FER 2019 – New Italian Incentives for Renewables

• in order to benefit from the incentive, the plant must already have been authorised at the time of the subsidy application;
• incentives will be available to plants where construction works will start after the plant has been included in the rankings (except for plants that were not successfully included in the rankings of the previous FER Decree 2016 - Ministerial Decree 23 June 2016 - or having direct access to the incentive pursuant to the same decree, i.e. without enrolment in a register or auction);
• incentivised plants cannot benefit from the so-called ritiro dedicato, i.e. the one-year PPA entered into with the GSE (Gestore Servizi Energetici, the Italian public authority in charge of the incentives) nor from the on-site exchange (scambio sul posto);
• the energy produced by the incentivised plant remains available to the producer who can sell it to third parties (except in the case of an all-inclusive tariff for plants up to 250 KW); 
• the launching dates for tenders are the following:

• the deadline to submit applications is 30 days from the launch date, and the GSE publishes the rankings within 90 days from the tender closure;
• the incentive is granted for the working life 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 (prezzo zonale orario) 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 clawback mechanism;
• the base tariff by type of plant (on which bidders are asked to propose a reduction, see below) and working life during which the tariff will be paid (which cannot be changed by bidders) are as follows (in a nutshell, for PV and wind >1 MW it is 70 €/MWh and 20 years respectively): 

• as from January 2021, the base tariff is reduced by 2% for Group B plants and by 5% for Group A plants;
• tariff reductions are provided depending on the date of entry into operation of the plant.

Access to the incentives through the register (<1 MW) 

In order to be awarded incentives through inclusion in the register, plants < 1 MW must meet certain eligibility requirements. Once such requirements are met, bidders are ranked based on certain priority criteria set out below.

Eligibility requirements

In order to apply for incentives, the following eligibility requirements must be met:

a.  the plant must be fully permitted;
b.  the connection proposal by the grid operator must have been accepted;
c.  the works must not have started (except for plants for which applications were submitted but were not granted under the 2016 FER Decree);
d.  delivery of a bid bond equal to 1% of the capex (final performance bond equal to 2% of the capex to be delivered upon award of the incentive).

Priority criteria

Once the above eligibility requirements are met, bidders are ranked based on certain priority criteria set out below:

• for Group A plants (PV and wind): if located on exhausted landfills, exhausted quarries and peat bogs, contaminated sites, etc.
• for Group A-2 plants (rooftop PV plants): if built, in order of priority, on schools, hospitals, public buildings; 
• for Group B: in relation to (a) hydroelectric plants, if the construction meets the requirements set forth in article 4, par. 3, lett. b), nn. (i) (ii), (iii), (iv) of the FER Decree 2016; (b) sewage treatment gas plants, if they provide coverage of the digestate tanks; 
• for all groups: if the plant is connected in parallel with the electricity grid and with electric car re-charging stations, provided that the total recharging power is not lower than 15% of the plant power capacity and that each recharging station has a power capacity not lower than 15 kW;
• for all groups: aggregates of plants up to 1MW of power capacity;
• for all groups: higher percentage of reduction of the base tariff offered by the bidder (provided that it is not higher than 30% of the base tariff). This is likely to be the most important parameter unless a plant falls into one of the above cases (which is rare). Therefore this may potentially trigger a bidding war among bidders and, considering the maximum discount which may be offered is 30%, there is a possibility that many bidders will bid the highest discount (30%) and therefore the tariff will be awarded on the basis of the following residual criteria:

- for all groups: lower value of the tariff due in absolute terms (considering the power of the plant) based on the reduction offered. This means that, assuming the same percentage discount offered by bidders (see previous point), smaller plants (within the < 1 MW plant range) will be more likely to be awarded the tariff; or

- for all groups: earlier date of the application. This is a quite strange residual parameter be-cause it rewards the bidders who, assuming equal economic terms of their bids (see previous two points), file their application earlier, which may trigger a rush to file applications immediately after this becomes technically feasible.

Access to the incentives through the auctions (≥ 1 MW) 

In order to be awarded the incentives through auction, plants of ≥ 1 MW must meet certain eligibility requirements. Once such requirements are met, bidders are ranked based on certain priority criteria set ot below.

Eligibility requirements

In order to apply for incentives, the following eligibility requirements must be met:

a.  the plant must be fully permitted;
b.  the connection proposal by the grid operator must have been accepted;
c.  the works must not yet have started (except for plants where applications were submitted but were not granted  under the 2016 FER Decree);
d.  delivery of a bid bond equal to 5% of the capex (final performance bond equal to 10% of the capex to be delivered upon award of the incentive);
e.  evidence of financial capacity (by means of a bank statement which may be in the form of a commitment to finance the works);
f.   capitalisation (paid-up share capital and/or payments for future share capital) in the following percentages: 

i. 10% on the capex up to Euro 100 million;

ii. 5% on the capex between Euro 100 million and Euro 200 million; or

iii. 2% on capex exceeding Euro 200 million.

Capex for PV plants are conventionally set in Euro 1000/kW.

Priority criteria

Once the above eligibility requirements are met, bidders are ranked based on certain priority criteria set out below:

• higher percentage of reduction of the base tariff offered by the bidder (the reduction of the base tariff cannot be lower than 2% nor higher than 70%). This is likely to be the most important parameter and may trigger a bidding war among bidders, as happens also in other countries with similar schemes, bringing the level of the actual tariff for PV and wind down to 21 €/MWh for 20 years (assuming a 70% discount on the base tariff);
• holding a special rating certification issued by the Antitrust Authority, on the basis of a legal compliance index (so-called rating di legalità);
• for Group A plants (wind and PV): if located on exhausted landfills, exhausted quarries and peat bogs, contaminated sites, etc.;
• for Group B plants: in relation to hydroelectric plants and sewage treatment gas plants if some technical requirements are met; and
• prior date of the application. This residual parameter (which also applies to plants of < 1 MW as noted above) is even more relevant for plants of > 1 MW because in most cases for such plants the only other relevant parameter will be the discount (as the other parameters indicated above apply only to specific plants). As noted above, this parameter may trigger a rush to file applications immediately when this becomes technically feasible.

Long term PPAs

Plants not benefiting from incentives will be eligible for long-term PPAs negotiated on a market trading platform, which will be implemented by a decree to be issued by the GME (Gestore Mercati Energetici - the Italian public authority in charge of energy markets), following a public consultation to begin in February 2020.

a. Such long-term PPAs may be entered into in relation to the following plants: (i) for plants already built and in operation since 2017; (ii) for plants authorised but not built and for which the connection proposal has been accepted by the grid operator (preventivo di connessione), starting from their entry into operation. 
b. The above is without prejudice to the right of producers to enter into PPAs outside this platform.