Sostegni ter Decree (article 15-bis) - Two-way mechanism on energy from renewable sources in Italy

Introduction

On 29 March 2022, Law no. 25 (Sostegni ter Decree) entered into force. The Sostegni ter Decree “converts into law, with amendments, decree-law no. 4, containing urgent measures in the field of support to businesses and economic operators, labor, health and local services, connected to the emergency from COVID-19, as well as to contain the effects of price increases in the electricity sector.”

The most contested measure was introduced by article 15-bis, “Further interventions on electricity produced by renewable source plants,” which provides for a two-way compensation mechanism on the price of energy, with reference to the electricity fed into the grid for the period from 1 February 2022, to 31 December 2022.

An energy reference price is envisaged that will represent the "fair remuneration of the energy price" (the fair price or reference price).

This fair price or reference price is established by the Sostegni ter Decree, depending on the geographical location of the plant and if the market price exceeds this threshold, the difference is to be considered as an "extra profit" and must be paid to the Gestore dei Servizi Energetici – GSE S.p.A (GSE).

Scope of application

First of all, it’s necessary to identify the production plants subject to the compensation mechanism on the price of energy. They are:

• “photovoltaic systems with a power exceeding 20 kW that benefit from fixed bonuses deriving from the Energy Account mechanism, not dependent on market prices” (ie the incentives referred to in Ministerial Decree 28.7.2005, 19.02.2007, 6.8.2010, 5.5.2011); and
• “power plants exceeding 20 kW powered by solar, hydroelectric, geothermal and wind sources that do not access incentive mechanisms, which entered into operation before 1 January 2010” (so-called merchant).

Plants subject to dedicated collection (including those that benefit from guaranteed minimum prices (PMG) and onsite exchange) also fall within the scope of application.

Production plants included in self-consumption systems or closed distribution systems in relation to the energy fed into the network are also included in the scope of application.

Exclusions from the Scope of Application

Plants other than those identified above are excluded.

In detail, photovoltaic systems incentivized with the “V energy account” (V Conto Energia) (Ministerial Decree of 5 July 2012) are excluded as the incentive is not fixed in this ministerial decree. Photovoltaic plants that benefit from the incentives referred to in Ministerial Decree 4 July 2019 (FER I Decree) are also excluded, since the latter is already an incentive system with a “two-way differential mechanism,” where the producer, if the price of the energy exceeds the incentive, should pay the difference to the GSE.

Production plants using solar, hydroelectric, geothermal and wind sources are excluded from the application of the abovementioned regime if they:

• already have access to incentive mechanisms; or
• do not have access to incentive mechanisms and started operating after 1 January 2010.

Energy subject to supply contracts concluded before 27 January 2022, is also excluded, provided that:

• the contract is not related to the price trend of the spot energy markets; and in any case
• the contract is not entered into at an average price 10% higher than the value of the Reference Price (as defined in the following paragraph), limited to the duration of the aforementioned contracts.

Two-way compensation mechanism

To operate the two-way compensation mechanism, the GSE will calculate the difference between:

• the Reference Price, which will be equal to the prices reported in the table below with reference to each market and geographical zone; and

Table 1: reference price in EUR/MWh for each market zone

• a market price equal to:
  1. (i) for photovoltaic plants with a power exceeding 20 kW that benefit from fixed premiums deriving from the Energy Account mechanism, as well as for solar, wind, geothermal and run-of-the-river water systems that do not access incentive mechanisms, entered into exercise on a date before 1 January 2010: the hourly market zonal price of electricity, or, (ii) for supply contracts stipulated before 27 January 2022, not excluded from the scope of application, the price indicated in the contracts themselves;
  2. (i) for the plants referred to in paragraph 1, letter b), of article 15 bis of the Sostegni Ter Decree other than those referred to in number 1) above, the monthly arithmetic average of the hourly zonal prices of the electricity market; or (ii) for supply contracts stipulated before 27 January 2022 not excluded from the scope of application, the price indicated in the contracts themselves.

If the difference between the Reference Price and the market price is positive, the GSE will pay the relative amount to the producer. If the difference is negative, the GSE will operate a setoff and it will be able to request the corresponding amount to the producer.

A maximum ceiling is introduced on the amount to be requested from the producer for systems that access dedicated energy withdrawal. For this hypothesis, producers must be granted a total annual economic remuneration no less than that deriving from the minimum guaranteed prices, in the cases provided for therein.

Fulfillments by producers

While the incentivized plants are known to the GSE, non-incentivized plants may not be registered and known by the GSE. The new provision therefore provides that the producers concerned, upon request by the GSE, must transmit to the GSE, within 30 days from the request, a declaration, drawn up in accordance with the consolidated text referred to in the decree of the President of the Republic of 28 December 2000, n. 445. The declaration certifies the information necessary for the purposes referred to in this article, as identified by the Regulatory Authority for Energy, Networks and the Environment (ARERA) with the relevant implementing measures.

Implementation of the regulatory provision

Within 30 days from the date of entry into force of this decree, ARERA regulates:

• the specific regulation for the implementation of this legislative provision: and
• the methods by which the proceeds are paid into a special fund set up at the Cassa for energy and environmental services and used to reduce the requirement to cover the general charges relating to the electricity system referred to in Article 3, paragraph 11 , of the legislative decree of 16 March 1999, n. 79.

With its Document for Consultation 133/2022 / R / EEL, ARERA has defined the guidelines for implementing the two-way compensation mechanism introduced by art. 15-bis of the Sostegni ter Decree, inviting interested parties to submit any relevant observations by 22 April 2022.

Repealed rules and salvation of effects and legal relations

The Sostegni ter Decree repeals decree-law no. 13 containing “Urgent measures to combat fraud and for safety in the workplace in building matters, as well as on electricity produced by plants from renewable sources.” But it does not prejudice the acts and measures adopted and the effects produced and the legal relationships that arose on the basis of the same decree-law no. 13 of 2022 and also on the basis of the provisions repealed by the decree-law of 25 February 2022, n. 13.

Conclusions

The new provisions raise doubts about their full compliance with the Italian Constitution, given the lack of clarity on the expected impact and the actual achievement of the objectives set out by the law, such as containing the effects of the increase in energy prices for end clients. In addition, the new law may create unequal treatment between energy producers that are benefiting from high energy prices, including those that manage energy plants from fossil fuels or conventional sources, and those producers that, as of today, are already subject to a two-way compensation scheme, as per the FER I Decree.

The price increase anomaly should have led to the regulation of those operators, outside the scope, who have fixed-price contracts and who are required to pay the GSE – albeit with provisions of dubious legitimacy – the difference between market and incentive without receiving any extra profit. We await the implementation resolution of the ARERA, which will allow to appeal to the Regional Administrative Court and raise any issues around the rule’s compliance with the constitution.