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    10.04.2024

    The new draft of the Ministerial Decree “FER X”: relevant changes and main novelties


    1. Introduction

    A new draft of the Ministerial Decree of the Ministry of the Environment and Energy Security (the so-called “FER X” and, hereinafter also, the “Decree”), implementing Articles 6 and 7 of Legislative Decree No. 199/2021 and containing provisions for the definition of new support mechanisms for energy produced from renewable energy sources, began to circulate in early March. The most important aspects of the draft Decree are analyzed below.

     

    The aim of FER X is to support the production of energy by plants powered by renewable sources with generation costs close to market competitiveness, and in particular through the following types of plant:

    (i) photovoltaic plants;

    (ii) wind power plants;

    (iii) hydroelectric plants;

    (iv) treatment plants for residual gases from purification processes.

    With regard to the definitions introduced, it is worth to mention, inter alia:

    • the “complete reconstruction of a plant other than a hydroelectric plant”, which means an operation carried out on a site on which, prior to the start of the reconstruction works, another power plant existed, of which only the electrical infrastructure, underground electrical infrastructure and buildings connected to the operation of the pre-existing plant may be re-used[1];
    • the “multi-section plant”, that is the plant made up of several sections that converge on a single grid connection point and that meets the following requirements: the uniqueness of the owner of the plant sections; the presence of autonomous measuring equipment for the energy produced in each section[2] and the parallel connection to the grid of the last section within and no later than two years from the date on which the first section enters into operation;
    • the “nominal power of a plant”, which is the sum, expressed in MW, of the nominal electrical powers of the alternators (or, where there are none, the generators) belonging to the plant itself, where the nominal power of an alternator is determined by multiplying the nominal apparent power, expressed in MVA, by the nominal power factor shown on the alternator’s rating plate data, in accordance with standard CEI EN 60034, with the following exceptions:

    i. for wind power plants, the power is the sum of the nominal powers of the individual wind turbines constituting the plant, as defined in accordance with CEI EN 61400; where the individual wind turbine has a rated power equal to or less than 0.5 MW, the above definition applies;

    ii. for hydroelectric plants, the power is equal to the nominal power of the water derivation concession;

    iii. for photovoltaic plants, the nominal power is determined by the lower of the sum of the individual nominal powers of each photovoltaic module forming part of the same plant, measured at STC conditions (Standard Test Condition) and the nominal power of the DC/AC conversion unit, as defined by the relevant standards defined by the Italian Electrotechnical Committee, expressed in kW.

    Pursuant to the draft Decree, incentives are provided not only for new construction interventions, but also for the reactivation of decommissioned plants, the complete reconstruction and repowering of existing plants[3], including on plants for which long-term electricity procurement contracts is provided. With regard to the latter hypothesis, access to the support mechanism is allowed depending on the overall capacity of the plant and limited to the portion of capacity for which the long-term electricity procurement contract has not been signed[4].

     

    According to the current draft, the Decree provides for a duration of its application:

    • until 31 December 2028 or,
    • for plants with a nominal capacity lower than or equal to 1 MW, on the date on which the sum of 5 GW of financed capacity is reached, if that date is before the deadline of 31 December 2028.

    The quota of energy that can be incentivized through auction procedures for the five-year period 2024-2028 amounts to a total of 62.15 GW, reserving:

    (a) 45 GW for photovoltaics[5];

    (b) 5 GW for wind power;

    (c) 63 GW for hydropower;

    (d) 02 GW for residual gases from purification processes.

     

    1. RES plants with a capacity equal to or lower than 1MW

    According to Article 3 of the draft Decree, plants producing electricity from renewable energy sources (hereinafter referred to as “RES plants”) with a capacity lower than or equal to 1 MW have direct access to the support mechanism, provided that the relevant works have been started after the entry into force of the Decree (for the determination of the date of commencement of works, see what is set forth below regarding Article 3, paras. 5 and 6) and that the same plants are in possession of the performance and environmental protection requirements “necessary also to comply with the principle of Do No Significant Harm (DNSH)[6], as well as the requirements set forth in Annex 2 and declined in the operating rules set forth in Article 10.

     

    These plants benefit from an auction price equal to the operating price, defined in Annex 1 of the draft Decree for each source, as follows:

    • for the photovoltaic source: 85 €/MWh[7] ;
    • for wind power: 80 €/MWh;
    • for the hydraulic source: 110 €/MWh;
    • for residual gases from purification processes: 100 €/MWh.

     

    1. RES plants with a capacity higher than 1 MW

    On the other hand, RES plants with a capacity higher than 1 MW access the support mechanism provided for by the Decree, through participation in competitive procedures, within the contingency limits indicated above, where participants are required to offer a discount on the above-mentioned auction prices. The discount offered cannot be less than 2% of the above-mentioned auction prices.

     

    In order to be successful in the competitive procedure, the following requirements must be fulfilled:

    a) possession of the authorization title or, at the producer’s request, of the favourable decision of environmental impact assessment pursuant to Legislative Decree No. 152/2006 (“EIA”)[8];

    b) grid interconnection solution definitively accepted;

    c) compliance with national and EU environmental performance requirements and standards, which are also necessary to comply with the DNSH principle, as well as with the requirements set out in Annex 2 of the Decree and defined in the operating rules.

    d) possession of a declaration by a banking institution certifying the financial and economic capacity of the participant in relation to the scope of the operation, taking into account the expected profitability of the operation itself and the financial and economic capacity of the corporate group to which it belongs, or, alternatively, the commitment of the same institution to finance the operation.

    Concerning the issue of compliance with the DNSH principle, which is relevant both for direct access to the support mechanism and for participation in the competitive procedures to access the same mechanism, it is useful to recall that, under Regulation (EU) No. 241/2021 (establishing the Recovery and Resilience Facility)[9], only measures that comply with the DNSH principle may be financed within the framework of individual National Plans. The introduction of this principle is due to Regulation (EU) No. 2020/852 (the so-called Taxonomy Regulation), which introduces a classification of sustainable economic activities on the basis of their impact on six environmental objectives and, in particular, defines an economic activity that causes significant damage to:

    1. the mitigation of climate change, if such activity leads to significant greenhouse gas emissions;
    2. the adaptation to climate change, if such an activity leads to a worsening of current and future expected adverse climate effects on the activity itself or on people, nature or assets;
    3. the sustainable use and protection of water and marine resources, if such activity is detrimental to the good ecological status or potential of water bodies, including surface and groundwater, and to the good ecological status of marine waters;
    4. to the circular economy, including waste prevention and recycling, if:
    • this activity leads to significant inefficiencies in the use of materials or in the direct or indirect use of natural resources such as non-renewable energy sources, raw materials, water resources and soil, at one or more product life stages, including in terms of the products’ durability, reparability, upgradeability, reusability or recyclability;
    • this activity results in a significant increase in the production, incineration or disposal of waste, with the exception of the incineration of non-recyclable hazardous waste;
    • long-term disposal of waste could cause significant, long-term damage to the environment;
    1. the prevention and reduction of pollution, if that activity results in a significant increase in emissions of pollutants into the air, water or soil, as compared with the situation prior to its commencement;
    2. the protection and restoration of biodiversity and ecosystems, if such activity significantly impairs the good condition and resilience of ecosystems or harms the conservation status of habitats and species, including those of Union interest[10] .

    In addition to the special causes of exclusion provided for in paragraph 4, paragraph 5 of Article 3 of the draft Decree denies access to the incentives to plants whose construction works have commenced prior to the submission of the application for participation in the same competitive procedures. In this regard, paragraph 6 of the same Article 3 reiterates that the commencement of works coincides with the moment of the first obligation that renders the investment irreversible (e.g. the ordering of equipment or the commencement of construction works, the latter not including the purchase of land and preparatory works such as obtaining permits and carrying out preliminary feasibility studies). In this regard, since this provision is almost identical to the one contained in the Ministerial Decree of 15 September 2022 (setting forth incentives for the production of biomethane), it appears that the interpretation rendered by the GSE in an FAQ following the entry into force of the same Ministerial Decree 15 September 2022 and concerning the date of commencement of the works can also be applied in this context.  In such FAQ, it was clarified, inter alia, that “entering into a supply contract whose validity is subject to the admission in a useful position in a ranking announced by the GSE does not constitute a firm commitment to the construction of the plant[11].

     

    In addition, it should be noted that for the purpose of participating in the competitive procedures, the responsible persons are required to submit a provisional deposit and a final deposit (the terms and conditions for the provision, enforcement and, with specific reference to the provisional deposit, also its amount, will be set forth in the GSE’s operating rules according to Article 10 of the Decree). With specific reference to the final deposit, its amount is set at 10% of the investment cost (as determined by Annex 1 of the draft Decree)[12]. This provision represents an innovation, since the Ministerial Decree of 4 July 2019 (so called “FER 1”), in Article 15, para. 3, establishes that the final deposit is determined to the extent of 10% of the investment cost envisaged for the construction of the plant, “conventionally set at 90% of the costs set forth in Table 1 of Annex 2 of the Decree of 23 June 2016”.

     

    For the procedures carried out in 2024, the operating prices to be tendered are those indicated in Annex 1 of the draft Decree, i.e. the same prices indicated for direct access to the support mechanism indicated above. Worthy of mention is also the provision of paragraph 5 of Article 4, pursuant to which the values of the operating prices will be updated, at the time of publication of the individual calls for tenders, by the GSE on a monthly basis, making reference to the national consumer price index for the entire community, in order to take into account the average inflation accumulated between the date of entry into force of the Decree and the month of publication of the call relating to the individual procedure.

     

    In the context of participation in the auctions, with equal percentage reductions offered as a result of the application of the coefficients referred to in Article 4, para.8, the following items constitute priority criteria:

    a) the complete removal of covering made of asbestos or in any case containing asbestos (only for photovoltaic plants), for which there is also a correction in the award price, see below;

    b) construction on areas identified as suitable in implementation of Article 20 of Legislative Decree No. 199/2021 (the so-called “Suitable Areas Decree”);

    c) the presence of an energy storage system at the service of the plant that guarantees at least one daily modulation of the electrical energy, according to the criteria defined in the operating rules set out in Article 10 of the Decree;

    d) the signing of a long-term power purchase agreement (so-called “Power Purchase Agreementor “PPA) with a duration of at least ten years, in the manner provided for in Article 3, para. 9;

    e) the earliest date of completion of the application for participation in the procedure.

    As regards the maximum timeframe for the realization of the interventions following participation in the competitive procedures, Article 7 establishes the following timeframes for the entry into operation for newly built plants that are successfully ranked in the respective lists:

    a. 21 months for photovoltaic plants;

    b. 34 months for wind farms;

    c. 54 months for hydroelectric plants;

    d. 54 months for plants treating residual gases from purification processes.[13]

    With regard to new renovations, the Decree provides for the following deadlines for entry into operation:

    • 19 months for wind farms;
    • 39 months for hydroelectric plants;
    • 27 months for plants treating residual gases from purification processes.[14]

    Failure to comply with the aforementioned deadlines shall entail a 0.2% reduction of the award price for each month of delay for the first nine months, and a 0.5% reduction for the following six months, up to a maximum limit of fifteen months, beyond which the GSE shall declare the forfeiture of the ranking and enforce the final deposit.

     

     

    1. Provisions common to all plants

    An important novelty included in Article 9, para. 3 of the draft Decree, consists in the updating by the GSE of the award price on the basis of the annual rate of change of consumer prices for factory and office workers’ households surveyed by ISTAT, in order to take into account the inflation recorded:

    a) in the period between the date on which the competitive procedure is held and the plant’s expected entry into operation date, with an indexation on 100% of the award price;

    b) over the term of the contract from the date of the effective entry into operation of the plant, with a partial indexation of the contract price commensurate with the share of the operating and maintenance costs of the plant itself, as defined in the operating rules.

    Within 60 days from the date of publication of the Decree, Terna S.p.A., in cooperation with the GSE, will transmit to the Ministry for the Environment and Energy Security (“MASE”), for its approval, a proposal of temporal progression of the quotas made available for the next 5 (five) years, broken down by type, according to the format of Table 1 of Article 4 of the draft Decree. By the same deadline, Terna S.p.A. and the GSE will submit to the MASE, for its approval, a proposal of coefficients to be applied to the operating price reduction offers submitted for each market area in order to define the rankings (Article 4, paras. 7 and 8).

     

    Pursuant to Article 9, para 4 of the draft Decree, both for plants that directly access the incentives and for those that participate in the auctions, the GSE will pay out the expected contribution for a period equal to the conventional useful life of the plants, as indicated in Annex 1 (i.e. 20 years for plants of each source).

     

    According to the same Article 9, the disbursement of the award price is configured as:

    a) payment by the GSE to the producer, starting from the date the plant enters into operation, of an all-inclusive tariff for plants with a capacity not exceeding 200 kW. Consequently, the GSE provides for the withdrawal and sale of the electricity produced, without prejudice to the right of the owners of such plants to adhere to the mechanism referred to in Article 9, para. 1, lett. b (the so-called “two-way contract for difference”);

    b) payment by the GSE to the producer, as from the date of entry into operation of the plant, of an amount equal to the difference between the auction price determined following the auction procedure and the greater of 0 and the zonal price of electricity, with the producer retaining the availability of the electricity produced and the possibility of exploiting it on the market. If the aforementioned difference is positive, the GSE disburses this difference in the form of a fee; in the event of a negative difference, the GSE equalizes or claims the difference from the producer.

    It should also be noted that, pursuant to Article 9, para. 5 (without prejudice to ARERA’s determinations regarding dispatching), plants that participate in competitive procedures and have a capacity greater than 6 MW are required to be qualified to provide dispatching services in accordance with the procedures set forth in para. 8, letter b of the same Article 9. By contrast, for plants with a capacity below this threshold that participate in competitive procedures, such authorization is optional.

     

    An equally important provision is contained in paragraph 6 of the same Article 9 of the draft Decree, according to which the GSE calculates the amount of the award price payments on the basis of the plant’s producible energy, instead of the net production fed into the grid, in cases of:

    a) plants subject to shutdowns as a result of orders placed by network operators outside the market for dispatching service in order to resolve local grid constraints and/or force majeure;

    b) zero or negative zonal prices on the Day-Ahead Market, but within the limits of the sum of the program entering the Balancing Market and the power offered at a zero, or negative, price on the Balancing Market;

    c) plants subject to a production cut as a result of dispatching orders placed by Terna S.p.A. on the Balancing Market and/or European balancing platforms through the acceptance of downward bids that must be submitted at a price no lower than zero[15].

    According to the provisions of Article 10 of the draft Decree, the proposed operating rules for access to the incentives shall be issued by the GSE and forwarded to the MASE, for approval, within 30 (thirty) days from the entry into force of the same Decree.

     

    The operating rules will define, inter alia, the models for the applications for direct access to the support mechanism and participation in the procedures for access to the same, the procedures for simplified access for plants that have direct access to the incentives set forth in the Decree, also in an integrated manner with the simplified connection procedure of the single model pursuant to Article 25, para. 4, of Legislative Decree No. 199/2021, the modalities for the disbursement and enforcement of the provisional and final deposit, the obligations to be borne by the beneficiaries and the detailed schedule of the procedures to be carried out, and the modalities by which any unallocated power is automatically reallocated. Pursuant to paragraph 3 of the same Article 8, the GSE shall issue the first public notice within 30 days from the entry into force of the Decree.

     

    With regard to the conditions of cumulation of the incentives under the Decree, Article 12 clarifies that the support mechanism can be combined with:

    a) capital grants (up to a maximum of 40% of the investment cost) only for newly built plants;

    b) guarantee funds and revolving funds;

    c) tax breaks in the form of tax credits or tax relief from business income for investments in machinery and equipment.

    In such cases of cumulation of incentives with capital grants, the award price is modified by applying the percentage factor (1 - F), where F represents the parameter that varies linearly from 0 (where there is no capital grant) to 35%, where the capital grant awarded or recognized is equal to 40% of the cost of the investment (Annex 1, point 2). Therefore, with respect to the provisions of Ministerial Decree “FER 1”, for the same amount of capital contribution, there is an increase in the percentage factor for the reduction of the incentive.

     

    By way of example, in the case of a capital grant amounting to 40% of the investment cost, the award price for a newly built photovoltaic plant of €85.00/MWh will be reduced by 35% and be equal to €55.25/MWh.

     

    Two further hypotheses of correction of the award price (which can be cumulated) are provided for in the same Annex 1 (point 2) of the draft Decree for:

    i. photovoltaic plants replacing asbestos or eternit (+35 €/MWh);

    ii. photovoltaic plants realized on roofs if the power of the installation is less than or equal to 1 MW (+10 €/MWh).

    Finally, Annex 1 (point 3) of the Draft Decree provides that, for the interventions of complete reconstruction, refurbishment and upgrading, the terms and conditions set forth in the Ministerial Decree “FER 1” shall be applied to the award price, determined in the manner set forth in Article 9, with reference to the investment costs envisaged for the construction of the plant as set forth in Table 1 of the same Annex 1 to the Draft Decree.

     

     

    1. Large-scale projects

    The accelerated assessment procedure for large projects, provided for in Article 6 of the draft Decree, is certainly an element of considerable interest for operators in the sector. This procedure envisages, for plants with a power exceeding 10 MW, the possibility for the proposer[16] to formulate a specific request, together with the application for the single authorization, for the GSE to examine the project electronically in parallel with the preliminary investigation procedure pursuant to Article 5 of Legislative Decree No. 28/2011 and, within 30 days from the date of issuance of the single authorization, to issue the proposer with a qualification of eligibility for the application to access the support mechanism.

     

    The consequence for plants with a qualification of eligibility lies in the fact that, should they participate in the first useful tender under the Decree, they are not required to submit the documentation for obtaining the authorization title.

     

     

     

    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 ViganòGiovanni De Luca and Ernesto Rossi.

     

     

     

    [1] If the realized plants are located on areas affected by constraints that occurred after the construction of the pre-existing plant, reconstruction may only concern the works, infrastructure and buildings that do not fall within the constrained areas.

     

    [2] Each has its own section code and “UP” code as identified in Terna’s Gaudì system.

     

    [3] For interventions of repowering, access to the support mechanism is allowed only for the new section of plant attributable to the repowering.

     

    [4] In this case, the requirement of the obligation to qualify for the provision of dispatching services pursuant to Art. 9, para. 5 (see below) shall be deemed to be met for the total power of the plant.

     

    [5] Annex 2 of the draft Decree sets out the specific requirements for access to incentives for each type of plant. With reference to photovoltaic plants, it is specified that photovoltaic plants include agri-voltaic plants (Annex 2, point 3).

     

    [6] The “Do No Significant Harm (DNSH)” principle consists in “not causing significant harm” to the environment. In light of Art. 10 of the draft Decree, the operating rules of the Gestore dei Servizi Energetici - GSE S.p.A. (hereinafter the “GSE”) will regulate the construction, performance and environmental protection requirements with which the plants must comply also in order to comply with the DNSH principle and the public notice schemes for each of the procedures foreseen, in accordance with the same principle.

     

    [7] This includes photovoltaic plants on agricultural lands pursuant to Article 4-ter, para. 2 of Law Decree No. 181/2023 (the so-called “Energy Decree”), converted by Law No. 11/2024.

     

    [8] Art. 3, paras. 2 and 3 of the draft Decree.

     

    [9] Regulation (EU) No 241/2021, available at: https://eur-lex.europa.eu/legal-content/IT/TXT/PDF/?uri=CELEX:32021R0241 .

     

    [10] Art. 13 of Regulation (EU) No 2020/852, available at: https://eur-lex.europa.eu/legal-content/IT/TXT/PDF/?uri=CELEX:32020R0852 .

     

    [11] FAQ published on 21 April 2023 on the Customer Service Portal of the GSE website, available at the following link: https://supportogse.service-now.com/csm?id=faq&sys_id=2f2bc31ec3d2a114ff379b6ce00131d2 .

     

    [12] According to Annex 1, point 1 of the Draft Decree, the investment cost is set at:

    • 900 €/kW for photovoltaics;
    • 1,300 €/kW for wind power;
    • 4,800 €/kW for hydro power;
    • 7,000 €/kW for residual gases from purification processes.

    [13] For installations in the ownership of public administrations, the deadlines are increased by six months.

     

    [14] Idem.

     

    [15] The provisions of Article 9, para. 6, letters b) and (c) do not apply to plants that are not subject to the obligation to be qualified to provide dispatching services and to plants for which such qualification is not decided. For non-enabled plants with a capacity of more than 200 kW and less than 6 MW, dispatch is suspended during the hours in which prices equal to 0 or negative, where provided for in the Italian electricity market regulation, are recorded on the Day-Ahead Market for a period of more than 6 consecutive hours. Therefore, the period of entitlement to the support mechanism is calculated net of the total hours in which the suspension was recorded (Art. 9, para. 7).

     

    [16] It should be noted that, for the purposes of Art. 6, plants owned by local governments, planned and financed under the experimental and innovative measures of the National Recovery and Resilience Plan, are excluded.

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