10-year road map setting out the objectives for 2030 and encouraging further RES development.58 It did so in accordance with the long-term objective set out in the EU Energy Roadmap 2050 of decreasing greenhouse gas emissions by at least 80 per cent from 1990 levels.59
The National Energy Strategy aims to increase the following in the national energy system:
- competitiveness, by aligning Italian energy prices with European ones for the benefit of both companies and consumers, opening up new markets to innovative companies, generating new employment opportunities and encouraging research and development;
- sustainability, by decommissioning coal-fired thermal power plants by 2025, according to a thorough plan of infrastructural action in line with the long-term targets of the Paris Agreement on Climate Change (2015), and by encouraging energy-efficiency projects that take full advantage of sustainability benefits; and
- security, by improving the security of energy supply, while guaranteeing its flexibility and reinforcing Italy's energy independence.60
Notably, the National Energy Strategy set the ambitious target of an RES share of 28 per cent of gross final energy consumption by 2030, comprising:
- a target share of 55 per cent for electricity (set at 33.5 per cent in 2015);
- a target share of 30 per cent for thermal energy (19.2 per cent in 2015); and
- a target share of 21 per cent for transport (6.4 per cent in 2015).
Pursuant to EC Communication 2016/0375 on the Proposal for a Regulation on the Governance of the Energy Union, on 31 December 2018, the Italian government adopted a draft of its 10-year strategy on energy efficiency and environmental sustainability, the Integrated National Energy and Climate Plan (PNIEC), and submitted it to the EU Commission on 9 January 2019 for its observations. The PNIEC, tackles five categories concurrently: decarbonisation, energy efficiency, energy security, the internal energy market, and research, innovation and competitiveness. The PNIEC offers fundamental guidance on the future evolution of the Italian energy sector and the policies necessary for its development, pursuant to the provisions of the EU's Clean Energy Package. In January 2020, the final version of the PNIEC, incorporating the changes in investments and incentives provided for in the 2020 Budget Law, was published by the Ministry of Economic Development and sent to the European Commission in accordance with Regulation (EU) 2018/1999 on the Governance of the Energy Union and Climate Action. According to the PNIEC, by 2030, a reduction of 43 per cent in primary energy consumption and 39.7 per cent in final energy consumption is expected, and 30 per cent of gross final consumption will have to be accounted for from RES.61
Regarding the policy on tackling greenhouse gas emissions, since 2008, GSE has been responsible for the management of the EU Emissions Trading System (EU-ETS).62 GSE is the entity that carries out the placement of national emission quotas on behalf of the Italian government. Because of the spike in electricity prices that occurred in 2018, the placement of the emission quotas provided a significant increase in revenues for Italy, reaching a total of €1,453 million (€903 million more than in 2017). The energy generated ultimately enabled Italy to avoid emissions of about 45 million tons of greenhouse gasses and consumption of 117 million barrels of oil.63
A generous promotion and incentive system has encouraged a significant increase in RES in Italy. The incentives comprise a variety of mechanisms that have been progressively market oriented over the years, reducing incentive levels in line with decreases in generation costs. These mechanisms include the following:
- the CIP 6/92 mechanism, which is a feed-in tariff.64 This mechanism is only available to plants that fell within the scope of the CIP 6/92 resolution while it was still in force, and the tariff is applicable for a certain period, typically up to 20 years (accordingly, the number of plants entitled to benefit from the incentive is gradually decreasing);
- the Energy Account system, a feed-in premium65 for electricity produced by photovoltaic plants that had started activities by 26 August 2012;66
- green certificates, which were awarded by GSE in proportion to the amount of energy produced by RES and cogeneration plants that had started activities by 31 December 2012. The number of green certificates awarded depended on the type of plant used for the energy generation.67 As of 1 January 2016, the green certificate system has been replaced by a new incentive system in the form of extra remuneration granted by GSE to operators formerly entitled to green certificates.68 Data shows that the amount of electricity produced from RES and incentivised through the use of green certificates was approximately 27.6TWh in 2018. The most significant incentives were allocated to wind (€1.25 billion) and hydroelectric plants (€0.63 billion);69
- feed-in tariffs for electricity delivered to the grid by RES plants (except for photovoltaic plants) not exceeding 1MW power (200kW for wind plants) that had started activities by 31 December 2012;70
- tariff incentives for electricity delivered to the grid by photovoltaic plants that started activities between 27 August 2012 and 6 July 2013 (in the form of a feed-in tariff for plants not exceeding 1MW in power and in the form of a feed-in premium for the other plants). The impact on end customers of the photovoltaic production incentive system, in 2018 (preliminary figures), was approximately €5.81 billion. Electricity incentives, relating to 550,057 plants with a total capacity of approximately 17.6 GW, were approximately 20.2TWh (approximately 1.8TWh lower than in 2017);71 and
- tariff incentives for net electricity delivered to the grid by RES plants (except photovoltaic plants) and thermodynamic solar plants that had started activities by 1 January 2013 (in the form of a feed-in tariff for plants not exceeding 1MW in power and a feed-in premium for plants exceeding the 1MW threshold).72 The threshold for access to the feed-in premium was then reduced to 500kW.73
RES-generated electricity benefiting from these governmental incentives amounted to approximately 65TWh in 201774 and around 63TWh in 2018. The figure is expected to be similar in 2019, although aggregate data is still not available.75 In 2018, the costs deriving from RES incentives amounted to approximately €11.2 billion (and these are paid for by the 'general charge in support of renewable energy and cogeneration' – the 'ASOS' tariff component). For 2019, it is estimated that the costs were equal to approximately €11 billion, again covered by the ASOS tariff component.76
The cost of RES incentives between 2017 and 2019 have been decreasing and further decreases are expected in the following years. In particular:
- the costs related to the feed-in tariffs under the CIP 6/92 mechanism are continuously decreasing because of the progressive termination of CIP 6/92 signed agreements. The remaining CIP 6/92 agreements are expected to end in January 2021;77
- the costs related to the withdrawal of excess green certificates by GSE are decreasing. Based on the data available in July 2019, there are still around 93,000 thousand unsold green certificates.78 Additionally, the costs for the new incentives that replaced the green certificate system79 from 1 January 2016 will reduce because of the progressive end of the incentive period for operators granted this form of extra remuneration by GSE; and
- the costs associated with the feed-in tariffs for electricity delivered to the grid by RES plants not exceeding 1MW in power pursuant to Law No. 244/2007 are expected to stay the same. The incentive period for the first plants benefiting from this scheme will end in 2023.80
However, the financial impact of incentives is likely to be profoundly altered by the comprehensive reform introduced in 2019 by the above-mentioned RES1 Decree, which established a new wide-ranging incentive regime for RES plants. Specifically, it supports the production of electric power from RES by introducing new incentive schemes.
The RES1 Decree introduced an overall average annual cap on incentives of €5.8 billion, covering all types of RES regulated by the Decree: wind (onshore only), solar photovoltaics, hydroelectric (running water and reservoir or basin), and sewage gases. Once this annual threshold is attained, no additional incentives will be granted.
RES plants with a nominal capacity exceeding 20KW are admitted to the new incentive mechanism, provided they do not receive incentives pursuant to previous feed-in tariff schemes, nor under the Ministerial Decree of 23 June 2016.81
Eligible RES plants are categorised into four clusters:
- Group A: new onshore wind turbines; complete reconstructions of existing wind turbines; reactivations of systems decommissioned for more than 10 years or power increases of existing systems; and new photovoltaic systems;
- Group A-2: new photovoltaic systems wholly replacing asbestos roofs of industrial and rural buildings;
- Group B: new hydroelectric plants, or complete reconstructions of existing hydroelectric plants; reactivations of plants decommissioned for more than 10 years or power increases of existing plants; residual gases from purification processes in new plants; reactivations of plants decommissioned for more than 10 years or power increases of existing plants; and
- Group C: plants of the following kind subject to total or partial renovation:
- onshore wind, hydroelectric, and residual gases from purification processes.82
Incentives are accessed through either registration with specific registers managed by GSE or auctions organised and managed by GSE, depending on the power of the plant and the group to which it belongs. More precisely:
- application to the registers is available for plants with power greater than 1kW (20kW for photovoltaic systems) and less than 1MW in groups A, A-2, B and C; and
- application to auction procedures is available for installations with power greater than or equal to 1MW in groups A, B and C.83
Additionally, under certain conditions, the RES1 Decree allows application to the registers or to the auctions by plants of the same group presented in aggregate form.84
RES plants that meet the requirements can start receiving incentives after connecting to the grid and filing the required applications to the registers and auctions with GSE. The incentive period is 20 years for all types of RES, except for hydroelectric plants, the incentive periods for which range between 25 and 30 years, depending on the characteristics of the plant.85 Under the RES1 Decree, there is the option to relinquish incentives before the end of the incentive period and negotiate freely on electricity, but on condition that the net incentives received are fully returned to GSE.86
The RES1 Decree establishes seven rounds of registers and auctions, each assigning different power quotas, in accordance with the cluster to which the plants belong.
Overall, over a period of approximately 30 months, 4.8GW of RES capacity will be contracted through the planned auctions. The first two procurement rounds will each realise around 500MW of allocated capacity. In rounds three to five, each tender will assign 700MW. For the final two exercises, the contracted capacity will reach 800MW and 1,600MW respectively.87
|Round No.||Call for tender opening date|
|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|
Pursuant to the RES1 Decree, the maximum power capacity that may be incentivised for wind and photovoltaic plants is 770MW (access through registers) or 5,500MW (access through auctions).
The incentives are paid to successful applicants to the registers or auctions on the net electricity produced and fed into the grid by the plant.
Depending on the technology and on the nominal capacity of the plant, different criteria for the calculation of the incentives apply:
- the feed-in tariff, which consists of a single tariff corresponding to the Due Tariff, which also remunerates the electricity drawn by GSE. The compensation comprises payment for the power generated and fed into the grid, which is bought by GSE;92
- an incentive, which is calculated as the difference between the Due Tariff and the power's hourly price per zone, as the power generated continues to be available to the operator. If the resulting delta is negative, the producer shall be required to return the difference.93
RES plants of up to 250kW can opt for either incentive mechanism and can switch from one mode to the other, but cannot switch more than twice during the entire incentive period. Conversely, plants of over 250kW can only access the incentive option.94
The RES1 decree also establishes two premium grants for power plants of up to 100kW on buildings (paid on condition that self-consumption of energy on a yearly basis is over 40 per cent of net production) and for solar photovoltaic plants in Group A-2 (paid on all the energy produced).95
Additionally, the RES1 Decree includes a clawback mechanism to guarantee that the governmental incentive scheme is limited to the minimum necessary: were market price to spike above the average production cost for each type of RES, the selected plants would no longer be entitled to receive a premium and would be required to return the additional revenue.
The outcome of the first auction and register process for smaller plants was published by GSE on 28 January 2020. The first round offered a capacity of 730MW and GSE has received 880 applications for an overall capacity of 772MW.96 The results of the second procedure are not available yet.
In addition to the purely economic incentives, such as those mentioned above, the Italian legal framework provides for other important measures that favour RES projects, such as simplified and expedited administrative procedures for the construction and operation of new RES plants97 and, more importantly, priority access to the electricity transmission grid for RES-generated electricity (i.e., priority dispatch).98 These measures are neutral in relation to the type of RES feeding the plant. Furthermore, the 2020 Budget Law contains several provisions establishing incentives confirming the position of energy efficiency and related refurbishment measures on the Italian energy agenda as fundamental drivers for economic growth (see Section II).
Additionally, under Italian law, construction projects for new buildings and restructuring of existing buildings must include the use of RES to cover at least 50 per cent of the building's energy needs (both electricity and heat). Failure to comply with this provision will result in refusal of the building authorisation.99
Finally, income from the production and sale of agroforestry RES and photovoltaic energy100 qualifies as agricultural income for tax purposes, below a determined threshold, to the extent that the energy is obtained from the land owned by the farmer. According to Italian tax law, agricultural income is not analytically computed, rather it is determined using cadastral ratios as a form of tax incentive.101 Energy incentives are normally taxed as business income for companies involved in the activity of the production and sale of energy.
ii The regulatory framework
The renewable energy sector is regulated by primary legislation (both national and regional)102 and secondary legislation. The secondary legislation is adopted by the Ministry of Economic Development and the Ministry for the Environment, Land and Sea (MATTM) or ARERA. In particular, these bodies have the following responsibilities.
The Ministry of Economic Development is responsible for formulating and implementing Italy's energy policy, by defining the strategy and setting out general principles for the organisation and functioning of the renewable energy market.103
The MATTM is responsible for climate policy. It also co-signs the Ministry of Economic Development policy measures promoting renewable energy and energy efficiency.
ARERA is an independent regulatory body governed by a committee of five members elected by Parliament for seven years. It regulates, controls and monitors the electricity and gas markets in Italy. It was established under Law No. 481/1995 for the purpose of protecting consumer interests, promoting competition and ensuring quality, efficiency and cost-effectiveness of energy services. ARERA determines its costs, which are entirely recovered by means of compulsory annual contributions paid by energy service providers.104 Its regulatory powers include setting tariffs, defining service quality standards and regulating the technical and economic conditions governing access and interconnections to the networks. ARERA issues general regulations applicable to energy market operators, and resolutions or orders applicable to single operators, for which it must provide comprehensive reasons. ARERA may also issue fines.105
The state-owned GSE was established by Legislative Decree No. 79 of 16 March 1999 for the promotion and support of RES in Italy. In particular, GSE works to foster sustainable development by providing support for electricity generated from renewables. It is in charge of (1) determining which plants meet the conditions set by law to benefit from incentive mechanisms; (2) disbursing economic incentives; (3) checking that the conditions for the recognition or maintenance of incentives are met by carrying out inspections and assessments of the plants that have an agreement with GSE; (4) forecasting and monitoring electricity delivered into the grid by RES plants to minimise imbalances in the electricity system; (5) promoting information campaigns to spread the culture of environmental sustainability; and (6) monitoring the development of RES projects.
Pursuant to Legislative Decree No. 79 of 16 March 1999, GSE set up special-purpose subsidiaries for the management of specific segments of the energy market:
- the Energy Markets Manager (GME), which manages the electricity, natural gas and environmental markets, according to the principles of neutrality, transparency, objectivity and competition;
- the Single Buyer (AU), which ensures the availability of electricity by purchasing the required electrical capacity and reselling it to distributors on non-discriminatory terms. Additionally, AU has been appointed as the central oil stockholding entity;108 and
- the Energy Research Body, which is charged with publicly funded national and international programmes in the fields of electrical power, energy and the environment.
The RES1 decree includes an important development as far as GSE is concerned. Although the RES1 Decree does not introduce many changes relating to PPAs, it provides that within 180 days of the date of its entry into force, GME shall launch a public consultation for the creation of a market platform – an alternative to the incentive scheme set out under the RES1 Decree – for long-term trading of RES energy. Specific requirements shall apply to those operators willing to participate in using this platform.109 Project characteristics will be published on GSE's website to stimulate meetings between parties who potentially may be interested in entering into trading agreements.
There are simplified and expedited procedures for the regulatory approvals (authorisation, certification and licensing procedures) required to construct and operate RES plants, depending on the technical specifications of the power plant.110
The construction and technological enhancement of new RES electricity plants is subject to a single authorisation issued by the region concerned or the delegated province (or by the Ministry of Economic Development for plants of power equal to or greater than 300MW), following a unified proceeding among all the public entities with authorities involved in the project.111 This single authorisation procedure applies even where the project concerns more than one region or delegated province112 or where regions have a special statute under the Italian Constitution.113 The competent public entity must issue a decision on the request for the licence within 90 days.114 If the project has nominal power greater than 1MW, it is subject to an environmental impact assessment or to the pre-screening procedure, in which case, the single authorisation cannot be issued until this procedure has been completed.
The construction of small plants with low generation capacity (e.g., photovoltaic plants on building roofs)115 is subject to a further simplified authorisation procedure. The owner of the building is only subject to the obligation to notify the competent municipality with a declaration and a detailed technical description of the project at least 30 days before starting construction activities. The application is authorised via tacit acceptance: work can commence 30 days after submission if no replies or notices have been issued by the municipality.116
There is further procedural simplification for the construction of certain small-scale installations that generate electricity or thermal energy from renewable sources, which are considered to be minor works and as such are exempt from building-permit requirements. The works commencement notification must be sent to the municipality together with a detailed report signed by a certified engineer. There is no requirement to wait 30 days before starting work and construction activities can start immediately after the communication has been made.117
The table below shows when the building of small RES plants is subject to the simplified authorisation procedure or to the simple communication regime.118 Ultimately, these special procedures aim to encourage power production from RES by setting up adaptable processing times and more streamlined proceedings than ordinary ones.
|RES||Plant type||Generation capacity (kW)||Applicable administrative procedure|
|Photovoltaics||Plant attached to or integrated into the roof of an existing building and whose surface does not exceed that of the roof on which it is built||–||Simple communication|
|Plant on an existing building or on an existing building's premises||0–200|
|Photovoltaic module, placed on a building, whose total surface does not exceed that of the roof on which it is located||–||Simplified authorisation procedure|
|Other photovoltaic plants||0–20|
|Biomass, landfill gas, waste gas from purification processes and biogas||Cogeneration plant (microgeneration)||0–50||Simple communication|
|Plant in an existing building||0–200|
|Cogeneration plant (small cogeneration)||50–1,000||Simplified authorisation procedure|
|Plant powered by biomass||0–200|
|Plant powered by landfill gas, gases left over from purification processes and biogas||0–250|
|Wind||Individual wind generator plant with a height not exceeding 1.5 metres and a diameter not exceeding 1 metre installed on the roof of an existing building||–||Simple communication|
|Other wind power plants||0–60||Simplified authorisation procedure|
|Hydroelectric and geothermal||Hydroelectric and geothermal plant built in an existing building||0–200||Simple communication|
|Other hydroelectric and geothermal plants||0–100||Simplified authorisation procedure|
Variations to projects relating to the construction of RES plants can lead to a range of authorisation procedure issues, both before and after the conclusion of works. As a general principle, minor amendments to the existing plants may be authorised by simplified permits (sworn declarations delivered to the municipality), while major modifications that affect the volume, power or occupied area require a new single authorisation, which is issued following a unified proceeding.
The Italian regulatory framework also provides RES plants with favourable conditions for access to the distribution grid. In particular, the following special schemes are available for conveying RES-generated electricity into the electricity grid.
Simplified purchase–resale can be requested by non-programmable RES plants, irrespective of their capacity generation, except for plants benefiting from feed-in-tariff incentives (which already include the value of electricity) and plants benefiting from incentives provided under the Ministerial Decrees of 6 July 2012 and 23 June 2016. Under this scheme, GSE plays the role of trade intermediary between the producer and the electricity system. GSE purchases electricity from producers at a standard rate defined by ARERA based on market prices (e.g., the regional price on the day-ahead market on the Italian Power Exchange)119 and then resells the electricity to the market. The simplified purchase–resale scheme does not provide any economic incentive120 but a simplification for producers benefiting from this sale scheme, as they avoid the accreditation procedures required for trading on the Italian Power Exchange.
The net metering scheme can be requested by RES plants with a generation capacity not exceeding 200kW and that commenced activities from 2015. This upper limit was raised to 500kW by Decree Law No. 91/2014. The net metering scheme is a regulatory measure enabling RES plants to exchange economically the value of electricity that they deliver into the grid in a given hour with the value of electricity that they take from the grid in a different hour.121 This scheme actually results in an economic incentive, as RES plants do not pay transport tariffs for the network use with respect to electricity that they convey into the grid under the net metering scheme.
Furthermore, and more importantly, the legal framework grants RES-generated electricity priority access to the transmission and distribution grid, thus giving it a competitive advantage over electricity generated from conventional sources.122
Additionally, non-programmable RES plants can also benefit from a more favourable regime for the application of imbalance payments, which are the penalties plants must pay if they fail to comply with their daily generation plan.123 Unlike the previous regime, which fully exempted non-programmable RES from the application of imbalance payments, the current regime, which applies imbalance payments to RES plants, aims to foster better generation forecasting from non-programmable RES, thereby reducing the costs passed on to consumers.
IV RENEWABLE ENERGY PROJECT DEVELOPMENT
i Project finance transaction structures
Historically, project finance has been the preferred tool for financing renewable energy projects in Italy. While there has been a recent trend towards recourse debt financing through issuing green bonds, major transactions in the renewable energy sector typically involve project financing schemes.
In a project finance scheme, the specific project is evaluated exclusively regarding its profitability (i.e., on cash flows that the project will generate). The cash flows also serve as the primary guarantee for the debt reimbursement to the financing entity.124
A project finance transaction usually includes a number of participants, each having a specific role. The sponsors are the project promoters, who design the project and evaluate the costs, the bankability and the profitability of the project. The core business of sponsors of renewable energy projects is often manufacturing goods used in renewable energy projects (e.g., turbines and solar panels) or providing services associated with these projects.
To achieve complete legal and economic separation of the project sponsors from the project, the project finance scheme usually requires setting up a specific legal entity (a special purpose vehicle (SPV)), which is in charge of implementing the specific project assigned to it. The SPV is usually a limited company, and its by-laws limit its purpose and activities solely to the implementation of the project. The SPV does not have any financial means other than those provided to it for the implementation of the project. Its assets are isolated, by means of guarantees and contractual constraints, for the benefit of the institutions financing the project (ring-fencing).125
The structure described above limits the risk for the capital invested by the sponsors and indemnifies them from the risk of losses by the SPV. The success of project financing for renewable energy is mainly due to the unlikelihood of losses by the SPVs operating RES plants, because of the economic incentives and the dispatching priority for RES plants. The risk ring-fencing and remoteness of insolvency linked to this kind of financing allows the banks operating in this sector to offer low margins and interesting debt-to-equity ratios.
The sponsors, or, if it is set up immediately, the SPV, submit the project to the competent public entities and authorities (the Ministry of Economic Development, the regions concerned, or municipalities) to obtain the necessary approvals according to the applicable administrative procedure.
The contractual structure for project financing of renewable energy projects is complex. It includes a network of agreements involving the sponsors, the SPV (which manages the operation and maintenance contracts), financing institutions (which manage financial contracts), public entities, companies in charge of the engineering, procurement and physical construction of the plant (EPC contractors) and companies in charge of the operation and maintenance of the plant (O&M contractors). As mentioned, the EPC contractors are often the sponsors.126
The principal document in renewable energy project financing is the project finance loan agreement, which governs the relationship between the financing institution and the SPV. The terms of the project finance loan agreement do not take into account the financial stability of the sponsors or the SPV – only the capability of the financed project to generate cash flows. Other fundamental documents in the project financing scheme are the EPC contracts (entered into by the SPV and the EPC contractors), the O&M contracts (entered into by the SPV and the O&M contractors), the direct agreements (under which the financing institution is entitled to intervene in the relationships between the SPV, the EPC contractors and the O&M contractors) and the financial collateral arrangements (the 'security package', including the loan guarantees).
A notable opportunity provided by the Italian regulatory framework to promote the bankability of renewable energy projects is that plants admitted to a tariff incentive scheme may assign to third parties (namely credit institutions) the receivables from GSE.127 This is a further specific guarantee in addition to the other standard guarantees that are part of the security package.128
ii Distributed and residential renewable energy
Distributed generation by RES in Italy has developed significantly in the past 10 years, in terms of both number of plants and capacity installed.
Puglia is the Italian region with the highest value of electricity generated by RES small-scale generation, mainly because of the strong presence of photovoltaic and wind power plants,129 while generation from hydroelectric plants is highest in the north of Italy, because of the greater presence of waterways.130
Small-scale generation offers different ownership structures in Italy. Households and small businesses can purchase their own RES plants directly, generally as part of a service including design, installation, connection to the distribution grid and testing and maintenance of the plant (a turnkey service).
Alternatively, RES small generation projects can be carried out by energy service companies (ESCOs).131 ESCOs play an important role in promoting small generation projects, usually through EPC contracting schemes that indemnify small customers against the financial risks related to such projects.
Under an EPC scheme, the ESCO conducts an in-depth analysis of customer cost savings from a given distributed RES generation project. The ESCO then implements the project, often with the financial support of third parties, and becomes the owner and manager of the plant, while the customer pays the ESCO periodical fees that are calculated by reference to the amount of energy generated by the plant and to the level of cost savings achieved by the customer. With the EPC, the ESCO guarantees its customer a certain level of energy generated by the plant and a certain level of cost savings by means of the ESCO RES plant project. The European Code of Conduct for EPC schemes defines the basic values and principles that are considered fundamental for the successful preparation and implementation of EPC projects. In Italy, the role of National Code Administrator is held by Federesco, the National Federation of Italian ESCOs. ESCO projects in Italy tend to involve the commissioning and installation of the plant equipment.132
iii Non-project finance development
While project finance is the most common scheme for financing renewable energy projects in Italy, financial leases, whereby a leasing company acquires the ownership of an asset and leases it to the SPV, have been very common, particularly for the financing of small-scale projects (mainly photovoltaic plants) because of the limited arrangement costs. The reduction in the interest rates for project financing coupled with the higher termination costs typical of leasing structures have rendered this financing tool less competitive.133
Additionally, some major companies finance renewable energy projects using traditional schemes such as equity and debt financing.
Regarding debt financing options, green bonds have increased in popularity in Italy in the past few years.134
Green bonds have the same features as ordinary bonds but the issuer undertakes a specific obligation to use the capital collected to finance projects with specific environmental benefits and impacts. Returns on these bonds for investors do not differ from returns on ordinary bonds, but issuers and traders are driven by the common intention to promote renewable energy.
The Italian market for green bonds started in 2014 when the Italian energy operator, Hera SpA, issued a €500 million green bond for the first time. The capital was employed in the financing of 26 renewable energy projects. In the following years, many other Italian energy operators issued green bonds, with a commitment to employ the capital in renewable energy and energy-efficiency projects.
Today, Italian financial institutions' interest in financing renewable energy is rapidly increasing, and numerous green bonds have already been issued. In 2019, new green bond issues in Italy amounted to €5.4 billion, almost double the 2018 figure of €2.8 billion.135
In January 2019, Italian utility company, Enel SpA, placed a €1 billion green bond reserved for institutional investors, its third on the European market. The company will use the net proceeds to develop, construct and repower renewable energy plants, build and operate transmission and distribution networks and execute sustainable mobility, smart lighting, energy efficiency and demand-response projects.136
In March 2019, energy producer, ERG SpA, issued its inaugural fixed-rate green bond for €500 million as part of its €1 billion Euro Medium Term Note Programme to facilitate its transition to renewable energy. The proceeds of the initial six-year bond will be used to finance or refinance renewable energy projects in Europe.137
In April 2019, the transmission system operator, Terna, launched a green bond for €500 million. The green bond was placed by a syndicate of banks including Banca IMI, BNPP, Citi, Goldman Sachs, Mediobanca, Santander and UniCredit.138
In April 2019, UBI Banca issued a €500 five-year green bond. The bank's reference portfolio comprises loans primarily for solar (63 per cent), but also wind (23 per cent), biomass (8 per cent) and hydro (6 per cent) power generation.139 Similarly, Cassa depositi e Prestiti140 and Intesa San Paolo141 issued benchmark-sized green bonds in 2017 and 2018 in connection with environmental sustainability projects.
In June 2019, the Hera Group issued a €500 million green bond overall, repayable over eight years, which will finance environmental sustainability projects in three areas: energy efficiency, circular economy and sustainable water resource management.142
In July 2019, A2A issued its first green bond, exclusively targeting institutional investors under the Euro Medium Term Note Programme. The 10-year issuance, for a total amount of €400 million, received orders of €3.2 billion. Net proceeds will finance or refinance eligible green projects related to circular economy, decarbonisation, smart networks and services (investments in water and waste treatment, renewable energy development, energy efficiency, sustainable mobility and network upgrades).143
In July 2019, Ferrovie dello Stato issued a green bond with a nominal value of €700 million and a seven-year tenor with total orders of around €2.5 billion. All the financed projects ensure improvements in energy efficiency, reduction of greenhouse gas emissions and a modal shift to rail. Moreover this bond is the first in Italy to obtain Climate Bonds Initiative (CBI) certification; CBI is a non-profit organisation promoting sustainable finance worldwide to tackle climate change.144
In October 2019, one of Italy's largest multi-utility companies operating in the electricity, thermal energy and gas sectors, Iren, issued a green bond for a total of €500 million and received orders of €2.1 billion. Iren uses the net proceeds from the green bonds solely to finance or refinance, in whole or in part, series of projects or activities related to renewable energy development and energy efficiency.
The year 2020 has seen the Budget Law provide the Ministry of Economy and Finance with the option to include the interventions financed by the central state administration aimed at combating climate change, supporting energy sustainability, circular economy and environmental protection as relevant expenses in relation to the issuance of green bonds.145 Correlatively, the Ministry had already indicated its intention to introduce new green bonds in the '2020 Public Debt Management Guidelines' issued in December 2019.146
V RENEWABLE ENERGY MANUFACTURING
Renewable energy manufacturing in Italy mainly concerns photovoltaic panels, wind turbine blades and wind turbines with a power rating of less than 80kW.147
The leading European factory manufacturing photovoltaic panels is located in Catania (Sicily) and is owned by the Italian energy operator, 3SUN Srl, an Enel Group company. In March 2018, 3SUN Srl launched a project to convert the factory, intending to make it the first worldwide and exclusive manufacturer of HJT bifacial photovoltaic panels, which are based on heterojunction technology. This technology brings together two different kinds of silicon, amorphous and crystalline, generating particularly high energy yields.148 The 3SUN Srl factory conversion project entails an investment of over €80 million, partly financed by the European Commission,149 the Ministry of Economic Development through the 'Ampere' project, and the Sicily region. In October 2019, production of photovoltaic panels started, marking the completion of the factory conversion project. It aims to produce 500,000 panels per year.150
There are also some other smaller factories in Italy manufacturing solar panels, as well as an important factory located in Taranto (Puglia) manufacturing wind turbine blades and owned by the Danish wind energy operator Vestas. The manufacturing of turbines for small hydroelectric plants is also growing notably.151
VI CONCLUSIONS AND OUTLOOK
Over the past decade, there has been a substantial increase in renewable energy projects in Italy, resulting in the use of more RES in all sectors. The country has managed to outpace the targets set by the EU and the Italian legislature for 2020. Looking to the next few years, the PNIEC, building on the 2017 Italian National Energy Strategy, has set even more ambitious goals by increasing the 2030 targets for renewable energy and energy efficiency.
Overall, Italy's wide-ranging legislative framework, supported by government policies committed to environmental sustainability and to the participation of credit and finance institutions in the green economy, has made Italy one of the global leaders in RES development. In 2019, the approval of the RES1 Decree represented a far-reaching reform of the incentives related to solar, wind and biomass power sources, demonstrating that the country is taking concrete steps to reach its 2030 energy objectives (seven auctions are to be held from 2019 to 2021). The reform is expected to attract new investments and generate new prospects for national and international stakeholders in the RES sector. The forthcoming seven auctions will assign 4.8GW of RES capacity (see Section III.i). Additionally,in 2020, the Italian legislature is likely to adopt the RES2 Decree (see Section II), which deals with new incentives for biomass and geothermal sources and is expected to make the Italian market even more attractive for RES operators.152
Therefore, the Italian regulatory system arguably provides a wide range of opportunities and tools designed to promote energy saving and RES development. Nonetheless, as the country works towards the 2030 energy targets, a number of measures to increase renewable energy capacity still need to be either reinforced or implemented. These include stimulating the installation of small-scale plants through the imposition of minimum quotas of RES consumption; improving self-consumption for small-scale power generation through net metering arrangements; upgrading existing plants by promoting repowering and revamping; streamlining procedures, such as those for environmental assessments; and supporting sharing out the burden of the national RES target among the regions.153
Local authorities play a key role in the planning process. Arguably, however, there is a need for stronger coordination between decision-making authorities and policymakers at national, regional and local level, with a view to removing barriers that hamper projects from getting off the ground. On a different note, the promotion of PPAs, which has the potential to lessen uncertainty in relation to market volatility, is still lagging. Despite the intention to create a platform to negotiate long-term energy contracts,154 the RES 1 Decree provides no immediate mechanism to expedite this.
The covid-19 health emergency has hit Italy particularly hard and the government is facing the testing task of bringing the pandemic under control155 while introducing major stimulus and recovery measures. By hastening investments in RES and making the energy transition an integral part of the wider recovery, the country has the opportunity to leverage RES to contribute to supporting short-term recovery while creating a more resilient market economy. On this point, the International Renewable Energy Agency has emphasised how RES and low-carbon investments in the wake of the covid-19 pandemic would pay off significantly, with savings eight times greater than costs when accounting for reduced health and environmental externalities.156
Taking action to increase renewable energy capacity is no easy task, particularly at this time. To reach renewable energy targets, effective government policies are needed, encouraging investor confidence and reducing development costs for RES projects over the medium and long term. The renewables-based energy transformation requires substantial effort, harnessing technological evolution, increasing collaborative action targeted at creating enabling conditions and unlocking renewable investments, as well as encouraging citizens' responsible energy use.
Interestingly, in April 2020, Terna and Snam, the main national transmission system operators for electricity and gas, entered into a memorandum of understanding to coordinate research and development activities with a strong focus on renewables: Snam plans to convert its compression and storage facilities into dual-fuel gas–electric plants, with a view to reducing CO2 emissions; and Snam and Terna will develop sector-coupling initiatives on the dynamics of flexibility and integration of RES.157 These types of initiatives by key participants in the Italian energy market provide a clear signal to private investors that RES such as hydrogen, biomethane, bio-syngas, low-carbon and hydrogen will be crucially important in the near future.158 This, in turn, is likely to stimulate private sector investment.
1 Marco D'Ostuni is a partner, Luciana Bellia is a senior attorney and Riccardo Tremolada is an associate at Cleary Gottlieb Steen & Hamilton LLP.
2 Global investment in renewable energy capacity reached US$272.9 billion in 2018, outstripping investments in new fossil fuel generation. Renewables capacity investment exceeded US$250 billion for the fifth successive year in 2018. See Frankfurt School-UNEP Centre/BNEF, Global Trends in Renewable Energy Investment 2019, p. 5.
3 In line with EU legislation, Italian law considers renewable energy to be the power generated from non-fossil sources, namely wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment, plant gas and biogases. See Article 2.1(a) of Legislative Decree No. 28 of 3 March 2011 and Article 2(a) of EU Directive 2009/28/EC of 23 April 2009.
4 GSE, Fonti rinnovabili in Italia e in Europa (Renewable energy sources in Italy and Europe), 26 February 2020, p. 7.
5 GSE, Renewable energy sources in Italy and Europe, 26 February 2020, p. 7.
6 ibid., p. 25.
7 SRM, MED & Italian Energy Report 2019, March 2019, p. 93. The energy dependency on foreign countries is especially high for hydrocarbons (93 per cent), given the scarcity of domestic resources and the declining domestic production. From 2006 to 2016, natural gas production reduced by 47 per cent, crude oil production by 35 per cent and coal production by 63 per cent. In 2018, Italy's last coal mine, located in the Sulcis Iglesiente Basin in Sardinia, closed permanently. See 'Italy's effort to phase out and rationalise its fossil-fuel subsidies', A report on the G20 peer-review of inefficient fossil-fuel subsidies that encourage wasteful consumption in Italy (April 2019), p. 12.
8 See Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources, OJ L 140, pp. 16–62.
9 See also Italy's Fourth Progress Report under Directive 2009/28/EC, December 2017. Under Directive 2009/28/EC, the Italian legislature set a target RES share of 17 per cent of the energy mix by 2020. The sector-specific targets were as follows: heating and cooling (17 per cent met by RES); electricity (26 per cent met by electricity generated from RES); transport (10 per cent met by RES); see the Italian National Renewable Energy Action Plan (30 June 2010). Thanks to over 113TWh of energy produced from RES, Italy exceeded in 2018, and for the fifth consecutive year, the threshold of 17 per cent of consumption satisfied by renewables. See GSE, Rapporto Statistico: Energia da fonti rinnovabili in Italia, February 2019, p. 32.
10 GSE, Renewable energy sources in Italy and Europe, 26 February 2020, p. 29.
11 Specifically, feed-in tariffs are no longer available for RES plants that commenced activities after 31 December 2012 (see Section III.i).
12 ARERA Report No. 291/2019/i/efr of 2 July 2019, p. 9.
13 ibid., p. 10.
14 See generally, GSE, Renewable energy sources in Italy and Europe, 26 February 2020.
15 ibid., p. 8.
16 ibid., p. 9.
17 ibid., p. 10.
18 ANIE, Osservatorio FER Novembre 2019, 11 March 2020.
19 GSE, Rapporto Statistico FER 2018, December 2019, p. 11.
20 ibid., pp. 9–10.
21 ibid., p. 12.
22 The fuel ether bio-ETBE is a derivative from bioethanol, obtained from the distillation of wheat or sugar beet. About half of all bioethanol blended into gasoline in the EU is currently in the form of bio-ETBE. See the European Oxygenates Association, What are Bio-Ethers?, 2013, available at https://www.sustainablefuels.eu/mediaroom/what-are-bio-ethers/.
23 GSE, Rapporto Statistico FER 2018, December 2019, p. 13.
24 ibid., p. 35.
25 ibid., p. 30.
26 Law No. 160/2019 was published in Official Journal No. 304 of 20 December 2019, and entered into force on 1 January 2020.
27 Law No. 160/2019, Article 1, Paragraph 175.
28 ibid., Paragraph 176.
29 Emiliano Bellini, Italy rebalances PV market, 8 January 2020, available at https://www.pv-magazine.com/2020/01/08/italy-rebalances-pv-market/.
30 Law No. 160/2019, Article 1, Paragraphs 524 and 525.
31 ibid., Paragraphs 107 and 108.
32 ibid., Paragraph 116.
33 Ministerial Decree of 28 June 2019 was not published in the Official Journal. See https://www.mise.gov.it/
34 Ministerial Decree of 4 July 2019 was published in Official Journal No. 186 of 9 August 2019, and entered into force on 10 August 2019.
35 GSE, Regolamento Operativo per l'iscrizione ai Registri e alle Aste del DM 4 luglio 2019, 23 August 2019.
36 GSE, Regolamento Operativo per l'accesso agli incentivi del DM 4 luglio 2019, 27 September 2019.
38 See generally, GSE, Rapporto Statistico FER 2018, December 2019.
39 See generally, ANIE, Osservatorio FER Novembre 2019, 11 March 2020. See also, Emiliano Bellini, Italy deployed 737MW of solar in 2019, 21 April 2020, available at https://www.pv-magazine.com/2020/04/21/italy-deployed-737-mw-of-solar-in-2019/.
40 GSE, Rapporto Statistico FER 2018, December 2019, p. 40. See also Energy & Strategy Group, Renewable Energy Report, May 2019, p. 56.
41 The main contribution is from the two large plants in Apulia (63MW) and in Sardinia (31MW). ANIE, Osservatorio FER Novembre 2019, 11 March 2020.
43 GSE, Rapporto Statistico FER 2018, December 2019, p. 59.
44 Energy & Strategy Group, Renewable Energy Report, May 2019, p. 60.
45 GSE, Rapporto Statistico FER 2018, December 2019, p. 56.
46 ANIE, Osservatorio FER Novembre 2019, 11 March 2020.
47 GSE, Rapporto Statistico FER 2018, December 2019, p. 67.
48 ibid., p. 72.
49 ibid., p. 65.
50 ibid., p. 69.
51 ANIE, Osservatorio FER Novembre 2019, 11 March 2020.
52 GSE, Rapporto Statistico FER 2018, December 2019, p. 80.
53 ibid., p. 78.
54 GSE, Rapporto Statistico FER 2018, December 2019, p. 81.
55 ANIE, Osservatorio FER Novembre 2019, 11 March 2020.
56 GSE, Rapporto Statistico FER 2018, December 2019, p. 101.
57 Legislative Decree No. 28/2011, Article 3 provided that the national target for final consumption of energy in the transport sector produced by RES was to be at least 10 per cent. See footnote 9. In addition, the Ministerial Decree of 15 March 2012 (known as the 'Burden Sharing Decree') set out the objectives for each Italian region for 2020, with a view to proportionally sharing the activities necessary to achieve this national target. It also made the state-owned company GSE responsible for monitoring and calculating the consumption of RES-generated energy.
58 Joint Decree issued on 10 November 2017 by the Ministers of Economic Development and Environment. See also http://www.sviluppoeconomico.gov.it/index.php/en/202-news-english/2037432-national-energy-
59 See EU Commission Communication No. COM/2011/0885 of 15 December 2011.
62 EU-ETS is a European system for the exchange of emission quotas, which is the main EU regulation tool for the reduction of climate-changing emissions in the energy sectors. The EU-ETS works on the cap-and-trade principle, according to which a cap is set on the total amount of certain greenhouse gases that can be emitted by installations that fall within the remit of the system. The cap is reduced over time so that total emissions fall. Within the cap, companies receive or buy emission allowances, which they can trade with one another as needed. The limit on the total number of allowances available guarantees that they have a value. After each year, a company must yield enough allowances to cover all its emissions, or else hefty fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company. The legislative framework of the EU-ETS for the next trading period (2021–2030) was revised in early 2018 to allow it to attain the EU's 2030 emission reduction targets and as part of the EU's contribution to the Paris Agreement. The revision centres on: (1) reinforcing the EU-ETS as an investment driver by increasing the pace of annual reductions in allowances to 2.2 per cent from 2021 and strengthening the Market Stability Reserve (i.e., the mechanism launched by the EU in 2015 aimed at reducing the surplus of emission allowances in the carbon market and at improving the EU-ETS's resilience to future shocks); (2) supporting the free allocation of allowances as a guarantee for the international competitiveness of industrial sectors at risk of carbon leakage, while making sure that the rules for determining free allocation reflect technological advances; and (3) backing the industry and the power sector through the low-carbon transition by also enacting low-carbon funding mechanisms. See the Consolidated version of Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC.
64 A feed-in tariff includes an 'incentive' component and a component for remuneration for electricity conveyed into the network.
65 A feed-in premium is an incentive granted exclusively for the electricity produced and does not include remuneration for the sale of that energy, which might even be self-consumed by the producer or sold to the market, generating extra profits.
66 The Energy Account system includes a standard premium related to the amount of energy produced.
67 Green certificates were issued by GSE and represented the environmental value of electricity generated by an RES plant (i.e., an amount of CO2 emissions lower than that produced by a plant fired by traditional fuels, such as oil). Green certificates could be traded separately from the electricity produced over the counter or through a trading platform managed by the state-owned GES, thus representing a further remuneration for RES electricity producers. Furthermore, according to the legislation, each electricity producer (or importer) had an obligation to generate (or put into the grid) a given share of electricity generated from RES or, alternatively, to obtain a corresponding amount of green certificates.
68 Ministerial Decree of 6 July 2012, Article 19.
69 ARERA Report No. 291/2019/i/efr of 2 July 2019, p. 53.
70 Law No. 244/2007 and Ministerial Decree of 18 December 2012.
71 ARERA Report No. 291/2019/i/efr of 2 July 2019, pp. 57–58.
72 Ministerial Decree of 6 July 2012.
73 Ministerial Decree of 23 June 2016.
74 ARERA Report No. 428/2018/i/efr of 2 August 2018, p. 67, figures 40 and 41.
75 ARERA Report No. 291/2019/i/efr of 2 July 2019, p. 65.
76 ibid., p. 67.
77 ibid., p. 70.
78 ibid., p. 70.
79 Ministerial Decree of 6 July 2012, Article 19. The value of the incentives replacing green certificates was set out for 2018 in ARERA Resolution No. 32/2018/R/efr of 25 January 2018.
80 ARERA Report No. 291/2019/i/efr of 2 July 2019, p. 70.
81 Ministerial Decree of 23 June 2016 continues to apply to RES plants enrolled in the registers and reverse auctions provided thereunder.
82 Law No. 160/2019, Article 8.
83 The RES1 Decree allows plants located in other EU Member States (or in third neighbouring states that have a free trade agreement with the EU) that physically export electricity to Italy also to apply for incentives. However, they cannot have access to the incentives through registers and can only participate through the auction system provided that (1) an agreement exists between Italy and the Member State or the third state, (2) the agreement establishes a system of reciprocity and the methods by which proof of the physical importation of renewable electricity is to be provided, and (3) the plants meet all the subjective and objective requirements set out in the RES1 Decree (Law No. 160/2019, Article 16).
84 Law No. 160/2019, Article 2, Paragraph 1(d), Article 3, Paragraph 10, and Article 3, Paragraph 11.
85 ibid., Article 6.
86 ibid., Article 3, Paragraph 9.
87 ibid., Article 11, Paragraph 2.
88 ibid., Premises. The new tariffs are all lower than those set out in the Ministerial Decree of 23 June 2016. The most substantial reduction concerns wind power at auction (€70 auction base for wind power with a capacity of over 1MW compared to €110 in the Ministerial Decree of 23 June 2016). This reduction under the RES1 Decree is premised on the fact that all the bidders in the auctions conducted under the Ministerial Decree of 23 June 2016 offered the maximum discount, signifying that the market still has room for reduction.
89 ibid., Article 7, Paragraph 1. The Reference Tariff is calculated on the basis of the source and type of plant and its power, by applying: (1) the rates and any reductions envisaged by the Ministerial Decree of 23 June 2016 for successful non-photovoltaic plant applicants to the registers whose plants are connected within one year of the RES1 Decree coming into effect and who did not benefit from specific priority criteria; and (2) the tariffs referred to in Annex 1 of the RES1 Decree for all other plants.
90 ibid., Article 7, Paragraph 2. The Offered Tariff is determined by applying to the Reference Tariff any reductions requested by the successful participant when applying to the registers or auctions, to benefit from available priority criteria.
91 ibid., Article 7, Paragraph 3. The Due Tariff is calculated by applying the additional reductions envisaged by the RES1 Decree to the rate offered to successful participants admitted to the registers and auctions and subsequently awarded incentives.
92 ibid., Article 7, Paragraph 6.
93 ibid., Paragraph 7.
94 ibid., Paragraph 8.
95 ibid., Paragraph 12.
97 Legislative Decree No. 28/2011, Article 4.
98 Legislative Decree No. 79/1999, Article 3, Paragraph 3 and Article 11, Paragraph 4, transposing Directive 2009/28/EC. This means that, in an oversupply scenario, RES plants will still be dispatched in the context of the power exchange market irrespective of price. In their White Paper on Renewables in the Wholesale Market, ACER and CEER called for EU legislators to bring RES into the market, by removing the priority for RES in dispatching regimes.
99 Legislative Decree No. 28/2011, Article 11.
100 Italian Revenue Agency, Decision No. 86/E of 15 October 2015.
101 Italian Revenue Agency, Decision No. 54/E of 18 July 2016; Law No. 266/2005, Article 1, Paragraph 423.
102 Article 117 of the Italian Constitution defines whether the national or the regional legislator is entitled to adopt relevant rules in the energy sector. For more details, see D Diaco, '“Produzione, trasporto e distribuzione nazionale dell'energia” nei giudizi di legittimità costituzionale in via principale' (2004–2015), Corte Costituzionale, Servizio Studi, available at http://www.cortecostituzionale.it/documenti/convegni_seminari/stu_281.pdf.
103 Legislative Decree No. 93/2011.
104 Law No. 481/1995, Article 2.
105 ibid., Paragraph 20(c).
106 Law No. 239/2004, Article 1, Paragraph 12.
107 ibid., Paragraph 89.
108 See Legislative Decree No. 249 of 31 December 2012 and EU Directive 2009/119/CE.
109 Law No. 160 /2019, Article 18.
110 Legislative Decree No. 28/2011, Article 4.
111 Legislative Decree No. 387/2003, Article 12.
112 Ministerial Decree of 10 September 2010, National Guidelines for the Authorisation of RES Plants, Paragraph 10.5.
113 Italian Constitutional Court, Judgment No. 275 of 6 December 2012.
114 Legislative Decree No. 387/2003, Article 12, Paragraph 4.
115 See Ministerial Decree of 10 September 2010, National Guidelines for the Authorisation of RES Plants, Paragraphs 12–13, for an exhaustive list of activities subject to this authorisation regime.
116 Legislative Decree No. 28/2011, Article 6.
118 Source: KPMG, Advisory: Investing in renewables, 2011, study on Italian legislation by KPMG (authors' translation).
119 Legislative Decree No. 387/2003, Law No. 239/2004 and ARERA Resolution No. 280/07.
120 Minimum guaranteed prices are, however, available for small electricity producers but only for small volumes of electricity generated.
121 Legislative Decree No. 387/2003, Legislative Decree No. 20/2007 and ARERA Resolution No. ARG/elt/74/08.
122 Legislative Decree No. 79/1999, Article 3, Paragraph 3 and Article 11, Paragraph 4, transposing Directive 2009/28/EC.
123 See ARERA Resolution No. 522/2014/R/eel.
124 S M Sambri, Modalità di realizzazione di impianti di produzione di energia con risorse private (project financing), in E Picozza and S M Sambri (eds.), Il diritto dell'energia, CEDAM, 2015, p. 669.
125 ibid., p. 669.
126 ibid., p. 679.
128 S M Sambri, Modalità di realizzazione di impianti di produzione di energia con risorse private (project financing), in E Picozza and S M Sambri (eds), Il diritto dell'energia, CEDAM, 2015, pp. 705–706.
129 ibid., p. 42.
130 ibid., p. 45.
131 Legislative Decree No. 115/2008, Article 2(i), defines an ESCO as 'a natural or legal person that delivers energy services and/or other energy efficiency improvement measures in a user's facility or premises, and accepts some degree of financial risk in so doing. The payment for the services delivered is based (either wholly or in part) on the achievement of energy efficiency improvements and on the meeting of the other agreed performance criteria.'
132 See F Arecco, G Dall'O, Energia sostenibile e fonti rinnovabili, IPSOA, 2012, p. 397.
133 DLA Piper, Doing Business in Italy, Energy Investor Guide 2018, p. 59.
134 Energy & Strategy Group, Renewable Energy Report, 2017, pp. 11–13.
135 Intesa San Paolo, Sustainability Bond Framework as at 18 November 2019.
145 Law No. 160/2019, Article 1, Paragraph 86.
146 Italian Ministry of Economy and Finance, 2020 Public Debt Management Guidelines, December 2019, Part III.9, p. 21.
147 Energy & Strategy Group, Report on renewable energies other than photovoltaic, 2013. See also Confindustria, Libro bianco per uno sviluppo efficiente delle fonti rinnovabili al 2030, December 2018.
149 Specifically, the EU funds were awarded under the European Research and Development project Horizon 2020 European Call LCE-09-2016-2017.
151 Legambiente, Report on Renewable Municipalities for 2017, p. 118.
153 See generally, Aspen, Shell Italia and Elettricità Futura, Massimizzare il potenziale energetico nazionale tra crescita e sostenibilità, 2018.
154 Law No. 160/2019, Article 18, Paragraph 1.
155 According to estimates by the International Monetary Fund, Italy's gross domestic product (GDP) will fall by 0.6 per cent in 2020, the public debt will rise to 137 per cent of GDP and the budget deficit to 2.6 per cent of GDP because of the covid-19 outbreak. See International Monetary Fund, IMF Executive Board Concludes 2020 Article IV Consultation with Italy, Press release No. 20/94, 19 March 2020, available at https://www.imf.org/en/News/Articles/2020/03/19/pr2094-italy-imf-executive-board-
156 See International Renewable Energy Agency (IRENA), Global Renewables Outlook, 20 April 2020. The IRENA Global Renewables Outlook stresses the importance of building more sustainable and resilient economies by aligning short-term recovery efforts with the medium and long-term energy and climate objectives as outlined in the Paris Agreement and the UN Sustainable Development Agenda. The Global Renewables Outlook holds that transforming the energy system globally could boost cumulative global GDP gains above business-as-usual returns by US$98 trillion between 2020 and 2050. It would nearly quadruple RES jobs to 42 million, expand employment in energy efficiency to 21 million and add 15 million in system flexibility.