The FER Z: a new legal model for renewable energy incentives in Italy

With the aim of accelerating decarbonization, the MASE is preparing a new and additional renewable incentive scheme called FER Z (i.e. RES Z). This mechanism, which has not yet been submitted to the European Commission for approval with reference to the EU state aid framework, represents a major innovation in the national legal and regulatory landscape.

We discussed this mechanism and its implications for the national electricity system at a conference organized by ADVANT Nctm's Energy & Infrastructure Department at its Milan headquarters on June 18, 2025 - attended by Mr .Federico Boschi head of the Energy Department of MASE and Mr. Davide Valenzano, head of regulatory affairs at GSE, as well as Tommaso Barbetti of Elemens - dedicated to the new Market Design and Route To Market alternatives available to producers from RES.

1. Nature and legal structure of the ERF Z

FER Z differs from previous models (such as FER X) in its decentralized architecture. Whereas in the FER X system there is a "pay-as-produced" approach between the state and the producer, FER Z introduces a contractual disintermediation between production asset and incentive, enhancing the role of aggregators, such as traders and utilities.

These entities will enter into a Contract for Difference (CfD) with the Gestore dei Servizi Energetici (GSE) based on predefined energy delivery profiles (e.g., baseload or peakload), and at the same time will have to procure energy from a heterogeneous portfolio of facilities, at least 70/80% of which will be from newly developed RES (solar, wind, hydro, and storage) to meet these obligations.

In turn, aggregators will have to stipulate: 

1. Virtual PPAs (CfDs) with the various producers that make up the aforementioned portfolio and who are now entities that would participate directly in FER X;

2. Storage availability purchase contracts or MACSE time-shifting contracts,

in order to compose and fulfill the profile promised in favor of the GSE.

Ultimately, it is a virtual baseload or peakload corporate PPA where the GSE has the role of the offtaking corporate.

2. Legal profiles and critical regulatory issues

FER Z involves greater contractual complexities and operational risk, as it requires the aggregator not only to ensure continuity of supply according to hourly profiles, but also to actively manage the production portfolio and the economic balance between CfD and market purchases.

From a legal point of view, this is a hybrid incentive system that incorporates elements typical of Corporate PPAs and Terna's capacity market. The incentive is no longer linked to mere production, but to compliance with a theoretical production profile, which will have to be guaranteed over a defined time horizon (likely annual).

As stated by Dr. Boschi, the European Commission has, for the time being, expressed reservations about the technological efficiency and compatibility of FER Z with the EU State Aid Guidelines, as well as the effectiveness of the mechanism in relation to the planned maintenance aspects of the facilities, an issue that is also relevant to FER X.

3. Market implications and regulatory perspectives

From an energy law perspective, FER Z represents a step toward greater competitive integration of renewables in energy markets. It is expected that this scheme can contribute about 5 GW of baseload, with an estimated required installed capacity of up to 20 GW.

In operational terms, a public consultation (which has not yet started) is planned and the first auctions will start no earlier than 2026, with a potential duration until 2029. The system will be modulated on the basis of complementarity with other instruments (FER X and PPAs) to avoid overlap or distortions, with the understanding that the various mechanisms/instruments will have to coexist