The new "Energy Release" and the long-term corporate PPAs

On November 27, 2023, the Council of Ministers approved the so-called “Energy Decree” containing “urgent provisions for the Country’s energy security, promotion of the recourse to renewable sources, support for energy-intensive companies, as well as for the operation of the retail electricity market” (“Energy Decree”), published in the Official Gazette on December 9, 2023 (Decree-Law No. 181/2023). We examine below the mechanism introduced by Article 1 of the Energy Decree (so-called “Energy Release”) in favour of energy-intensive companies.

In brief, energy-intensive companies will be able to benefit from the purchase of electricity at a fixed price for a term of 3 (three) years against a commitment to create (or to purchase from third parties) electricity generated by additional plants, the production of which, once the relevant plants have come into operation, will be returned to Gestore dei Servizi Energetici - G.S.E. S.p.A. (“GSE”) - together with the relevant guarantees of origin - over the course of 20 (twenty) years following the entering into operation of such plants.

Bearing in mind that the Energy Release mechanism will have to be fully defined by the Ministry of Environment and Energy Security (“MASE”) by means of a special decree, the provision under consideration (Article 1 cit.) provides that:

• on the one hand, energy-intensive companies will be able to buy electricity from renewable sources and the related guarantees of origin in advance for a period of 3 (three) years by entering into a two-way contract for difference with respect to a price fixed in advance by the GSE itself (“First Contract”) and against the assumption by the energy-intensive companies of certain undertakings (see below);
• on the other hand, and from the entry into operation of the Plants (as defined below), the energy-intensive companies will enter into a contract for difference with the GSE having as its object the return, for a term of 20 (twenty) years, of the amount of electricity advanced (and the related guarantees of origin) during the period referred to in the preceding point (“Second Contract”).

To be eligible for the Energy Release mechanism as described above, energy-intensive companies will have to commit, at the time of the conclusion of the First Contract, to build additional plants and thus new power generation capacity from renewable sources. Alternatively, energy-intensive companies may undertake to purchase renewable energy from third parties through specific forward purchase agreements (Long-Term Corporate PPAs). In the latter case, energy-intensive companies commit themselves also on behalf of third-party producers to the GSE for the future return of advanced electricity.

The new generation capacity may be achieved alternatively through:

• installation of new photovoltaic, wind and hydroelectric plants with a minimum nominal capacity of 1 MW;
• photovoltaic, wind and hydroelectric plants undergoing upgrading or refurbishment allowing for a power increase of at least 1 MW.

Other requirements/criteria

The plants through which the new generation capacity is realised shall come into operation within 40 (forty) months from the conclusion of the First Contract, except in cases of force majeure or delays in the authorisation procedures not attributable to the company.

The amount of electricity from renewable sources that each energy-intensive company requests in advance shall not exceed, on an annual basis, the average annual consumption qualifying for the registration in the list of energy-intensive companies.

In order to return the amount of energy being advanced, the companies may also allocate even only a portion of the capacity of the plant(s) constructed.

To secure the obligation to build/purchase new renewable electricity generation, companies will be required to provide appropriate guarantees.

Final remarks

It looks as if energy-intensive companies will be called upon to contribute to the development and creation of additional renewable electricity generation capacity, and the mechanism will clearly support the further development of newly emerging Long-Term Corporate PPAs market. In order to have a final picture of the mechanism outlined above and its possible interactions with these agreements and the development of new projects, we must wait for:

• the conversion into law of the Energy Decree;
• the publication of a Ministerial Decree of the MASE determining the “methods and criteria” to access the Energy Release mechanism; and
• the determination by the GSE of the price of the energy to be advanced, which will have to be decided on the basis of the “average efficient cost of producing renewable energy from efficient scale plants using competitive mature technologies”.

This article is for information purposes only and is not, and cannot be intended as, a professional opinion on the topics dealt with. For any further information please contact Piero Vigano and Ernesto Rossi Scarpa Gregorj