An extract from The Renewable Energy Law Review, 4th Edition

The policy and regulatory framework

i The policy background

The Italian policy towards renewable energy is strictly connected with European policies on this. As known, the support and development of renewables has been one of the cornerstones of EU policy since the White Paper issued in the 1990s, and Member States have ruled accordingly to ensure the achievement of the objectives established over time by the EU under directives and regulations.

In line with the EU standard, Italy strongly committed to the promotion and support of renewable energy plants.

The current policy is based, from an authorisation perspective, on the framework deriving from Legislative Decree 387/2003, Legislative Decree 28/2011 and Legislative Decree 152/2006 (the Environmental Code) providing for an ad hoc regime.

From an incentive perspective, Italy has provided for different kinds of support schemes (e.g. Green Certificates, feed-in tariffs, off-take regimes, net metering services).

The current incentive policy for newly built plants is based on competitive tender for awarding incentives, adopting a neutral approach among groups of technologies with similar structure and levels of cost. The incentives are paid based on contracts for difference executed with the GSE, the entity in charge of managing the renewable energy support schemes and paying the related incentives (i.e., the incentive amount is equal to the difference between the awarded tariff and the market price). This mechanism is considered to be ideal because it enables pre-defined power levels to be programmed, providing certainty to operators and, at the same time, controlling the costs of the support scheme and avoiding overcompensation with benefits for consumers (that bear the costs of a support scheme passed on the electricity bill), where the market price of electricity goes above the recognised tariffs.

The policy implemented by the government proved successful. The country has experienced impressive growth in the renewable energy sector and has been successful in integrating large volumes of variable renewable generation. To date, according to the GSE Renewable Energy Statistical Report 2021 – Year 2019, more than 839,000 renewable energy plants have been installed.11

As per future developments, according to what was provided under the NRRP, the government intends to increase the share of renewable energy sources and stimulate the growth of an industrial chain in the technological sectors linked to the production of energy from renewable sources (specifically photovoltaic and wind).

For this purpose, the government is studying a reshaping of the current framework based on (1) simplification of authorisation procedures for onshore and offshore renewable installations and the definition of a new legal framework to support production from innovative renewable sources by extending the time frame and extension of the scope of eligibility of the current support schemes; and (2) increasing the national production of PV modules from the current 200MW per year to at least 2GW per year in 2025 and to 3GW per year in the following years. With regard to wind turbines, the government will support the creation of intellectual property and the acquisition of new technologies and skills for the production of high-efficiency turbines, with the creation of a prototype production plant.

In addition, the incentives would be progressively phased out towards market parity, in which respect a framework for long-term PPAs should be provided.

The main current support regimes in place for renewables are the following.

All-inclusive feed-in tariffs

This is a support scheme under Ministerial Decree 18 December 2008 for small renewable energy source plants (excluding PV plants). The tariff includes both the incentive and the value of electricity fed into the power grid. The tariff is granted on request to plants entering into operation after 31 December 2007 with a capacity not exceeding 1MW (200kW for wind farms). The support period is 15 years.

Off-take regime

Regulated under Annex A to ARERA Resolution No. 280/2007, it is managed by GSE and applies to plants below 10MVA. Under agreements with the GSE, producers sell the electricity generated and to be injected into the grid to GSE, instead of selling it through bilateral contracts or directly on the power exchange market. GSE purchases and resells the electricity to be fed into the grid at the zonal price or at a minimum guaranteed price (for plants below 100kW only).

Net metering service

Under this service, regulated by the TISP (Consolidated Text on the Net Metering Service – ARERA Resolution ARG/elt 74/08), the electricity generated by a consumer or producer in an eligible on-site plant and injected into the grid can be used to offset the electricity withdrawn from the grid. The GSE pays a contribution to the customer based on injections and withdrawals of electricity in a given calendar year and on their respective market values. Net metering is not compatible with the off-take regime and the all-inclusive feed-in tariff. The service applies to:

  1. owners of renewable energy source electricity generation plants with a capacity of up to 20kW;
  2. renewable energy source electricity generation plants with a capacity up to 200kW (commissioned after 31 December 2007); and
  3. high-efficiency combined heat and power (CHP) plants with a capacity of up to 200kW.
The FER Decree

Issued on 4 July 2019, the FER Decree sets the support regime for renewable energy plants, including PV plants for the period 2019–2021. The support scheme applies to newly built, fully rebuilt and reactivated, repowered plants and plants undergoing power renovation.

Access to incentives is based on qualification as a result of: (1) plants ≥1MW: Dutch auctions up to the available capacity made available at each auction; and (2) plants

Tariffs are awarded based on the reduction on the base tariff offered by each participant. The base tariff varies according to the kind of energy power source as listed in Table 1.1. of Annex 1 to the FER Decree.

Rebates on the base tariff are allowed up to 30 per cent in case of registries procedures and up to 70 per cent (but not less than 2 per cent) in case of auction procedures.

Starting from the registry or auction procedures opened as of 1 January 2021, the amount of the base tariff reported in the FER Decree is reduced by 5 per cent. This reduction does not apply to previous registry or auction procedures.

The final incentive paid is equal to the difference between the awarded tariff and the hourly zonal price. The mechanism is based on contracts for difference, and thus the producer may have to pay back an amount in the case that the difference between the awarded tariff and the hourly zonal price is negative.

The value of the awarded tariff is subject to (1) a reduction of 1 per cent per year in case the plant does not enter into operation within 15 months from the relevant registry or auction procedure qualification ranking and (2) a further reduction of 0.5 per cent per month up to six months of delay in the case that the plant does not enter into operation within the final entry into operation deadline provided (varying according to the kind of plant).

Transfer of a project before the publication of the qualification ranking entails the application of a 50 per cent reduction to the awarded tariff.

To participate at the qualification procedure (auction or registries) the producer shall:

  1. secure the authorisation title;
  2. obtain the estimate of connection and accept it;
  3. register the plant on the GAUDI system managed by Terna SpA; and
  4. meet the capitalisation requirements varying according to the value of the investment.

Moreover, it is imperative that construction works are not commenced before the publication of the qualification ranking by GSE.

As noted above, the government also recently focused on more innovative technologies, such as storage systems and hydrogen. In this respect, a specific authorisation framework has been developed under the Simplification Decree for electrochemical storage system, including the connection lines and any further ancillary works.

Specifically, pursuant to Article 1, paragraph 2 quarter LD 7/2002, as modified under Article 62, paragraph 1, of the Simplification Decree, electrochemical storage facilities necessary for the electricity system together with the works necessary for the connection of the same to the grid, and any other ancillary works can be authorised according to four different procedures listed under letters (a) to (d) of paragraph 2 quarter mentioned above, depending on the features of the project, namely:

  1. Pursuant to letter (a), storage systems located within areas characterised by the presence of either industrial plants of whatever kind, including plants no longer operational or in the process of being dismantled, or by the presence of electricity generation plants with a capacity lower than 300MWt powered with fossil fuels or by the presence of quarries or liquid/gas hydrocarbon production plants being dismantled are authorised by way of PAS (see Section III.ii for explanation of PAS). That is provided that the implementation of the project does not entail an extension of the existing selected site area or an increase in heights or require a variation to the existing urban instruments.
  2. Pursuant to letter (b), stand-alone storage systems located within non-industrial areas and related connection works or storage systems located within areas occupied by fossil fuel powered electricity generation plants with a capacity equal or higher than 300MWt are authorised by way of single authorisation issued by the Ministry of Economic Development based on Legislative Decree 7/2002.
  3. Pursuant to letter (c), storage systems serving renewable energy plants with a capacity higher than 300MWt are authorised by way of single authorisation as per Legislative Decree 387/2003.
  4. Pursuant to letter (d), however, storage systems located with a capacity lower than 10MW are not subject to any formal building authorisation for construction and operation. However, it is in any case necessary to acquire any ancillary clearance or way of leave in accordance with the environmental, landscape, cultural heritage, safety, fire prevention and other regulation applicable to the project.

No specific incentives are provided for storage systems, although remuneration opportunities can arise from the participation of the same to the Capacity Market.

The Capacity Market has been established to allow producers to offer Terna their power at a future date upon remuneration from Terna, thereby providing a further element of flexibility to the electricity system that could count also on additional power capacity made available besides the Dispatching Service Market or Ancillary Services Market sources.

ii The regulatory and consenting framework

The main sources of law and regulation for renewable energy are represented by law and legislative decrees passed by the parliament and the government, any implementing decrees adopted by the Ministry of Economic Development that is often tasked with detailing certain aspects of the framework, decrees by the President of the Republic and regulations by other authorities tasked with further regulatory powers or management of certain activities.

That said, the main regulatory framework includes, among others:

  1. Legislative Decree 387/2003 of 29 December 2003, setting the reference framework for the authorisation of renewable energy plants and interconnection works (Legislative Decree 387/2003);
  2. Legislative Decree 152/2006 of 3 April 2006 (Environmental Code), defining the environmental procedures;
  3. Legislative Decree 28/2011 of 3 March 2011 (Romani Decree) integrating the renewable energy plants authorisation regime; and
  4. Annex A to ARERA Resolution No. ARG/elt 99/08 issued on 24 July 2008 as further amended and integrated, namely the Consolidated Text for connection to the grid (TICA).

Other rules can be found in various laws, royal decrees, ministerial decrees and other pieces of legislation, as well as all the specific regulations introduced by parliament, the government and the Italian Regulatory Authority for Energy, Networks and Environment.

In this respect, the main authorities involved in the energy sector regulation are:

  1. The Lawmaker (i.e., parliament and government) which has the power to amend the existing laws and introduce new ones affecting the functioning of the electricity sector.
  2. Ministry of Economic Development (MISE). The MISE oversees Italy's energy policy and has regulatory powers to implement any relevant legislation passed by the Italian parliament from time to time.
  3. Italian Regulatory Authority for Energy, Networks and Environment (ARERA) tasked with regulatory and supervisory activities in the sectors of electricity, natural gas, water services, waste cycle and district heating.
  4. The Energy Services Manager (GSE). This is a state-owned company, tasked with the management of the existing support schemes (from admission procedures to payments and plants inspections and controls).
  5. The Electricity Market Operator (GME). This is a company fully owned by the GSE tasked with the organisation and management of the electricity market (the IPEX).

With regard to the consenting framework, as noted above, to date, except for distribution activity (carried out under concession) and the activities of transport and dispatching (carried out by the national grid operator), production, import, export, purchase and sale of electricity are free.

Thus, electricity generation remains a non-regulated activity, although construction and operation permits and licences need to be sought from different authorities.

Based on Legislative Decree 387/2003 and Romani Decree, the construction and operation of renewable energy plants as well as modifications, repowering, revamping and reactivation interventions are subject to the following authorisations (to be granted by the relevant competent entity).

Single Authorisation

This is the main authorisation for renewable energy plants and it is issued after a one-stop proceeding involving all interested entities as a result of a steering committee convened for examining the project. All interested entities participate at the meeting and issue their opinion, permit or way of leave during the same meeting. The Single Authorisation is adopted by the relevant region or the province where the plant will be built. The Single Authorisation applies to renewable energy plants beyond the power thresholds specified in Annex A to Legislative Decree 387/2003 (varying according to the kind of plant) or 1MW (in case the relevant region has extended the PAS threshold – see below). The Single Authorisation covers not only the construction and operation of the plant, but also the construction and operation of the relevant interconnection facilities. Therefore, plants authorised this way do not require separate authorisation for construction and operation of electrical lines. The Single Authorisation procedure has a duration of up to 90 days from the formal start notice.

Simplified Procedure (PAS)

The PAS consists of a declaration concerning the plant installation to be filed with the municipality at least 30 days before the start of the works. Within the subsequent 30 days, the municipality shall verify the documentation and, should it find that one or more of the conditions provided for are not met, will notify the interested party of an order not to carry out the intervention. Otherwise, if there is no response from the municipality within 30 days after the submission of the request, the PAS shall be considered as effective and the works approved. When it is necessary to acquire further permits, way of leave or other authorisations not falling within the municipality competence and not attached to the PAS, the municipality shall convene for this purpose a steering committee procedure inviting the interested entities. In such a case, the 30-day term for the effectiveness of the PAS is calculated from the day the final measure concluding the proceeding is issued. The PAS applies to renewable energy plants up to the thresholds specified in Annex A to Legislative Decree 387/2003 (varying according to the kind of plant) or 1MW (in case the relevant region extended the threshold for the PAS application).

Certified works declaration (DILA)

A declaration certified by a technician to be filed with the municipality, which allows the applicant to start the works without waiting for the expiry of any term. DILA has been introduced by the Simplifications Decree for the purpose of providing a simplified authorisation in relation to certain kinds of interventions considered as non-substantial on renewable energy plants (even plants under construction) or the construction of a certain kind of renewable energy plant. In the case that the DILA applies, no further environmental and landscape authorisations are required.

Notice to the municipality

This applies to some types of small plants for the production of electricity, heat and cold from renewable energy plants. Works can be started upon filing of the communication.

From an environmental perspective, renewable energy projects must also undergo an environmental assessment procedure aimed at excluding negative impacts on the environment. Pursuant to the Environmental Code, two main environmental procedures may apply:

  1. screening procedure: any renewable energy plants having a power capacity higher than 1MW are subject to screening assessment, to verify whether the environmental impact assessment (EIA) is required in relation to the interactions and impact of the project with the area where it is located, also considering the surrounding context in terms of environmental and landscape value. The screening procedure has a duration of 90 days from the start of the proceeding (up to 150 in case integrations are required).
  2. EIA procedure: reserved to renewable energy plants located in protected areas or any plants having a power capacity higher than 1MW deferred to EIA procedure as a result of the screening assessment. The EIA procedure has a duration of about 150 days (without taking into account the time for possible integrations and modifications to the project) from the publication on the competent authority website of the EIA application.

Both the screening and the EIA proceeding are concluded with an express measure adopted by the competent authority (usually the region or the province).

If the project interferes with protected areas under the Habitats Directive (formally known as Council Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora) and the Birds Directive (formally known as Council Directive 2009/147/EC on the conservation of wild birds), the project is subject to the 'VINCA', aimed at determining any negative effect on this protected area. The VINCA procedure is regulated under Presidential Decree No. 345/1997 and if the project is also subject to EIA, it is comprised within the EIA procedure.

With regard to cultural heritage aspects and landscape aspects, reference shall be made to Legislative Decree No. 42/2004 (the Cultural Heritage Code).

If a project interferes with any landscape constrained areas or cultural heritage items listed under the Cultural Heritage Code, a specific authorisation must be obtained by the competent authority (usually the region or the delegated municipality) upon favourable opinion of the local cultural heritage department.

In addition to the above, for the purpose of streamlining authorisation procedures, the new Article 27 bis of the Environmental Code introduced the Single Regional Authorisation (PAUR), which is a one-stop procedure involving all interested entities resulting in the issue of a final measure covering both the environmental assessment and the construction and operation of the plant authorisations. The PAUR can be requested when a project is subject to the EIA procedure. The PAUR is different and separate from the Single Authorisation mentioned above. In the case where the plant is subject to PAUR, the Single Authorisation will be one of the permits comprised in the PAUR, that also covers environmental aspects, while if the plant is not subject to PAUR, then it will be authorised for construction and operation purposes under Single Authorisation or one of the authorisation titles mentioned above, by way of screening or EIA decree (as applicable). Thus, there will be two different authorisation measures.

For authorisation and environmental aspects, reference shall also be made to any regional law approved by the region where the project is located, as the energy matter is a shared competence between state and regions; thus, the regions hold regulatory powers in this respect, although they cannot depart from the main principles established at national level.

Before starting the authorisation procedure, it is necessary that the producer has secured the availability of the areas interested by the project (except for interconnection works areas that can be acquired by way of expropriation). In case the expropriation of lands is required (where an agreement with the owners of the land concerned by the interconnection works could not be reached), the electricity operator shall request the competent authority to issue an expropriation decree over the interested plots of land.

In addition, the producer must also secure beforehand the connection capacity with the grid operator by obtaining and accepting the estimate of connection under the TICA. The connection procedure is managed by Enel as local distribution grid operator for plants in which respect the energy injection capacity is lower than 10MW, while Terna SpA is the national transmission grid operator in case the plant energy injection capacity is equal to or higher than 10MW.

Finally, depending on the characteristics of the project, or where they are to be located, additional permits and authorisations may be needed. For instance, when public domain is affected, a specific authorisation or concession by the competent public authority must be obtained.