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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. Italy achieved this national objective for the first time in 2014, well in advance of the 2020 target date.

In November 2017, the MSE published the National Energy Strategy, a 10-year road map setting out the objectives for 2030 and encouraging further RES development.

The National Energy Strategy set the ambitious target share percentage for RES of 28 per cent of gross final energy consumption by 2030, comprising:

  1. a 55 per cent target for electricity (previously 33.5 per cent in 2015);
  2. a 30 per cent target for thermal energy (previously 19.2 per cent in 2015); and
  3. a 21 per cent target for transport (previously 6.4 per cent in 2015).

Pursuant to EU Regulation 2016/0375 on the Governance of the Energy Union, the Italian government adopted a draft of its 10-year strategy on energy efficiency and environmental sustainability on 31 December 2018 and submitted it to the EU Commission on 9 January 2019 for the Commission's observations. The strategy, or Integrated National Energy and Climate Plan (PNIEC), tackles five categories concurrently: decarbonisation; energy efficiency; energy security; the internal energy market; and research, innovation and competitiveness. The draft PNIEC sets a higher target for the RES share of the energy mix, raising the country's 2030 target to 30 per cent, compared to the 28 per cent target previously set by the National Energy Strategy. The draft PNIEC also aims to meet the objectives set by EU Directive 2018/2001 on the promotion of the use of energy from renewable sources, which establishes a new binding RES target for 2030 for the EU of at least 32 per cent and includes a clause that leaves open the possibility of increasing the target by 2023.

The draft PNIEC sets ambitious goals for installed RES power capacity by 2030, in particular for wind power (an increase of 88 per cent) and photovoltaic power (an increase of 158 per cent). Other RES power sources have more modest expectations: an increase of 2 per cent for hydroelectric power, an increase of 17 per cent for geothermal power and a decrease of 9 per cent from biomass (the only reduction). This increased installed capacity would result in an overall increase of installed RES capacity by 75 per cent. Electricity generation is expected to increase by 65 per cent from the present rate, reaching over 55 per cent of national consumption (estimated to be approximately 337TWh by 2030). Thermal energy generated from RES is essential to achieve these national targets, as the gross final consumption for heating and cooling is around 56Mtoe, or just under 50 per cent of the total energy consumption. In 2017, the consumption of thermal energy generated from RES amounted to 11Mtoe. The Italian government is also proactively supporting RES research and innovation, and Italy is among the promoters of Mission Innovation (a global initiative resulting from the COP21 Paris Agreement to launch innovative clean-technology projects) and is committed to doubling the value of public resources allocated to investments in clean-energy research and development, from €222 million in 2013 to €444 million in 2021.

A generous incentive system has encouraged a significant increase in RES in Italy; the incentives comprise a variety of mechanisms, including the following:

  1. the Cip 6/92 mechanism, which is a feed-in tariff. 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);
  2. the Energy Account system (a feed-in premium) for electricity produced by photovoltaic plants that had commenced activities by 26 August 2012; as at 31 December 2017, there were over 550,000 agreements under this incentive system, corresponding to over 22,000GWh of incentivised energy. The incentives paid amounted to over €6.4 billion;
  3. green certificates, which were awarded by the GSE in proportion to the amount of energy produced by RES and cogeneration plants that had commenced activities by 31 December 2012. The number of green certificates awarded depended on the type of plant used for the energy generation. 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 the GSE to operators formerly entitled to green certificates;
  4. 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 commenced activities by 31 December 2012;
  5. tariff incentives for electricity delivered to the grid by photovoltaic plants that had commenced 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); and
  6. tariff incentives for net electricity delivered to the grid by RES plants (except photovoltaic plants) and thermodynamic solar plants that had commenced activities from 1 January 2013 (in the form of a feed-in tariff for plants not exceeding 500kW in power and a feed-in premium for plants exceeding the 500kW threshold). The threshold for access to the feed-in premium was then increased to 1MW by the Ministerial Decree of 6 July 2016.

The governmental incentives for RES-generated electricity amounted to approximately €12.5 billion in 2017, which was paid by the A3 tariff on electricity bills. In 2018, governmental incentives for RES-generated electricity is estimated to be approximately €12 billion. This reduction is primarily due to the progressive expiration of the incentive entitlement period for some RES plants. Electricity produced by RES plants benefiting from these incentives amounted to around 65TWh in 2017, and this is expected to have remained the same in 2018.

In addition to 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 plants and, more importantly, priority access to the electricity transmission grid for RES-generated electricity (e.g., priority dispatch). These measures are neutral with respect to the type of RES feeding the plant. Furthermore, the 2019 Budget Law extended through 2019 a tax deduction of 65 per cent on expenses related to the energy-efficient modernisation of buildings (an 'ecobonus'), including for the installation of photovoltaic panels to heat water. It also confirmed a 50 per cent tax deduction on building renovation.

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.

Finally, income from the production and sale of agroforestry RES and photovoltaic energy qualifies as agricultural income for tax purposes, within 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. 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) and secondary legislation. The secondary legislation is adopted by the MSE and the Ministry for the Environment, Land and Sea (MATTM) or the ARERA. In particular, these bodies have the following repsonsibilities.

The MSE 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.

The MATTM is responsible for climate policy. It also co-signs the MSE policy measures promoting renewable energy and energy efficiency.

The 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. The ARERA determines its costs, which are entirely recovered by means of compulsory annual contributions paid by energy service providers. Its regulatory powers include setting tariffs, defining service quality standards and regulating the technical and economic conditions governing access and interconnections to the networks. The ARERA issues general regulations applicable to energy market operators, and resolutions or orders applicable to single operators, for which it must provide comprehensive reasons. The ARERA may also issue fines.

Every year, the ARERA submits to the relevant parliamentary committees a report on the use and development of RES plants and a report on the development of small-scale generation.

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, the 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 the 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.

There are simplified and expedited procedures for the regulatory approvals required to construct and operate RES plants, including, in particular, the procedures outlined below.

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 MSE 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. This single authorisation procedure applies even where the project concerns more than one region or delegated province or where regions have a special statute under the Italian Constitution. The competent public entity must issue a decision on the request for the licence within 90 days. 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) 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.

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.

The table below shows when the building of small RES plants is subject to the simplified authorisation procedure or to the simple communication regime.

RESPlant typeGeneration capacity (kW)Applicable administrative procedure
PhotovoltaicsPlant 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 builtSimple communication
Plant on an existing building or on an existing building's premises0–200
Photovoltaic module placed on a building and whose total surface does not exceed that of the roof on which it is locatedSimplified authorisation procedure
Other photovoltaic plants0–20
Biomass, landfill gas, waste gas from purification processes and biogasCogeneration plant (microgeneration)0–50Simple communication
Plant in an existing building0–200
Cogeneration plant (small cogeneration)50–1,000Simplified authorisation procedure
Plant powered by biomass0–200
Plant powered by landfill gas, gases left over from purification processes and biogas0–250
WindIndividual 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 buildingSimple communication
Other wind power plants0–60Simplified authorisation procedure
Hydroelectric and geothermalHydroelectric and geothermal plant built in an existing building0–200Simple communication
Other hydroelectric and geothermal plants0–100Simplified 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, the GSE plays the role of trade intermediary between the producer and the electricity system. The GSE purchases electricity from producers at a standard rate defined by the ARERA based on market prices (e.g., the regional price on the day-ahead market on the Italian Power Exchange) and then resells the electricity to the market. The simplified purchase–resale scheme does not provide any economic incentive 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. 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.

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. 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.