Legal frameworkPolicy and law
What is the government policy and legislative framework for the electricity sector?
As with many other countries globally, in the past decade Italy has been engaged in political debate over scientific research and economic analysis in light of the dwindling supply of fossil energy sources and the consequent need to use renewable energy sources, such as wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas, and biogas. The production of energy from cleaner renewable energy sources has received growing support from the public and the communities at large, eager to reduce Italy’s reliance on foreign oil, to improve the quality of life in large cities, to reduce air pollution, to encourage scientific research and technological progress, as well as to create business and employment opportunities. This broad public support, together with a favourable incentive policy, has attracted significant investments from 2006 onwards.
The Italian electricity sector is evolving rapidly owing to the effects of profound energy transition, focused on achieving sustainability goals and improving system security. The most significant elements of the new model are the integration and management of renewable energy, energy efficiency, grid digitisation and storage systems. In 2017, the Italian government approved the National Energy Strategy setting out future policy goals for the electricity sector. The objective is to make the national energy system more competitive, sustainable and secure. Italy has already achieved its 2020 renewable energy targets, with energy from renewable energy sources accounting for 17.5 per cent of total energy consumption in 2015, in comparison with the 17 per cent target to be reached by 2020. The main new priority goals are set as follows:
- to achieve the target of a 28 per cent share of renewable energy sources on total energy consumption by 2030;
- to foster low energy-consumption initiatives having the best cost/benefit ratio, so as to achieve 30 per cent of energy savings by 2030 with respect to their trend in 2030, and give impetus to the Italian energy efficiency industry (eg, construction of energy-efficient buildings and installation of energy-efficient facilities);
- to speed up the decarbonisation of the energy system, starting from the use of coal in power generation, and to introduce progressively measures spanning the entire energy process, thereby achieving significant environmental and health benefits, and contributing to the attainment of European targets;
- to launch the capacity market to guarantee system adequacy, maintaining the necessary gas-fired capacity (with priority to flexible capacity) and integrating new resources into the market (eg, cross-border renewable-energy power-generating units, storage systems, active demand side management), further strengthening interconnections with neighbouring countries, increasing the capacity of storage systems, implementing grid projects to integrate renewables, and increase the resilience of the system;
- to decrease primary consumption of oil products by 13.5Mtoe by 2030 when compared with 2015 levels; and
- to double investments in clean-energy research and development, from €222 million in 2013 to €44 million in 2021.
What is the organisational structure for the generation, transmission, distribution and sale of power?
Generating energy means transforming the power obtained from primary sources into electricity. This transformation occurs in power plants. The main generation companies in Italy are:
- Tirreno Power;
- Sorgenia; and
Terna Rete Elettrica Nazionale SpA (Terna) is the transmission system operator, while Terna Rete Italia owns and manages most of the transmission assets. Terna deals with high-voltage electricity transmission (380kV-220kV-150kV). Electricity is transmitted by transferring the power produced in plants to consumer areas. In order for this to occur, power lines and transformers, elements that make up the transmission system, are necessary. A total of over 72,000km of power lines are owned and managed by Terna.
The last phase of the electricity generation and delivery process is represented by distribution, which is the delivery of medium- and low-voltage electricity to users. The main distribution companies in Italy are e-distribuzione, Unareti, Areti, and Ireti, while the main supply companies selling electricity are:
- Acea Energia;
- Dolomiti Energia;
- GdF Suez;
- AGSM Verona;
- Azienda Energetica Reti - Etschwerke;
- SC Holding; and
- AIM Vicenza.
Regulation of electricity utilities – power generationAuthorisation to construct and operate generation facilities
What authorisations are required to construct and operate generation facilities?
The general principles governing authorisation procedures for the construction and operation of generation facilities are set out under national law, notwithstanding each region may implement regional laws regulating the authorising procedure within the national framework. Generally, the authorising procedures for the construction and operation of generation facilities depend upon the type of source (eg, conventional or renewable), the capacity of the plant, the type of installation (ie, ground mounted or rooftop mounted), and the area where the project is supposed to be built (eg, an area safeguarded from a landscape perspective).
From an environmental perspective, generation facilities having capacity above certain thresholds are subject to an environmental prescreening procedure, which is a preliminary, streamlined assessment of the impact a project may have on the environment. When the prescreening procedure has a negative outcome, the project is required to undergo a full environmental impact assessment procedure. Furthermore, projects that are to be built within certain areas of high landscape and environmental value, owing to the presence of specific flora or fauna, must undergo an additional assessment, the ‘environmental incidence assessment’, which evaluates the impact the project may have on the flora and the fauna living within that area or zone.
Combustion plants with a thermal capacity of more than 50MW and combustion plants for the production of electricity with a thermal capacity of more than 300MWe, are also required to obtain an integrated environmental authorisation to operate. This authorisation sets out certain threshold limits for emissions of pollutants and noise by the plant.
Since 2004, as a general principle, a single authorisation issued by the competent region (or the province if it is so empowered by the region) is required to construct and operate any renewable energy plant having a capacity higher than a certain threshold (ie, 60kW for wind, 20kW for solar photovoltaic, 100kW for hydroelectric, 200kW for biomass, and 250kW for gas from waste and depuration treatments and biogas). For generation facilities fuelled by nonrenewable energy sources having a capacity higher than 300MW, the single authorisation is issued by the Ministry for Economic Development.
The single authorisation, when issued, substitutes all the authorisations, licences and permits that would otherwise be required to build and operate the generation facility under applicable laws (except for the environmental assessments described above, if needed). The single authorisation is issued upon the completion of a single administrative procedure, during which all the positions of the interested public authorities are jointly evaluated.
Renewable energy plants with an installed capacity lower than the above mentioned thresholds are exempt from the single authorisation requirement and benefit from a simplified ‘deemed consent’ procedure (known as the PAS procedure). Regions can increase the thresholds for the simplified authorisation procedure up to 1MW. Certain categories of construction works that have a minor impact on the surrounding environment, can be carried out in a deregulated regime by filing with the competent municipality a notice of the planned start of the works.Grid connection policies
What are the policies with respect to connection of generation to the transmission grid?
The energy produced by renewable energy plants has interconnection and dispatch priority. Moreover, the operator of the national transmission grid (ie, Terna) and the operators of the local distribution grids, have the obligation to connect every plant that makes a connection request to the grids that they operate. A request to be connected to the power grid can be filed well before the construction of the plant is completed, or even started, because no time limit is set as to how long before the start of operations the request can be filed. The request to be connected to the power grid must be filed with either the operator of the local distribution grid, if the capacity requested is below 10GW, or Terna, if the capacity requested is equal to or more than 10GW.Alternative energy sources
Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?
The Italian government has introduced a number of schemes to support power generation based on renewable energy sources.
To promote and increase the use of renewable energy sources in electricity production and to create demand for electricity from renewable energy sources, the Italian government introduced in 1999 an annual obligation for electricity producers and importers to input a minimum quota of energy produced using renewable energy sources into the national electricity system. An energy operator could discharge its obligation by either producing the entire minimum quantity of energy from renewable sources by itself or by purchasing the whole or part of an equivalent amount, or the related rights (green certificates), from other producers. Green certificates evidence the renewable attributes of the electricity generated. They provided a benefit to the producer in that they could be traded separately from the underlying electricity at a national and international level. From 1 January 2016, green certificates were replaced by a feed-in premium mechanism known as GRIN.
In 2005, an incentive system specifically dedicated to solar photovoltaic plants, known as Conto Energia, was introduced. Conto Energia consisted of the payment of fixed incentive tariffs for 20 years starting from the date of entry into operation of the relevant photovoltaic plant (depending upon the capacity of the plant and the level of integration of the plant). Conto Energia is no longer in place for new photovoltaic plants because the budget was reached in July 2013.
Projects aimed at increasing energy efficiency may be eligible to obtain white certificates (also known as energy efficiency certificates). White certificates are tradable instruments that give proof-of-end-use energy savings. The scheme aims at supporting the production of thermal energy from renewables and high performance cogeneration units as well as small-scale interventions of energy efficiency for private persons and the public administration.
A simplified sale and purchase arrangement is another tool offered by the Gestore dei Servizi Energetici SpA (GSE) under which producers are paid a minimum guaranteed price for every kWh. Producers with small-sized plants and a nominal electrical capacity up to 1MW may benefit from this scheme for the first 2 million kWh per year fed into the grid, with the possibility of receiving more if the hourly zonal prices prove to be more advantageous.
Through the net metering service, producers or users may feed into the grid the electricity that they generate on site, but do not consume immediately, and take from the grid part or all of the electricity that they need at a different time. This system applies to renewable energy plants having a capacity up to 200kW commissioned after 31 December 2007 and to high efficiency combined heat and power plants with a capacity up to 200kW. Under this service, the producer receives a yearly net metering contribution in euros from GSE. This contribution refunds the producer or user for part of the costs incurred for importing electricity from the grid.Climate change
What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?
The government policy on decarbonisation may imply an increase of renewables in power generation as well as in heat uses, and the increase of energy efficiency projects.Storage
Does the regulatory framework support electricity storage including research and development of storage solutions?
The National Energy Strategy approved in 2017 has set a target of providing the power system with innovative instruments and infrastructure to:
- guarantee its adequacy and to meet security standards;
- guarantee its flexibility required to accommodate the growing penetration of renewable energy sources (which will also be facilitated by technological advances);
- promote its resilience to extreme weather events and contingencies; and
- to shorten the time scales of and streamline the permitting process and the implementation of projects.
Among other things, the National Energy Strategy proposes to increase the capacity of energy storage systems and to integrate new resources, such as storage systems, into the market.Government policy
Does government policy encourage or discourage development of new nuclear power plants? How?
In June 2011, a referendum led to the end of the nuclear programme previously proposed by the Italian government, with the abrogation of all the nuclear provisions already implemented. As a consequence, the quota of the energy mix theoretically assigned to nuclear energy for the year 2020 (24 per cent) will have to be covered by other sources, particularly by renewable energy sources.
Regulation of electricity utilities – transmissionAuthorisations to construct and operate transmission networks
What authorisations are required to construct and operate transmission networks?
At a national level, the authorisation for the construction of electric lines is issued by either the Ministry for Infrastructures for electric lines with a voltage above 150kV, or by the competent province for electric lines with a voltage up to 150kV.
An application for the authorisation must also be filed with the Ministry for Economic Development and with any other authority responsible for areas crossed by the interconnection facilities (eg, military sites, rivers, forests, mines, telecommunications lines, railways and public ways) for their approval. Only after the approval of all other interested authorities has been obtained can the authorisation be issued.
In urgent cases, the start of construction works can be authorised under a temporary authorisation, conditional upon the applicant providing a guarantee as security for the fulfilment of any obligations that may be set forth by the final authorisation, or the demolition of the works constructed under the temporary authorisation where the definitive authorisation is denied. Temporary authorisation can be issued only with the prior approval of the Ministry for Economic Development.Eligibility to obtain transmission services
Who is eligible to obtain transmission services and what requirements must be met to obtain access?
The transmission system operator (ie, Terna) must provide non-discriminatory and transparent access to the transmission network. To benefit from energy transmission services, an interested entity has to be connected to the grid and sign a transmission services agreement.Government transmission policy
Are there any government measures to encourage or otherwise require the expansion of the transmission grid?
Terna is responsible for planning and developing the national transmission grid. The company approves and carries out development measures on the national transmission grid based on a 10-year plan (the Grid Development Plan), approved each year by the Ministry for Economic Development. Terna also cooperates with the energy regulators of other countries to expand the transmission grid.Rates and terms for transmission services
Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?
For electricity transmission and dispatching services, Terna is remunerated via a tariff system established by the Italian Regulatory Authority for Electricity, Networks and the Environment (ARERA). Resolutions established by ARERA are the basis for remuneration for electricity transmission (Resolution No. 199/11), and dispatching (Resolution No. 204/11). In total, costs related to Terna’s operations account for approximately 3 per cent of the total electricity bill.Entities responsible for grid reliability
Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?
The transmission system operator (ie, Terna) is responsible for maintaining the balance between supply and demand of electricity, as well as ensuring the security of supply.
Regulation of electricity utilities – distributionAuthorisation to construct and operate distribution networks
What authorisations are required to construct and operate distribution networks?
See question 9. The activity of distribution of electrical energy is carried out by operators who have been granted concessions by the Ministry for Economic Development.Access to the distribution grid
Who is eligible to obtain access to the distribution network and what requirements must be met to obtain access?
The electricity transmission grid operator (ie, Terna) and electricity distributors must grant equal access to every operator requesting it (provided that it complies with technical requirements), without prejudice to continuity of service and in compliance with technical and economic conditions for access. Grid operators must also provide sufficient information to ensure the efficient and safe functioning of the grid.Government distribution network policy
Are there any governmental measures to encourage or otherwise require the expansion of the distribution network?
The Ministry for Economic Development has recently published a call for tender addressed to the concessionaires of the public service of distribution of electrical energy, operating in the regions of Basilicata, Calabria, Campania, Puglia and Sicilia, for the public financing for projects for the construction, improved energy efficiency and expansion of distribution networks (eg, smart grid).Rates and terms for distribution services
Who determines the rates or terms for the provision of distribution services and what legal standard does that entity apply?
ARERA sets out the tariffs for the distribution of electricity. Distribution costs are covered through distribution fees, which are charged to end users in their bills (except for low voltage domestic users).
Regulation of electricity utilities – sales of powerApproval to sell power
What authorisations are required for the sale of power to customers and which authorities grant such approvals?
The sale of electricity is not subject to any licence or permit regime. As of 2017, enrolment in the register of operators held by the Ministry for Economic Development is mandatory.Power sales tariffs
Is there any tariff or other regulation regarding power sales?
For domestic low voltage users and small enterprises, there was a tariff protection regime where the prices and sale conditions are established by ARERA. In all other cases, electricity prices and sale conditions are freely negotiated between the parties.Rates for wholesale of power
Who determines the rates for sales of wholesale power and what standard does that entity apply?
Wholesale prices and conditions are freely negotiated between the parties.Public service obligations
To what extent are electricity utilities that sell power subject to public service obligations?
In Italy, consumers that do not choose a supplier remain with a default supplier, the local distribution service operator, which provides electricity according to a ‘standard offer’. In this case, the local distribution service operator buys electricity from Acquirente Unico SpA (a company created by GSE) with the task of guaranteeing the availability of electricity to cover the demand of captive customers at wholesale market price. Today the majority (80 per cent) of households and small enterprises are still served on the base of this ‘standard offer’. Consumers other than households and small enterprises are obliged to find a supplier, but if they cannot find a suitable offer, electricity is supplied as a last resort by a supplier selected through an open auction.
Regulatory authoritiesPolicy setting
Which authorities determine regulatory policy with respect to the electricity sector?
The regulatory authorities in the electricity sector in Italy are the Ministry for Economic Development, ARERA, GSE and Gestore dei Mercati Energetici SpA (GME).Scope of authority
What is the scope of each regulator’s authority?
The Ministry for Economic Development oversees Italy’s energy policy and has regulatory powers to implement legislation passed by the Italian Parliament.
ARERA’s role and purpose is to protect the interests of users and consumers, to promote competition and to ensure efficient, cost-effective and profitable nationwide services with satisfactory quality levels. Its mission includes defining and maintaining a reliable and transparent tariff system, reconciling the economic goals of operators with general social objectives, and promoting environmental protection and the efficient use of resources. ARERA also provides an advisory and reporting service, setting forth observations and recommendations to government and to parliament on matters of energy. It plays an active part in creating a standardised system in the European Union of energy regulation and in integrating the national electricity and gas markets into a single European market. As a founding member of the Council of European Energy Regulators, ARERA also takes part in the European Regulators Group for Electricity. ARERA also chairs the Mediterranean Working Group on Electricity and Natural Gas Regulation, a body established to promote the integration of energy markets in the Mediterranean area.
GSE fosters sustainable development by providing economic support for renewable electricity generation and by raising awareness of environmentally efficient energy use. GSE has gained national and global recognition as a leading player in the implementation of Italian energy policies, owing to its growing commitment to promoting renewable energy sources by participating in international seminars, workshops and organisations. To date, GSE has played an active role within the European Association of Issuing Bodies, the Observatoire Méditerranéen de l’Energie, and the International Energy Agency.
GME manages the electricity market and the trading of energy efficiency certificates (white certificates, giving evidence of the implementation of energy-saving policies) and emissions allowances. Moreover, GME also manages the forward electricity account trading platform, for registration of forward electricity purchase and sale contracts that have been stipulated off the market.Establishment of regulators
How is each regulator established and to what extent is it considered to be independent of the regulated business and of governmental officials?
The Ministry for Economic Development has regulatory powers to implement the legislation passed by the Italian Parliament.
ARERA is an independent body that regulates, controls and monitors the electricity and gas sectors and markets in Italy.
GSE is a publicly owned company promoting and supporting the use of renewable energy sources in Italy. The sole shareholder of the GSE is the Ministry of Economy and Finance, which gives guidance on the activities of GSE in consultation with the Ministry for Economic Development.
GME is a company established by GSE for the purpose of organising and economically managing the Italian electricity market, in accordance with the principles of neutrality, transparency, objectivity and competition between producers.Challenge and appeal of decisions
To what extent can decisions of the regulator be challenged or appealed, and to whom? What are the grounds and procedures for appeal?
The administrative decisions of regulators may be challenged by any interested third-party (either private or public, including the authority maintaining that its jurisdiction has been violated).
An interested third-party may file a judicial claim before the competent Regional Administrative Court (TAR) within 60 days (or within 30 days for the resolutions issued by ARERA, or any matters relating to generation plants having a capacity higher than 300MW), or alternatively before the President of the Italian Republic, within 120 days.
The term for filing a judicial petition starts from the date the challenged act is published, or, should it be notified or communicated, from the date it is filed or communicated. If the act is not subject to publication or notification or communication, the statutory term starts from the date the claimant becomes aware of the relevant act.
The decisions issued by the TAR are subject to appeal to the Council of State.
Acquisition and merger control – competitionResponsible bodies
Which bodies have the authority to approve or block mergers or other changes in control over businesses in the sector or acquisition of utility assets?
Whether the Italian Antitrust Authority (AGCM) or the European Commission is responsible for providing clearance to an envisaged merger depends on the annual turnover of the involved businesses. If, combined, businesses exceed specified thresholds in terms of global and European sales, the proposed merger must be notified to the European Commission. Below the specified thresholds, the AGCM is responsible. Whenever two companies merge or one company purchases another, the AGCM determines whether the new enterprise embodies too much market power. When threats to competition are identified, it may prohibit the merger or impose measures for mitigating their negative impact on competition.Review of transfers of control
What criteria and procedures apply with respect to the review of mergers, acquisitions and other transfers of control? How long does it typically take to obtain a decision approving or blocking the transaction?
Italian law requires prior notification of all mergers and acquisitions involving undertakings whose aggregate turnover in Italy exceeds €495 million and when the aggregate domestic turnover of each of at least two of the undertakings concerned exceeds €30 million. Thresholds are adjusted every year to take account of increases in the GDP deflator index.
The AGCM has to identify the relevant market and review the market position of all parties to the merger separately and jointly in order to review competition before and after the transaction.
Under the Italian merger control system, there is no obligation to suspend the transaction pending the outcome of an investigation (no standstill obligation). Therefore, the parties are free to implement the transaction at any time after filing, without waiting for AGCM approval. The AGCM must issue its decision within 30 calendar days of receipt of a complete notification.Prevention and prosecution of anti-competitive practices
Which authorities have the power to prevent or prosecute anticompetitive or manipulative practices in the electricity sector?
ARERA has a duty to report potential competition issues on the energy market to AGCM, which will then assess whether there is any anticompetitive behaviour that constitutes an infringement of Italian competition law.
European Regulation No. 1227/2011 establishes common rules at a European level to prevent abusive practices in the wholesale markets for electricity and natural gas. It imposes the prohibition of market manipulation, attempted market manipulation as well as insider trading and assigns specific market monitoring functions to the national regulatory authorities. In this context GME supports ARERA in conducting investigations relating to cases of suspected violation of the prohibitions of insider trading and market manipulation.Determination of anti-competitive conduct
What substantive standards are applied to determine whether conduct is anticompetitive or manipulative?
Italian law prohibits anticompetitive agreements and abuses of a dominant position. The prohibitions mirror the prohibitions set out in article 101 and article 102 of the Treaty on the Functioning of the European Union (TFEU).
Broadly speaking, when an agreement or practice ‘may affect trade between member states’, a national court or competition authority is obliged to apply European competition law as well as national competition law and, for example, cannot prohibit, under national competition law, an agreement that does not infringe article 101 of TFEU; see also article 3 of Regulation 1/2003. An impact on trade between member states also triggers the obligation of a national competition authority to notify the case to the European Commission and exchange of information under articles 101 and 102 of TFEU.
The European Commission’s ‘Effect on Trade Notice’ specifies the factors to be taken into account when considering whether an agreement or an abusive practice can be considered to have an effect on trade between member states. The basic test, derived from the case law of the European Court of Justice, is whether the agreement or practice leads to an alteration of the pattern of trade. Factors to be considered include the characteristics of the product in question (whether products are easily traded across borders or are important for enterprises wishing to enter or expand their activities in another member state) and the characteristics of the practice or agreement in question (eg, whether this restricts imports or exports). Special attention needs to be paid to whether the agreement is capable of partitioning the single European market. Agreements that interfere with the economic interpenetration that the TFEU is designed to achieve would affect trade between member states.Preclusion and remedy of anti-competitive practices
What authority does the regulator (or regulators) have to preclude or remedy anticompetitive or manipulative practices?
The relevant authority for public enforcement is AGCM and, depending on the case, also the European Commission, DG COMP.
Investigation powers held by AGCM, like those held by DG COMP, include the power to request information, to carry out inspections, surveys and economic analyses and to consult experts. In the case of justified urgency or by acting on the basis of its own initiative, AGCM (like DG COMP) may order interim measures on the basis of a prima facie infringement. For justified urgency to exist, fumus boni iuris (ie, the possibility that the infringement may be proved with a certain degree of probability) and periculum in mora (ie, a serious and irreparable damage for competition) have to be demonstrated.
If an agreement is found to breach the competition rules, the main consequences are:
- the parties to the agreement may be subject to a fine of up to 10 per cent of their turnover;
- the agreement may be declared null and void; and
- third parties may be able to claim for damages.
InternationalAcquisitions by foreign companies
Are there any special requirements or limitations on acquisitions of interests in the electricity sector by foreign companies?
There are no restrictions on foreign ownership of electricity companies or assets.Authorisation to construct and operate interconnectors
What authorisations are required to construct and operate interconnectors?
See question 9.Interconnector access and cross-border electricity supply
What rules apply to access to interconnectors and to cross-border electricity supply, especially interconnection issues?
There is no national regulation on cross-border electricity supply.
Transactions between affiliatesRestrictions
What restrictions exist on transactions between electricity utilities and their affiliates?
Rules on unbundling of network operators (legal, accounting, information, functional and even ownership unbundling) have been issued. Unbundling obligations on energy companies are regulated by Legislative Decree No. 93/2011.
The ownership unbundling model requires a full separation of electricity transport activities (including both the ownership and management of electricity transportation infrastructures) from the production and sale of electricity. In particular, the following conditions have to be met:
- a person or a legal entity, directly or indirectly exercising control or any voting or appointment right (ie, rights to appoint members of the supervisory board, the management board or other bodies legally representing the undertaking) over an undertaking that is active in the production or supply of electricity, cannot directly or indirectly exercise control or any voting or appointment right over a transmission system operator or transport infrastructure; or
- a person or a legal entity, directly or indirectly exercising control or any appointment or voting right over a transmission system operator or transport infrastructure, cannot directly or indirectly exercise control or any voting or appointment right over an undertaking that is active in the generation or supply of electricity.
Undertakings active in the generation or supply of electricity can keep a merely financial, direct or indirect, minority shareholding in a transmission system operator or transport infrastructure. In other words, such a shareholding can only provide financial rights (ie, the right to receive dividends) but cannot confer any right to take part in the decision-making process of, or exercise any influence on, the transmission system operator or transport infrastructure.Enforcement and sanctions
Who enforces the restrictions on utilities dealing with affiliates and what are the sanctions for non-compliance?
ARERA and AGCM are responsible for the enforcement of the abovementioned restrictions. In the event of a violation of a provision of law, the regulatory authorities may enforce their orders through fines.
Update and trendsKey developments of the past year
Are there any emerging trends or hot topics in electricity regulation in your jurisdiction?Key developments of the past year36 Are there any emerging trends or hot topics in electricity regulation in your jurisdiction?
On 9 August 2019, the long awaited new ministerial decree providing incentives for power plants producing energy from ’mature’ renewable sources (ie, onshore wind farms, photovoltaic plants, hydroelectric plants, and plants that produce residual gas from treatment processes), for the three-year period 2019-2021, has been published in the Official Gazette, and entered into force on 10 August 2019. This decree applies to:
- newly built plants, fully rebuilt and reactivated plants;
- partially or totally renovated plants; and
- re-powered plants with a higher power capacity than that originally authorised, except for photovoltaic plants, which are eligible for the new incentives, provided that they are newly built with new components and they are not located in agricultural areas.
Plants having a capacity up to 1MW may be admitted to the new incentives upon enrolment in special registers held by GSE, while plants with a capacity higher than 1MW through Dutch auctions. Seven tender procedures to obtain the incentives will be launched over a three-year period, each with different (and increasing) power quotas for each group of plants. The decree identifies four groups in relation to the register procedures and three groups with respect to auctions and sets out the following quotas for the seven procedures:
- Group A: wind and photovoltaic sources (770MW for the register and 5.5GW for auctions);
- Group A2: only for the register, roof mounted photovoltaic modules with asbestos removal (800MW, only for the register);
- Group B: hydroelectric and residual gas from treatment processes (80MW for the register and 110MW for auctions); and
- Group C: renovated wind farms, hydroelectric and residual gas plants (120MW for the register and 620MW for auctions).
In order to apply for incentives, the following eligibility requirements must be met:
- the project is fully authorised;
- the producer has accepted the estimate for connection issued by the grid operator;
- construction works of the plant have not been started;
- in case of projects higher than 1MW, the producer provides a bid bond as security of the quality of the project, having a guaranteed amount equal to 5 per cent of the capex of the project and undertakes to provide a final performance bond to be issued by a bank upon awarding of the incentives, with a guaranteed amount equal to 10 per cent of the capex of the project;
- in case of projects having a capacity higher than 1MW, the producer provides any of the following:
- a statement by a bank confirming the financial and economic standing of the company applying for incentives; or
- evidence of the commitment of the bank to finance the project; or
- proof of capitalisation of the project company amounting to:
- 10 per cent on the part of an investment up to €100 million;
- 5 per cent on the part of an investment between €100 million and €200 million; and
- 2 per cent on the part of the investment exceeding €200 million.
The decree provides for certain priority criteria for the ranking of the plants, as follows:
- higher percentage of reduction of the base tariff offered by the bidder (the reduction of the base tariff cannot be lower than 2 per cent nor higher than 70 per cent);
- for photovoltaic plants and wind farms: location on exhausted landfills, quarries and mines, or appurtenances to contaminated sites;
- for rooftop photovoltaic plants: location on the rooftops of schools, hospitals and other public buildings;
- for all plants: plants connected to e-charging stations on condition that the charging power is higher than 15 per cent of the capacity of the plant and that each charging station has a capacity not lower than 15kW; and
- only for Dutch auctions: a legality rating of two stars.
The incentive is granted for the whole lifecycle of the plant which is set by the decree depending on the type of source (for most plants it is 20 years from the commercial operation date). The incentive is equal to the tariff offered by the bidder minus the hourly zonal price of the area where the energy produced by the plant is fed into the grid. In the case where the zonal price is higher than the tariff, the negative difference is adjusted by the GSE through a claw-back mechanism. The floor tariffs on which bidders are asked to propose a reduction vary depending upon the renewable source (eg, for photovoltaic plants and wind farms having a capacity higher than 1MW the floor is €70/MWh). Access to incentives is an alternative to sale of energy to GSE and net metering system, but the producer can enter into a power sale and purchase agreement with any third party to sell the energy produced by the plant.
Besides public incentives, corporate power purchase agreements also remain a hot topic in Italy. Corporates in Italy have set goals to limit their greenhouse gas emissions, to reduce their environmental footprint and energy costs, and to contribute to the renewable energy targets set by the government. One way to reach these goals is through the use of corporate renewable power purchase agreements, which are contracts between the buyer (off-taker) and the power producer (developer, independent power producer or investor) to purchase electricity at a pre-agreed price for a pre-agreed period of time. The 2017 National Energy Strategy highlights that these agreements may facilitate the development and bankability of new, large-scale renewable energy plants. The new decree of 9 August 2019 provides that plants not benefiting from any public incentives will be eligible for long-term power purchase agreements to be negotiated on a market trading platform, which will be implemented following a public consultation to begin in February 2020, and which will be managed by GME. Going forward, the next steps may be:
- including corporate power purchase agreements in the national electricity regulation;
- removing direct and indirect regulatory barriers for corporate power purchase agreements; and
- facilitating dialogue between interested parties to foster the mutual understanding of possible solutions.