Timing: Law expected to be passed at the same time as the Fifth Energy Bill (i.e. 1 July 2012 or 1 October 2012) with the regime to take effect as of 1 January 2013

Available budget: Increase in annual budget from €3.5b p.a. (under current regime) to €5.5b p.a. up to 31 December 2014

Technology covered: Hydroelectric, geothermal, wind (on and offshore), biogas, biomass/anaerobic digestion and bioliquids

Accreditation criteria: Mechanism to control number of installations. Reverse auction process for large plants (>5MW except for hydroelectric and geothermal >20MW); registration priority criteria for medium sized plants (50kW – 5MW); small plants will have automatic accreditation on entering into operation

Tariffs: New regime moves away from current green certificates regime. Tariffs vary according to type and size of plant. Small to medium sized plants appear to be advantageous

Comment

The draft ministerial decree on renewables (non PV) (“MD”) has been a long time coming and is welcomed by operators in the renewables industry. The increase in the budget available for technologies other than solar PV is a positive sign. The move away from green certificates (for plants coming into force as of 1 January 2013, whilst for plants entered into operation up to 31 December 2012 as of 1 January 2016) is a move in the right direction in order to simplify procedure and provide greater certainty of revenues.

As with the fifth energy bill (“EB 5”), the focus on small to medium sized plants should fit neatly into the energy strategies of those companies operating in the manufacturing and industrial engineering sectors. Red tape is decidedly less onerous for smaller plants compared to large and medium sized plants. At this initial stage, the returns would appear to be workable in terms of market expectations.

Introduction

The official draft MD was made available on 13 April 2012 by the Ministry of Economic Development. The MD sets out the new incentive regime for non-solar PV renewable energy generation technology. The draft is to be reviewed by the Italian Authority for Energy and Gas and the State-Regions Conference before being enacted by way of publication in the Official Gazette. It is likely to take a further 3 - 4 weeks before being published. It is expected to enter into force as of 1 July 2012 or 1 September 2012 at the latest, depending on how fast the approval process is. Any suggested amendments from the State-Regions Conference are not binding but are likely to be implemented.

Eligible technology

The main technologies covered by the MD are hydroelectric, on and offshore wind, geothermal, biogas, biomass/anaerobic digestion, and bio liquids. The MD shall apply to those plants entering into operation from 1 January 2013.

Tariff levels

Tariff levels vary according to the size of the plant and the technology used. There are premiums for specific technologies (which vary according to the type of technology), a sign that the Italian Government is trying to steer the renewables market in terms of technological advances. Click here to see the tariffs for the main technologies.

Eligibility criteria

The accreditation process to be applied depends on what type of technology and size of plant is being used. In general, the basic principle is that large plants (5MW for wind and bioenergy and 20MW for geothermal and hydroelectric energy) will be accredited through a reverse auction process, medium plants (50kW to 5MW/20MW) will be required to apply to the central GSE register, and small plants (1kW – 50kW) will be automatically accredited as long as technical criteria is complied with.

Accreditation process

Reverse auction – large plants

The reverse auction takes place (electronically) once a year, expected on or before 31 July 2012 for 2013 (unless the entry into force of the MD is pushed out). Requests for proposals are to be submitted at least 30 days before the date of the auction.

GSE determines the MW quota available for each year. For example, onshore wind for 2013 is 500MW, offshore wind is 650MW, biomass is 95MW for biobased products and 350MW for waste products.  The entire quota is put up for auction (including any residual quota from previous years).

The auction works by asking bidders to offer percentage reductions to the relevant tariff (minimum of 2%). There is a minimum tariff threshold which is 30% of the starting tariff.  To take part in the auction, bidders must comply with certain technical and administrative criteria. Only those bidders who have authorised plants will be able to participate in the auction. GSE publishes the list of successful bidders within 60 days of the auction.

Plants must be operative within a certain time period from the date of publication of the GSE list of successful bidders – 2 years for onshore wind and bioliquids and 3 years for all other technologies. A penalty of 0.5% reduction to the assigned tariff will be applied for each month of delay, up to a maximum of 24 months.

Central GSE Register

Medium sized plants and reconditioned or hybrid plants must be registered on the Central GSE Register. In order to be registered, certain technical and administrative criteria have to be complied with.

As for large plants, there are quotas as to how many MW can be installed within a given year. For 2013, onshore wind is 50MW, hydroelectric is 70MW, geothermal is 35MW and biomass for biobased products is 145MW and 30MW for waste products. The entire quota is available (including any residual quotas from previous years).

Plants must be completed and operative within a certain timeframe of successful entry on the register. The same penalty as for large plants applies, except the maximum period in which the penalty is applied is 12 months.

Green certificates for plants entered into operation prior and up to and including 31 December 2012 will continue to be awarded green certificates until 31 December 2015, when they will be phased out with conversion to a pure FIT regime. Those plants entering into operation throughout this year will continue to be awarded green certificates until the date above. The price paid for the green certificates will be 78% of the difference between €180/MWh and the average energy sales price for the previous year. Operators will need to keep an eye on electricity prices in order to work out the value of green certificates during the years up to 2016.  The price paid by GSE for green certificates will be determined by GSE in accordance with the current green certificate market practice.

The MD is a complex and detailed piece of legislation. We would be happy to discuss any queries you may have and how this may impact your business.