REC: the National Council of Notaries comments on the debated issues and legal forms.

At the end of March, the National Council of Notaries published a study regarding the recent regulation of renewable energy community (REC) incentive scheme, offering important insights on various uncertainty profiles, also of significant practical relevance. 

Some of the key statements of said study are examined below. Please remember that the following indications should be regarded as general and may not be valid or applicable to every case, as the relevant circumstances of the specific case must be evaluated from time to time.

State economic incentives

Incentivized RECs are eligible for three specific state grants:

1. the premium tariff stipulated in the Decree of the Minister of Environment and Energy Security No. 414 of December 7, 2023 (hereinafter the “CACER Decree”), based on the energy shared under CACER;

2. the fee for the valorization of self-consumed electricity (or ARERA fee), provided by the Integrated Paper for Distributed Self-Consumption (“TIAD”);

3. the non-repayable grant, fully financed by the PNRR, provided under the CACER Decree aimed at partially covering the costs of building or upgrading certain renewable energy production facilities.

These contributions are managed by the GSE in compliance with the Operating Rules for Access to the Service for Diffuse Self-Consumption and PNRR Contribution dated February 23 and updated on April 22, 2024 (hereinafter the “Operating Rules”). In order to benefit from the premium tariff and ARERA fee, RECs are required to access the service for distributed self-consumption provided by the GSE, through a special application submitted by the so-called referent (soggetto referente)[1]. Upon receipt of the application, the GSE will carry out technical-administrative verifications on the documentation, attached by the referent, related to the production facilities and the REC. Only in the event of a positive outcome of this control activity, the GSE will sign the agreement for the regulation of the service for distributed self-consumption. The above mentioned technical-administrative controls are aimed at verifying the occurrence of the requirements and continue even after the signature of the agreement during the performance phase; therefore, if the GSE finds the absence of one or more of the eligibility requirements or the issuance of false statements, it orders the forfeiture of the incentives, with the full recovery of any amounts already paid.

Legal subjectivity

The requirement of the legal subjectivity of the RECs, imposed by Article 31, first paragraph, letter b) of Legislative Decree No. 199/2021[2], prevents the establishment of RECs either in the form of a temporary business association (or ATI) or in the form of a public – private partnership, which do not create legal entities distinct from the associates[3].

Given the legal subjectivity of RECs, the contributions paid by the GSE are intended for the REC and not for its members, even when the REC assigns the status of referent to an entity other than itself[4]. The members of the REC, in turn, may be credited with the GSE’s contributions only possibly, if the allocation is provided for in the articles of incorporation, a regulation, or a decision of the relevant REC body. In fact, no regulation requires the REC to allocate the GSE’s economic contributions among its members.

Energy sharing

According to the current regulations, three aspects related to the sharing of self-generated energy by the REC can be identified:

1. sharing is implemented through a direct relationship between the REC and its consumer members;

2. sharing occurs virtually. In fact, members do not physically consume the self-generated power from the REC, as the REC has to feed into the public grid all the electricity it has not self-consumed on site, and REC members can consume only the electricity taken from the public grid[5];

3. the incentive tariff covers electricity sharing only and not also other energy carriers that are self-producible by the REC from renewable sources, such as thermal energy.

The essential feature of sharing, peculiar to RECs, defines their mutualistic purpose, understood in the sense of service management of the relevant body toward its members. The mutualistic purpose assumes a bilateral relationship between the REC and its members.

In the view of this bilateral relationship, the performance of the REC may consist in the sharing of profits among its members or in further performance, even of a noneconomic nature[6]. The performance of members, on the other hand, may consist of the provision of their consumption data or the work they provide to the REC.

Of course, the essential feature of sharing, peculiar to RECs, does not imply that all its members must participate in sharing. Indeed, it is not prescribed that the REC has an exclusive purpose referring only to the production and sharing of energy from renewable sources for self-consumption. So that it may be that subjects disinterested in the aforementioned activities, but interested in other[7], are part of the REC, provided, of course, that these subjects do not represent the totality of the members[8]. In detail, according to what the Operating Rules prescribe, the REC assumes the presence of (i) at least two members who are consumers and/or producers of energy and (ii) at least two PODs connected to a consumer utility and a production facility[9].

Members

REC members must fall into at least one of the following subject categories:

1. entrepreneurs whose sole or main activity is not in the energy sector falling under the European definition of MPMIs (micro and small and medium-sized enterprises)[10];

2. individuals or private entities that do not qualify as entrepreneurs;

3. private research and training organizations, religious organizations, those in the third sector and environmental protection;

4. public bodies included among the local governments contained in the list periodically released by ISTAT[11].

The “open door” requirement

The so-called “open door” requirement provided for RECs shall be interpreted as free access by interested parties and the provision of an ad nutum right of withdrawal for end customers.

By virtue of the first element, it is believed that the REC cannot legitimately deny admission to the would-be consumer member even when the current members’ consumption equals or exceeds the REC’s self-generation in the various time slots in which shared power is calculated. Moreover, the REC cannot surreptitiously deny entry to would-be members by requiring disproportionate or unfair requirements, such as excessive initial contributions; nor could the REC restrict entry to one or more of the three subsets of the notion of “final customer” of energy, namely (i) household customers; (ii) non-household customers; and (iii) energy consumers belonging to low-income or vulnerable households.         
In any case, the element of open participation does not prevent the REC from differentiating the entry requirements prescribed for aspiring members, provided that such differentiation is fair and proportionate. Further, such requirement does not preclude the REC from being formed by members from only one of the classes listed above, even though such an organization was conceived by the EU legislature as a means of preferentially promoting individuals who are energy consumers; thus, a REC, as to its minimal membership, could be formed by two members from the single class of MPMIs, if they shared the REC’s self-produced energy. 

The second element, that of ad nutum withdrawal of end customers, on the other hand, does not prevent the REC from conditioning the effectiveness of the withdrawal against it on compliance with certain conditions. In addition, if the withdrawing party has committed to remain in the REC until the expiration of a certain term, in the case of early withdrawal, any agreed-upon fees for co-participation in investments incurred remain firm, which must also, however, be fair and proportionate.

End customers

Members of the incentivized REC energy consumers retain their rights as end-customers, including the right to choose their own seller; therefore, a statutory or regulatory stipulation by which the REC required its members to purchase energy from the REC or other energy services from the owner of the energy production facility leased to the REC would be null and void.

The requirement of autonomy

Any REC must be autonomous in accordance with Article 31, first paragraph (b) of Legislative Decree No. 199/2021. The content of this requirement is not specified. However, it finds its basis in recital 71 of dir. 2018/2001/EU: “avoid abuse and ensure broad participation.”

Autonomy, therefore, serves the function of prohibiting internal and external control of the REC. This prohibition is reinforced by a second requirement in the same directive, that the REC is an entity that “is effectively controlled” by its members[12]. 

The REC, therefore, can be said to be autonomous when it is actually controlled by the whole of its members and not instead by some of its members, a minority group of them or outside parties.

Democratic character

Democratic character is imposed on any REC, regardless of the legal form used to constitute it. The necessary democratic character of RECs implies certain considerations:

1. the notion of “control powers” repeatedly used in Legislative Decree No. 199/2021 to regulate RECs[13], should be understood as voting rights exercisable in the REC. Consequently, it follows from Article 31(1)(b) and (d) of Legislative Decree No. 199/2021 that every member of the REC who is an energy consumer must be entitled to excercise at least one vote in decisions within the competence of its members;

2. the REC may not recognize participation rights other than voting in member decisions;

3. despite the conception of the RECs as instruments of activation and self-protection of energy consumers, the votes due to members falling into this category are not required to prevail. So that it might legitimately happen that, among REC members, MPMIs hold more votes than individuals;

4. public entities can never have a majority of votes in the REC, unless the REC was established to promote the use of thermal energy from renewable sources;

5. the necessary democratic character of the REC does not dictate that it should provide for capital voting for its members. However, if multiple voting were to be provided for, ceilings should still be set on the votes that can be excerised or at any rate rules should be established to prevent the realization of situations of control of the REC by individual members or their minority groups. In addition, the deliberative power of the members of the REC should, in any case, be recognized in certain matters, including: appointment, compensation, removal and liability of directors and, if any, members of the supervisory body and the statutory auditor; organization of the body in which all members have the right to participate; allocation of any profits; amendments to the articles of incorporation; and dissolution of the entity[14].

Practicable activities

The object of the REC has a dutiful component, i.e., self-production and sharing of energy from renewable sources, and an optional component, i.e., other activities, different from the two mentioned, including: the sale and storage of energy self-produced or purchased from third parties, the production of any energy (thus not only electricity) from renewable sources intended for the consumption of its members, the promotion of “integrated home automation, energy efficiency interventions,” as well as the provision of “electric vehicle charging services to its members [...]”[15].

It must be noted that the activities of the optional component also include those disconnected with energy activities, which may even be prevalent (even in terms of turnover), subject to the limitation imposed by the specific regulations applicable by virtue of the legal form adopted for the REC[16].

The self-production of energy

Energy production and storage facilities must be “in the availability and under the control of the community” according to the requirements of Article 31, second paragraph (a) of Legislative Decree No. 199/2021. Therefore, for the purpose of self-generation, it is not necessary that the REC owns the facilities, it being sufficient that it has the availability of the facilities, which is achieved through the signing of an agreement between the REC and the energy producer - third party or member of the REC. It must be possible to infer from such an agreement that the producer conducts the relevant facilities “in accordance with the agreements defined with the community for the purposes of the renewable energy community and in compliance with the provisions of the relevant regulations”[17].

It must be noted that the status of “third-party producer,” i.e. one who offers the availability of the plant to the REC, can also be assumed by large enterprises or those entities whose main business or professional activity is the production and exchange of electricity, considering that they do not belong to the REC.

The REC, which has only the availability of the plant and not its ownership, corresponds to an energy aggregator, both on the production side and on the consumption side. Moreover, in such a case, the REC is not required to pay excise tax on the energy produced and does not own any power plant (in the meaning of Article 54 Legislative Decree No. 504 of October 26, 1995).

The REC will rarely qualify as a self-producer within the meaning of Article 2(2) of Legislative Decree No. 79/1999, since it is unlikely to physically self-consume at least seventy percent of its self-generated electricity, as the latter provision requires. On the contrary, it is more likely that the self-generated electricity from the REC, possibly diminished by the little self-consumed on-site, will be fully fed into the grid, if necessary after being fully or partially stored in special facilities.

For the purpose of sharing renewable energy internally within the REC, while energy production can also be third-party only, consumption must be only of REC members.

Specifically, “shared electricity” under the TIAD, is defined as “in each hour and for the set of connection points located in the same market area that are relevant for the purpose of a configuration for diffuse self-consumption, the minimum between the electricity fed in for the purpose of sharing and the electricity withdrawn for the purpose of sharing”[18]. Whereas, “self-consumed electricity,” i.e. the shared electricity that enjoys the premium tariff, is defined as “per hour, the shared electricity pertaining only to the connection points located in the portion of the distribution network underlying the same primary substation”[19] and relates only to the energy fed in from generation plants (or by upgrades) that (a) individually considered, have a power have a capacity not exceeding 1 MW and (b) collectively considered, have a total capacity originating, for at least 70 percent, from plants that came into operation after Dec. 15, 2021[20].

The self-consumed and incentivized electricity also includes the electricity stored by the REC, after being self-generated and before being fed into the grid.

A REC may also receive the premium tariff on energy sharing realized on several primary substations, provided, however, that the corresponding referent (possibly different from the one in charge for another configuration referable to the same REC) submits, for each primary substation constituting a dedicated self-consumption configuration, an application to the GSE for access to the service for widespread self-consumption.

So, more than one CACER may belong to a REC; in such a case, statutory provision can be made for the plurality of CACERs to be matched by an organizational articulation of that REC (such as a plurality of separate assemblies), which allows its members to be subdivided according to their membership in its different CACERs.

The qualification

The REC is to qualify as a business entrepreneur for the following three reasons:

1. the commercial (i.e., non-agricultural) nature of energy activities is certain;

2. energy activities, even when carried out by a REC that is an agricultural entrepreneur, do not, as a rule, qualify as related within the meaning of Article 2135, third paragraph, of the Italian Civil Code;

3. even in the presence of RECs in the form of nonprofit entities, their activities corresponding to commercial enterprises should usually be predominant, if not exclusive, over non-business activities.

It follows that the REC will mostly be subject to the statute of the commercial entrepreneur. Therefore, if the relevant conditions are met, a REC may, for example, be required to register in the commercial register or be subject to judicial liquidation.

In particular, the incentivized REC qualifies as an energy entrepreneur[21], even assuming it outsources all its economic activities.

The possible types, subtypes, and qualifications

Regarding the legal form that can be adopted by RECs, the study confirms the already well-known situation of regulatory uncertainty. Indeed, there is no single optimal form and regulation for all RECs; as they can differ greatly in terms of membership (quantitatively and qualitatively), territorial scope, purposes, activities, and corporate and financial structure.

In any case, in adopting the legal form of RECs, it must be taken into account that their main objective, as stipulated in Article 31, Paragraph 1 (a) of Legislative Decree No. 199/2021, is “to provide environmental, economic or social benefits at the community level to its partners or members or to the local areas in which the community operates, and not to make financial profits.”

Therefore, the prevailing nonprofit purpose of the RECs, imposed by the aforementioned rule, prevents the REC from being established in one of those legal forms that must pursue, at least predominantly, the purpose of profit, pursuant to Article 2247 of the Italian Civil Code, including: simple company, general partnership, limited partnership, limited liability company, joint stock company, limited liability partnership and benefit company. 

While it can be considered that the requirement of the prevailing nonprofit purpose of RECsallows the establishment of RECs in the forms of (i) cooperative with prevailing mutuality or non-prevailing mutuality but with statutory clauses in accordance with Article 2514, first paragraph, of the Italian Civil Code or (ii) qualified as a social enterprise.

It must be also noted that the requirement under consideration shall not be considered as violated when, in compliance with the discipline of the chosen organizational model, the REC allocates GSE contributions among its members.

Notwithstanding the above, the following legal forms may in any case be considered to comply with the REC regulation outlined above:

• the association (recognized or unrecognized), first of all, as governed by the Italian Civil Code. The association may qualify as a commercial enterprise, may also have public entities among its members, and may pursue a mutualistic or altruistic purpose – but not a profit-making one. The REC-association may also acquire the status of an ETS (“Ente del Terzo Settore”) or social enterprise.

  In contrast, the REC cannot be established as a voluntary organization or a social promotion association, since the regulations of the latter two legal forms prevent the entry of certain entities – such as private for-profit entities or public entities that qualify as local governments – and, therefore, the requirement of free entry, specific to RECs, would not be met.

  The REC-association enjoys two facilities: (i) it can be formed with only two members, unlike the cooperative-REC, which requires at least 9; and (ii) it reduces the costs of establishing and maintaining the structure, especially if it is in the form of an unrecognized association, unlike RECs in corporate form. However, the association framework was not designed for the exercise of entrepreneurial activities and creates some complexities for the case where public grants received from the GSE are to be distributed among the members. In fact, due to its necessary nonprofit purpose, the association form would not allow the distribution of GSE contributions. It is only with the status of an ETS or social enterprise that the REC association can grant its members said contributions[22], provided that it regulates its activities of producing, storing and sharing energy for self-consumption purposes through partial contracts (contratti parziari) (i.e. contracts determining the price according to the profits generated by the producing entity of the goods and/or services covered by these contracts). The same REC cannot, however, distribute the same amount of profits as reversions, in that case realizing an illegitimate direct distribution of profits, which is allowed only to the social enterprise in the form of a cooperative, pursuant to Article 3, paragraph 2-bis, of Legislative Decree No. 112/2017;

   

• the foundation, provided it has an open and democratic structure, is also an adoptable form. However, according to the thesis that the foundation is not functionally neutral, it cannot be deemed suitable if a mutualistic purpose is to be assigned to the ERC, since it must always pursue a public benefit purpose; this would be the case if the majority of REC members were interested in establishing mutualistic exchanges with their foundation. In addition, this legal form does not allow the distribution, among its members, of contributions received from the GSE as an employment of profits, otherwise violating its necessary nonprofit purpose.    
  Again, the REC foundation can also acquire the status of an ETS or social enterprise;

   

• the profit-making corporation as long as it does not primarily pursue the profit-making purpose. This constraint is respectable only by adopting the status of a social enterprise;

   

• the cooperative is the optimal form for most of the RECs since its discipline best suits their requirements.     
  The REC-cooperative can, then, qualify as a social enterprise, a benefit corporation and a social enterprise (impresa sociale).

  The REC can correspond to a consortium cooperative, since this company is not directly governed by Article 2602, first paragraph, of the Italian Civil Code and is neither obliged to have a corporate purpose containing only consortium activities nor to pursue the mutualistic-consortium purpose with a membership consisting only of members with the subjective requirements imposed by the legislature.

  The REC-cooperative must consist of at least 9 members[23].

  The mutualistic purpose of the REC-cooperative can vary widely, as cooperative societies can carry out “simultaneously more than one type of mutualistic exchange”[24].

  Moreover, the REC-cooperative always qualifies at least as a production cooperative when its members are only energy consumers. Indeed, such a cooperative, in order to carry out its mutual activity, makes use of “the contributions of goods or services by its members” within the meaning of Article 2512, first paragraph, No. 3 of the Italian Civil Code; contributions which, if the REC were merely sharing electricity virtually, would have as their object the computer data on their energy consumption.

  It is also necessary to point out that an important advantage of the REC-cooperative over the REC-association is the possibility of providing, in the articles of incorporation of the former, for the issuance of financial instruments in accordance with the regulations provided for S.p.A.

  However, the REC-cooperative is prevented from showing prevalent mutuality in case its corporate purpose contemplates only the self-production and sharing of energy from renewable sources, and in the related mutual exchange its performance is a share of the operating profit. In fact, according to Article 2513(1)(c) of the Italian Civil Code, the quantification of prevalence is required only on the basis of cost items represented in the income statement (conto economico), into which a share of profit cannot be computed.

[1] The characteristics of the REC Referring Party are set out in § 1.2.2.1 of the Operating Rules.

[2] According to which “the community is an autonomous subject of law”.

[3] However, to the contrary, see ARERA Resolution 318/2020/R/eel of August 4, 2020, and § 2.3 of the Technical Rules for Access to the Shared Electricity Enhancement and Incentive Service, GSE, dated April 4, 2022, according to which a REC could be established as a partnership.

[4] Thus, the amounts paid by the GSE are to be qualified, for accounting and civil law purposes, as revenue or income for the REC, so that if these amounts are to be distributed among REC members, they must be transformed into a part of the operating profit.

[5] Sharing, therefore, assumes that the REC can have data on its members’ electricity consumption.

[6] Think of an REC that offers energy efficiency or electric car charging services to its members, or an REC whose members decide to allocate economic benefits to parties other than themselves or to general interest activities in favor of the community where the REC operates.

[7] It may even be the case that some REC members do not wish to make direct use of any of the activities carried out by RECs, perhaps only wanting to finance them.

[8] It is advisable, therefore, that the deed of incorporation of the REC (even when it is not incentivized) provides for the obligation of some of its members to become energy consumers, thus ensuring continued compliance with Article 31, second paragraph, letter b) of Legislative Decree No. 199/2021, according to which “self-produced energy shall be used primarily for instantaneous on-site self-consumption or for sharing with community members [...].”

[9] See § 1.2.2 of the Operating Rules.

[10] See Art. 2 of the Annex to Rec. 2003/361/EC of May 6, 2003, which states that “[t]he microenterprise category of small and medium-sized enterprises (SMEs) consists of enterprises which employ fewer than 250 persons and whose annual turnover does not exceed EUR 50 million or whose annual balance sheet total does not exceed EUR 43 million. 2. In the SME category, a small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover or annual balance sheet total does not exceed EUR 10 million. 3. In the SME category, a micro enterprise is defined as an enterprise which employs fewer than 10 persons and has an annual turnover or an annual balance sheet total not exceeding EUR 2 million”.

[11] In view of their local character, it is prescribed as an additional requirement, only for the latter class of members, that the said entities be located “in the territory of the same municipalities in which the facilities” of self-production of the corresponding CER are located, pursuant to Article 31, first paragraph, letter b) of Legislative Decree No. 199/2021.

[12] See Art. 2(16)(a) of dir. 2018/2001/EU.

[13] See, in particular, Articles 10(1)(b) and 31(1)(b) and (d).

[14] This rule, which applies in the absence of different, stricter provisions provided for specific forms, is derived from the entire system of collective bodies under private law.

[15] See Article 31, second paragraph (f) of Legislative Decree No. 199/2021.

[16] Such a situation may occur, for example, when the REC has the status of an ETS (owing to Art. 5 Legislative Decree No. 117/2017) or a social enterprise (owing to Article 2 Legislative Decree No. 112/2017).

[17] See § 1.2.2 of the Operating Rules.

[18] Article 1.1(t) of the TIAD.

[19] Article 1.1(r) of the TIAD.

[20] In any case, pursuant to § 1.2.1.2 of the Operating Rules, the aforementioned plants must have come into operation after the regular establishment of the REC or after the REC’s article of incorporation comply with all the indications contained in the Operating Rules.

[21] See Article 2, paragraph 25-terdecies of Legislative Decree No. 79/1999, which defines the electricity contractor as “any natural or legal person, excluding final customers, who performs at least one of the following functions: generation, transmission, distribution, aggregation, demand management, storage, supply or purchase of electricity, who is responsible for the commRECial, technical or maintenance tasks related to these functions”.

[22] Thanks to the final part of Articles 8, third paragraph (d) of Legislative Decree No. 117/2017 and 3, second paragraph (e) of Legislative Decree No. 112/2017.

[23] See Article 2522, first paragraph, of the Italian Civil Code. In fact, the second paragraph of this rule, which allows a cooperative company to be established by at least 3 members as long as they are natural persons and as long as the company adopts the rules of the S.r.l., places a subjective limitation that conflicts with the requirement of free participation of RECs.

[24] See Article 2513, second paragraph, of the Italian Civil Code, which provides for the so-called “mixed cooperative.”