European Commission green light for FER (RES) 2

On 4 June, the European Commission approved the draft ministerial decree, drawn up by the MASE in agreement with the MASAF, with the aim of promoting the production of electricity from innovative renewable energy plants or those with high generation costs, through the definition of incentives that stimulate their competitiveness and allow them to contribute to the achievement of the decarbonisation targets to 2030, the so-called FER 2 (‘Decree‘).

The measure incentivizes only the following new plants:

1. fuelled by biogas (with a maximum capacity of 300 kW) and biomass (with a capacity not exceeding 1 MW);
2. thermodynamic solar energy;
3. geothermal power with innovations and zero emissions;
4. both floating and fixed offshore wind plants (the latter with a minimum distance from the coast of 12 miles);
5. floating photovoltaics both off-shore and on inland waters; and
6. installations powered by tidal, wave and other forms of marine energy, presenting characteristics of innovation and reduced impact on the environment and territory.

The purpose of this analysis is to offer a concise but structured summary of the draft available at the date of publication mentioning the main features of this long-awaited incentive system.

Eligible for incentives are plants in possession of:

1. of the building and operating permit;
2. of the definitively accepted grid connection solution;
3. which comply with the minimum environmental and performance requirements set out in Annex 2 of the Decree.

Among the other causes of exclusion typical of these incentive schemes^[1], it should be noted that plants that started construction work before the publication of the ranking list formed by the GSE at the end of each procedure are not allowed to access the incentives.

In relation to this cause of exclusion, the measures are deemed to have started at the time of the first obligation rendering an investment irreversible, such as, by way of example, that relating to the ordering of equipment or the commencement of construction work. On the other hand, the purchase of land and preparatory works, such as the obtaining of permits and the carrying out of preliminary feasibility studies, are not, by express provision of the Decree, to be considered as the ‘commencement of works’.

Offshore wind power will absorb most of the capacity to be auctioned with 3,800 MW. The other available quotas are 150 MW for biogas and biomass, 5 MW for small-scale solar thermodynamic, 75 MW for medium/large-scale solar thermodynamic, 100 MW for innovative geothermal, 60 MW for zero-emission geothermal, 50 MW for inland PV, 200 MW for off-shore PV and for tidal, wave and other marine energy. Finally, there is a quota of 150 MW for the refurbishment of existing plants from traditional geothermal with innovations.

For biogas and biomass plants, the Decree stipulates that auctions will be held annually, for other technologies at least three procedures will have to be held until 31 December 2028.

The auctions, organised by the GSE, will give developers 30 days to submit bids.

With regard to the reference tariffs set as the basis for the auction in 2024, the following is envisaged:

(i) for floating plants on inland waters with a capacity of up to 1000 kW, 90 €/MWh and 75 €/MWh for plants with a higher capacity;

(ii) for thermodynamic solar power of up to 300 kW, 300 €/MWh, 240 €/MWh for those above that threshold and up to 5,000 kW, and 200 €/MWh for installations above that threshold and up to 15,000 kW;

(iii) for conventional geothermal plants with innovation, the incentive tariff will be 100 €/MWh, and for zero-emission plants, 200 €/MWh;

(iv) An incentive tariff of €185/MWh is envisaged for offshore wind power;

(v) for biogas plants using products and by-products listed in Table 1 of the Decree, 233 €/MWh;

(vi) for biomass using products and by-products listed in Table 2, a tariff equal to 246 €/MWh for plants up to 300 kW and equal to 185 €/MWh for plants up to 1,000 kW;

(vii) for installations powered by tidal, wave and other forms of marine energy, for all powers, 180 €/MWh.

For the years following the first, the auction rates are reduced by 3% per year, except for plants up to 300 kW for which this reduction will apply from 2026.

Applicants are required to offer, in their application, a percentage reduction on the reference tariff, but not less than 2%. This reduction offer obligation does not apply to plants with a capacity of up to 300 kW.

The mechanisms for granting the incentive tariffs under ERF 2 are as follows:

a) for plants with a capacity not exceeding 300 kW, the GSE directly provides for the withdrawal and sale of the electricity, disbursing, on the net production fed into the grid, the applicable tariff in the form of an all-inclusive tariff. Entities may alternatively request the application of the regime set forth in subparagraph b) of Article 9, as follows;

(b) for plants with a capacity of more than 300 kW, the electricity produced remains at the disposal of the producer, who independently provides for its valorisation on the market.

In the latter case, the GSE calculates the difference between the entitlement tariff and the hourly zonal price, and:

1) where this difference is positive, it grants the incentives by applying a premium tariff, equal to the aforementioned difference, on the net production fed into the grid;

2) in the event that this difference is negative, adjusts or requests the corresponding amounts from the holder.

Incentives will not be paid when hourly zonal prices are zero or negative.

For each procedure, it will be possible to apply for access to the incentives for a period of sixty days, and within the following ninety days, the GSE will compile a ranking based on the percentage reduction offered with respect to the reference tariff, within the limits of the available quotas.

In the event the quota made available for the individual procedure is exceeded, the GSE shall apply the following additional priority criteria, with the percentage reduction offered being equal: a) plants built in the areas identified as eligible in implementation of Articles 20 and 23 of Legislative Decree No. 199 of 2021; b) the earliest date of completion of the application for participation in the procedure.

From publication, a time limit, which does not take into account delays in the realisation of the plant and related works caused by force majeure – which differs according to the technology^[2] – will elapse in order to achieve entry into operation.

For each month of delay, up to a maximum of nine months, a 0.5% reduction in the tariff will be applied.

If the delay exceeds nine months, forfeiture of the right to the tariff takes place.

If the plant is subsequently readmitted to tariff incentive mechanisms, it applies a 20 per cent reduction of the current reference tariff to that plant.

The owners shall notify the GSE of the date of entry into operation of the plants within 30 days following the start of operation. Failure to notify the GSE within that period shall result in the loss of the right to the recognition of the tariff due for the period between the date of entry into operation of the plant and the first day of the month following the date of late communication.

Following the entry into operation, the incumbent is entitled to carry out a start-up and testing phase, in accordance with maximum times and procedures detailed in the operating rules, at the end of which it notifies the GSE of the date of commercial operation.

Holders must notify the GSE of the date of entry into operation of the plants within 30 days. If they fail to do so, they will lose the right to the tariff for the period between the date of entry into operation and the first day of the month following that of the late communication. After the entry into operation, the owner may carry out a start-up and testing phase – in accordance with times and procedures that will be specified in the operating rules – after which the owner shall notify the GSE of the date of commercial operation.

The Decree is currently being examined by the competent ministers for signature, after which it will be forwarded to the Court of Auditors for registration and subsequent publication.

Within thirty days of publication, the Operating Rules will be issued by decree of the MASE, making the measure fully operational.

The content of this document is for information purposes only and is not and cannot be intended as legal advice on the topics dealt with. For further information please contact Piero Viganò , Giovanni Battista De Luca, Paola Putignano, Ernesto Rossi Scarpa Gregorj. 

[1]Access is also not permitted (i) to companies in difficulty as defined in the Communication from the Commission – Guidelines on State aid for rescuing and restructuring non-financial firms in difficulty, published in the Official Journal of the European Union C 249 of 31 July 2014; (ii) to entities for which one of the causes of exclusion referred to in Article 80 of Legislative Decree 18 April 2016, no. 50 of 18 April 2016; (iii) to undertakings against which a recovery order is pending as a result of a previous decision of the European Commission declaring the incentives received illegal and incompatible with the internal market;

[2] Offshore wind, 50 months; floating photovoltaics, 36 months; geothermal, 51 months; marine energy, 36 months; thermodynamic solar, 55 months; biomass and biogas, 31 months.