In 2008, the Italian photovoltaic industry faced a turnover of approximately € 800 Million, or a 500% increase compared to the previous year.
A research conducted by EuPD Research, in October 2008, estimates an average annual increase of 119% over the next years, far more than what is expected from those markets that have already reached a certain maturity, such as Germany and Spain. The same research estimates an overall increase of 26% for the entire European Union. Arguably, the main reason for such a massive growth in the Italian photovoltaic market can be attributed to the implementation of a regulatory framework, including a very advantageous incentives package dedicated to the production of electricity from photovoltaic plants.
The present memo is a general summary of the incentives provided by Italian Decree 19 February 2007 (the “Decree”) in relation to the production of photovoltaic energy, specifically addressing the following issues: A) a description of the feed-in tariffs (the “Tariffs”) provided by the Decree and eligibility criteria; B) the procedure to be followed to: (i) develop a photovoltaic plant in compliance with the Decree; and receive the Tariffs.
The Tariffs and Eligibility Criteria
An individual or business entity eligible to receive the Tariffs is referenced to as the “subject responsible for the plant,” and must be either: (i) an individual; (ii) a business entity, or; (iii) a government entity.
The Tariffs may not be used in conjunction with other incentives offered by the Italian Government for the production of energy from renewable sources, such as “Green Certificates” or energy efficiency qualifications, and are granted on the basis of the total electric energy produced by a photovoltaic plant.
According to the Decree, a predetermined amount (between 0,36 and 0,49 Euros, based on a set of parameters described in the table below) shall be paid to the producer of electricity, against each actual kWh produced by the plant (measured by a meter that must be installed at the plant’s location), and based on the level of integration of the solar panels in the structure.
The Decree makes a distinction between three different types of photovoltaic plants being eligible for the Tariffs:
1. Integrated Plant. Refers to a photovoltaic plant for which photovoltaic panels are placed on top of a building’s appliances [not sure this is the right word], such as acoustic barriers, parking spaces, decks, etc.
2. Partially Integrated Plant. Refers to a photovoltaic plant for which the photovoltaic panels are installed on top of the roof, or on the building’s side or deck, etc., without altering the building’s original structure.
3. Non-Integrated Plant. Refers to a photovoltaic plant for which the photovoltaic panels are placed directly on the ground; or a plant that lacks the “optimization of the architectural integration.”
Those three different types of integration, combined with the amount of electric power produced by the plant, determine the final amount of the Tariff, as summarized here:
Plants commencing operations between January 1, 2009 and December 31, 2010, an annual 2% reduction of the values indicated above shall be applied to applications for Tariffs submitted after December 31, 2008. Once the application is approved, the Tariffs are provided for a twenty-year period, effective on the date the plant commences its operations, and will remain constant for the entire period.
As shown in Table 1, the incentives provided by the Decree are paid in proportion with the plant’s electricity production. Although it may constitute as the applicant’s main source of revenue, an additional source of revenue will be derived from the sale of the electric energy produced by the plant, or by means of self-consumption.
There is no limit to the number of applications that an applicant may submit, however, the Decree sets a limit to the overall solar energy production that is eligible for the Tariffs. Under the Decree, after applications have been submitted and approved for an total amount of 1.200 MW, no additional Tariffs may be granted. Nonetheless, a moratorium period has been provided in the event an application for the Tariffs is submitted after such threshold has been reached; in such event, provided that an application is being submitted within a period of 14 months from the reaching of the threshold, the Tariffs shall be granted.
The Tariffs provided by the Decree may be increased of an additional 5% in the following cases (such additional incentives not being cumulative):
a) in the event of a “non-integrated plant” producing above 3 kW of power, if the applicant can be considered a “self-consumption producer.”
b) in the event of plants integrated in buildings or structures used for agricultural purposes, if the plant will concur to eliminate asbestos covers and/or surfaces.
How to realize a photovoltaic plant in compliance with the Decree
The following steps must be followed in order to realize a photovoltaic plant qualifying to receive the Tariffs under the Decree:
- A preliminary project, including a rough business plan of the plant’s operations must be prepared, usually with the assistance of a specialized consulting company;
- An application for the licenses and permits necessary to build the plant must be filed with the municipalities/government/local entities involved;
- The preliminary plant project must be submitted to the local network-grid administrator in order to request the connection of the plant to the national power grid;
- The local network-grid administrator communicates the location of the connection point to the applicant, along with a cost and time estimate for its realization;
- Once a cost and time estimate has been approved, the applicant will notify the local network-grid administrator the end of the plant’s construction works, and that the plant is ready to operate;
- The local network-grid administrator will connect the plant to the national network-grid.
Additionally, in order to realize a photovoltaic plant in compliance with the Decree, it is necessary to verify that the solar panels have obtained a special certification within the following class certification standards:
- CEI EN 61215: photovoltaic panels made of crystal silicon for land use;
- CEI EN 61646: photovoltaic panels made of thin film for land use.
Only those laboratories accredited by an accreditation body belonging to the EA, in compliance with European Regulation (EC) nº 765/2008, are allowed to release such a certification.
The Decree provides that non-certificated panels can be used to build non-integrated plants producing more than 3 kW, as long as standard certificated panels are not available on the market. However, the maker of the panels shall provide a certification attesting that each panel has been designed and manufactured in such a way that it can stand the specific tests provided by the EA standards.
How to obtain the Tariffs
1) The application
Within 60 days from the date in which the photovoltaic plant begins its operations, the applicant shall submit a request to obtain the Tariffs, including all of the required documents. If the application is not received by GSE within the above referenced deadline, the request for the incentives will be denied.
Under the Decree, the photovoltaic plant is considered operational from the first business day in which all of the following conditions are satisfied:
- the plant is connected to the electrical network-grid;
- the meters necessary to measure the electricity produced and delivered to the network have been installed;
- the contracts for the trade or the sale of the electricity have been executed, are valid and binding;
- any requests concerning the regulation of the network-grid access have been fulfilled by the applicant.
After the GSE has verified whether all those requirements have been fulfilled, the assigned Tariff is communicated to the applicant, within 60 days from the receipt of its request, specifying:
- the amount of the Tariff, which shall be assigned for a 20-years period, starting from the date in which the photovoltaic plant begins its operations;
- the technical specifications of the plant.
In the event GSE has not been provided with evidence that the above referenced requirements have been complied with, a request for additional documents will be issued, in which case the applicant shall provide any required additional documents within 90 days, otherwise its application will be denied.
2) Documents to be attached to the application
The following documents shall be attached, in original, to the application, and sent to GSE:
- a request for the assignment of the Tariffs to the applicant’s creditors, if applicable, pursuant to the scheme described at paragraph 3) hereinafter;
- the final technical specifications of the plant, printed from the web portal, including the date, the signature and the seal of the person, engineer or technician, responsible for it;
- an applicant’s personal statement, pursuant to the format available on GSE’s web portal, executed by the applicant, and including a photocopy of the applicant’s ID;
- the final project, including at least 5 pictures and graphic blueprints of the plant (such documents to be provided also on CD, in a pdf format);
- a hard copy list of the photovoltaic panels and converters used, specifying the model, the brand and the register’s number;
- the panels’ testing certification;
- a statement as to the title claimed on the land or real estate where the plant will be installed, or an authorization to the installation of the plant, executed by the land’s owner;
- a copy of the permits and licenses necessary to build the plant, or, in the event of a solar plant producing less than 1MW, a copy of the beginning construction notice, (“DIA)”;
- a copy of the communication sent by the local network-grid administrator, notifying the applicant the identification code of the plant’s point of junction the network-grid;
- a copy of the notice of the opening of the electrical workshop submitted to the local technical financial office (only for plants producing more than 20 kW);
- a copy of the receipt-notice stating the activation of the meter to measure the energy produced by the plant.
The application, along with the above referenced documents, shall be sent to “Gestore dei Servizi Elettrici – GSE S.p.A.” at the following address: “Viale Maresciallo Pilsudski 92, 00197 Roma”, with the following inscription: “GSE – incentivazione impianti fotovoltaici ai sensi del DM 19/02/2007 – Richiesta di Concessione della tariffa incentivante – Numero identificativo impianto (N°…..)”.
GSE organizes and manages all the activities related to the photovoltaic plants compliance verification; the scope of such activity is to ascertain that the photovoltaic plants receiving the Tariffs have been realized in compliance with the requirements provided by the Decree.
The following are the main steps of an inspection procedure by GSE:
- GSE communicates that an inspection shall be carried on to the chief engineer managing the plant, by mail or by e-mail (with, at least, a 10 days notice);
- the inspection is carried out at the presence of the chief engineer managing the plant;
- the result of the inspection is put on record;
- if during the inspection it emerges that the plant is not in compliance with the Decree, GSE will communicate to the chief engineer managing the plant that the Tariffs have been revoked.
Assignment of Tariffs to the applicant’s creditors
In order to facilitate the financing of the photovoltaic plants, the Decree allows any applicant to assign the receivables deriving from the Tariffs’ payments to its creditors. The assignment is allowed exclusively for the total amount of the Tariffs to be paid, and in favor of a single assignee, only.
In order to activate the credit assignment procedure, a deed of assignment, executed by both the assignor and the assignee:
- shall be entered into in the form of notary deed;
- shall indicate the number of the abovementioned “Convenzione” and the date of its execution;
- shall be served to GSE or, if the assignee is a bank, by registered mail.
GSE acknowledgment of the assignment request is communicated to the applicant and to the assignee, by registered mail.
The Tariffs payments
The Tariffs are paid:
- every two months, with regard to those photovoltaic plants with nominal power between 1 kW and 20 kW;
- each month, with regard to those photovoltaic plants with nominal power higher than 20 kW.
GSE pays an amount equal to the product between the electrical energy produced by the photovoltaic plant and the assigned Tariff. The measure of the electrical energy produced shall be communicated, monthly, to GSE.
For those photovoltaic plants with nominal power higher than 20 kW, the applicant shall, at the end of each year, submit to GSE a copy of the declaration submitted to the Technical Financial Office stating the electric energy production for the previous year.
Tax aspects concerning the Tariffs
1) The Tariffs payments are not subject to the V.A.T., even if the photovoltaic plant operation constitutes a main business activity for the applicant, as is the Tariffs are considered as a contribution from the Government.
2) The Tariffs payments qualify as a taxable income if the photovoltaic plant operation constitutes the main business activity for the applicant.
Additionally, if the applicant is an individual, or a professional association who carries out a self-employment activity, the Tariffs payments qualify as taxable income only in the event and to the extent in which the in-excess energy produced by the photovoltaic plant is traded on the market.
In the event of an individual or business entity building the plant in furtherance of its commercial activity, the portion of the Tariffs payment that is referred to the traded energy is considered as a part of its corporate income, hence taxable, although it shall be subject to a 4% deduction.