The new regulation for energy-intensive industries

Decree Law No. 131 of 29 September 2023, «Urgent measures on energy, actions to support purchasing power and to protect savings» was published in the Official Gazette (“Decree Law No. 131/2023”) and is therefore effective from 30 September pending its conversion. The relevant Article 3 has significantly changed the system of allowances for energy-intensive companies as of 1 January 2024. The effectiveness of the provisions is, however, subject to the prior authorisation of the European Commission.

The reform of the allowance scheme for energy-intensive companies

The allowances provided for by Article 4 to cover the general charges pertaining to the electricity system referred to in Article 3, paragraph 11 of Legislative Decree No. 79 of 16 March 1999, (“Allowances”) will apply to companies, which are not in difficulty[1], that

(a) have consumed not less than 1 GWh in the year preceding the submission of the application for the Allowances; and

(b) meet with at least one of the following requirements:

(i) operate in any of the sectors at risk - including high risk - of relocation listed in Annex 1 to the Communication of the European Commission 2022/C 80/01 of 18 February 2022, «Guidelines on State aid for climate, environmental protection and energy 2022» (“Communication”);

(ii) despite not operating in any of said sectors, have benefited, in the years 2022 or 2023, of the allowances under the Decree of the Minister of Public Development of 21 December 2017, «Provisions on tariff reductions to cover general system charges for energy-intensive companies», having met the requirements under article 3, paragraph 1, a) or b), of the same decree;

(iii) despite not operating in any of said sectors under (i) and despite not meeting the requirement under (ii), operate in a sector or subsector deemed eligible under point 406 of the Communication. In such case, the deadlines and terms for the submission - by the companies or the trade associations concerned - of the proposal for admission of the sector or subsector shall be set out by decree of the Ministry of the Environment and Energy Security.

Leaving aside the nearly formal update resulting from the adaptation to the Communication and its annexes, Decree Law No. 131/2023 provides as follows:

• for the purpose of the determination of the Allowance the “electric intensity index” under former Ministerial Decree of 21 December 2017 is no longer relevant, but only the “gross added value” of the company is relevant (“GAV”);
• the quantum of the Allowances has increased, compared to other companies, for some of the energy-intensive companies that meet their energy consumption needs from “sources that do not emit carbon” by at least 50%, of which:
  • at least 10% through a “forward purchase agreement”; or
  • at least 5% through self-consumption by means of a direct on-site or remote connection[2];
• as an alternative to performing the obligations in the energy audit (to which all energy-intensive companies are obliged in any event), they may:
  • prove that they cover their needs from “sources that do not emit carbon” by at least 30%;
  • invest at least 50% of the allowance amount in projects involving substantial reductions in greenhouse gas emissions (see below for further details).

With respect to the determination of the Allowance, the new state of the art is summarised in the following table:[3]

There is a favourable approach to those companies that take steps to consume energy from “sources that do not emit carbon”. In this regard, it is believed that this notion should refer to all those sources of electricity production that do not lead to an increase in the amount of carbon dioxide in the atmosphere, even if the production of energy involves the emission of carbon. In other words, those sources of electricity production that, while producing carbon emissions, do not use fossil fuels and are, therefore, neutral with respect to the amount of carbon dioxide must also be included.

The meaning of “purchase agreement”

By using the expression “forward purchase agreement”, we believe that lawmakers want to refer to power purchase agreements (“PPAs”), but it is worth noting that there are certain interpretative difficulties. On the one hand, the expression “forward” might suggest a PPA without physical delivery of the energy produced, but, on the other hand, the expression “purchase” leads one to refer to PPAs with physical delivery. It could be assumed that by the expression “forward”, therefore, lawmakers intended to refer to the category of long-term PPAs, but without indicating a minimum duration, and that “purchase” implies the physical delivery of electricity produced even from existing plants, since it does not have to derive from new plants. The measure would therefore not necessarily have the effect of favouring the installation of additional electricity generation capacity from renewable sources.

It is also noted that the rule only refers to certain particular configurations of self-consumption and, in particular, those that exclude the use of the public distribution network[4].

continued: the energy audit - coordination issues

As already mentioned, companies accessing the Allowances must carry out an energy audit[5] and are required to adopt either of the following measures:

• implement the recommendations of the audits, if the amortisation time of the investments required for such purpose is no longer than three years and the related cost is no higher than the amount of the allowance received;
• prove that they cover their needs from “non-carbon emitting sources” for at least 30%; or
• invest at least 50 per cent of the amount of the allowance in question in projects leading to substantial reductions in greenhouse gas emissions (see below for more details).

Apparently, according to the new rules, the implementation of the recommendations referred to in the energy audit is an alternative to the other two measures listed above. In fact, the use of the expression “recommendations of the audit” in Decree Law No. 131/2023, does not strictly reflect the specific rule concerning the content of the energy audit, which provides that such document must specify a series of energy “efficiency measures” to be implemented[6]. Therefore, lawmakers should intervene in order to clarify: (i) whether or not recommendations refer to the energy efficiency measures outlined in said energy audit; and (ii) whether or not the implementation of any of the measures outlined in the energy audit is still an obligation, or whether it is an alternative to the implementation of any of the other two new measures set out by the 2023 lawmakers. Indeed, if by “recommendations” lawmakers were to refer to energy efficiency measures, the implementation of said measures would be an alternative to the implementation of any of the other two new measures outlined by the 2023 lawmakers. Otherwise, it should be necessary to clarify the meaning of recommendations in order to coordinate the obligations resulting from the energy audit with the two different measures proposed by the 2023 lawmakers.

With reference to the implementation of the audits, it should be noted that access to the incentive mechanism of energy efficiency certificates[7] (or white certificates) is subject, inter alia, to the verification of the existence of the condition of the so-called additionality of energy efficiency measures, whereby “energy efficiency projects designed to comply with regulatory constraints or administrative requirements are not eligible for the White Certificates system, except in the case of projects generating additional savings when compared to the design solutions specified by the aforementioned constraints or requirements and projects implemented pursuant to Article 8, paragraph 3 of Legislative Decree No. 102 of 4 July 2014 that generate additional savings”[8]. Therefore, given the regulatory obligation to implement the measures, such measures, if implemented, will not be eligible for the incentive mechanism insofar as they do not generate additional savings.

With reference to the first of the alternatives to implementing the recommendations contained in the energy audit, it seems clear that lawmakers are referring to the aforementioned PPAs and to self-consumption configurations whose production plant, even in cogeneration mode, is from renewable sources.

As for self-consumption, it should be pointed out that lawmakers did not limit the specific case at issue to self-consumption configurations that do not involve the use of the public distribution network.

Finally, the last alternative to the implementation of the recommendations of the energy audit introduces for the first time the possibility of fulfilling the obligations typical of energy companies through the investment in projects to reduce greenhouse gas emissions whose value of emission reduction subtracted from the emissions actually produced by the company leads to a level lower than that determined at the European Union level[9], for each sector, for the free allocation of emission allowances (so-called EU Allowances).

In other words, an energy-intensive company can fulfil its obligations to access the relevant Allowances by proving that it has invested in one or more projects that lead to a certain level of greenhouse gas reduction to be determined on the basis of the company’s type and size (in terms of emissions).

Final remarks

In any event, in order to have a final text of the provisions examined, it is necessary to wait for: (i) the conclusion of the parliamentary work for the conversion into law of Decree Law No. 131/2023, which must be completed by the end of November 2023; and (ii) the publication of a Ministerial Decree of the MASE (Ministry of the Environment and Energy Security) whereby the “methods and criteria” for the fulfilment of the conditions and the fulfilment of the obligations referred to above will be determined.

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 the Energy and Infrastructures Department

[1] As to the classification of the state of difficulty see the European Commission’s Communication 2014/C, 249/01.

[2] Article 30, paragraph 1, a), Nos. 1 and 2.1, Legislative Decree No. 199/2021 and Article. 3.6, Resolution ARERA No. 727/2022 and Annex A to ARERA Resolution 578/2013.

[3] In any case, the contributions owed by energy-intensive companies may not be less than the product of 0.5 Euro/MWh and the electricity taken from the public grid.

[4] Reference is made, in particular, to the configurations under Article 30, paragraph 1, a), Nos. 1 and 2.1, of Legislative Decree No. 199/2021.

[5] Article 8 of Legislative Decree No. 102/2014.

[6] Article 8, paragraph 3, of Legislative Decree No 102/2014.

[7] Ministerial Decree of 11 January 2017.

[8] Article 6, paragraph 6, of Ministerial Decree of 11 January 2017.

[9] Commission implementing Regulation (EU) 2021/447 of 12 March 2021.