European renewable energy incentive

guide - Italy
February 2013

Overview

Key drivers to the renewable sector

Policy and regulatory framework and incentives

Opportunities and challenges

Conclusions

Overview
Italy has one of the highest energy import dependence rates as compared to other EU member
states. Lowering dependence on energy imports and complying with the European 20-20-20 green
commitments (20 per cent cut in emissions, 20 per cent increase in energy efficiency and 20 per
cent renewables generation by 2020) are two objectives at the heart of Italys domestic energy
policy.
Italy is today a leading producer of electricity from renewable energy sources (RES). The solar
photovoltaic (PV) sector has historically been the dominant renewable energy technology in Italy
due to the Italian incentive regime for solar PV projects and also to Italys advantageous geographic
position and resulting sun exposure. Solar PV plants located in the south of Italy achieve a very
high level of utilisation - over 1,500 hours a year - which has led developers from around the world
to choose the regions in southern Italy to build some of the world's largest solar PV parks.
The focus on ground-mounted solar PV has lessened slightly in recent months, mainly because of
cuts in public incentives that were announced in 2012. Nevertheless, Italys renewable energy
market remains vital. Interest has been increasing in developing other types of renewable projects,
including wind, geothermal, wave and tidal power, biomass, biogas, landfill gas and sewage
treatment gas. Italy's current legislative regime provides for incentives for the generation and
distribution of energy produced by each of these RES.

Key drivers to the renewable sector

Incentive regime
Renewable incentives provided under the Italian legislative regime rank among the highest global
subsidies for RES.
Since 2007, a feed-in tariff (FiT) has been offered to solar PV plants by the Gestore Servizi
Energetici (GSE), the Italian public energy manager. The FiT is paid on the basis of the amount of
energy produced and dispatched, and it is granted for a 20 year period. Rules governing the FiT are
set out in the Conto Energia legislation, which is updated periodically by the Italian legislature.
Since 2002, all energy plants fuelled by other types of RES (wind, biomass, etc.) qualify to
participate in an incentive regime based on green certificates (GCs), which are issued by the GSE,
traded between operators on a dedicated market, and surrendered to GSE at a fixed price. Pursuant
to a law passed last year (Decree 6 July 2012) from 2016 the GC regime will be replaced by a
dedicated FiT, which will be calculated on the basis of the average price for the sale of electricity
during the relevant year.

Single authorisation for new generating plants

The Italian legislature has adopted and promoted rules to simplify the authorisation process for
building and operating all types of renewable energy projects. New plants exceeding certain
capacity thresholds, such as 20 kW for solar PV plants or 1 MW for wind farms, can be authorised
through a relatively simple single authorisation procedure, which covers all requisite permits and
any environmental impact assessment. Simplified procedures, based mainly on communications
between the developer and the local authorities, are also available for smaller scale plants.
Numerous regions across Italy have also developed local rules and regulations which reflect and
promote national energy principles and objectives.

Grid capacity
Lack of capacity of some portions of the national grid is an important issue which has had a
negative impact on the development of new renewable projects.
As a result of this, the Italian legislature has imposed a new obligation on grid operators to connect
renewable generating plants to the grid and give them priority of dispatch. Moreover, specific rules
concerning the interconnection procedure have been adopted by the energy authority (AEEG), in

the Single Text for Interconnections (TICA), rendering the process more transparent, predictable
and reliable, to the benefit of developers and, ultimately, consumers.

Policy and regulatory framework and incentives

Wind, biomass, hydro, geothermal etc: Green certificates and Feed in
Tariffs
By law, a proportion of the total amount of energy produced or fed into the grid by any one
producer in Italy must be produced from a RES. Following the coming into force of the 6 July 2012
Decree, from 2013, this share will be reduced year on year, until the end of 2015, when the
obligation will be completely removed and the GC regime will cease to exist, to be replaced by a
FiT scheme.
Under the current GC regime, energy generators and importers can meet their obligations by
generating energy from RES and obtaining the required amount of GCs or by purchasing GCs from
another energy producer or the GSE. GCs can be traded through bilateral agreements or via the
dedicated market created and managed by the GSE.
GCs are granted to the owners of recognised RES for a period of 12 years for renewable energy
plants in operation or refitted during the period from 1 April 1999 to the end of 2007, and for a
period of 15 years to those which entered into operation or were refitted after 1 January 2008.
Each GC represents 1 MWh of energy produced. For plants which entered into operation after 1
January 2008, in order to calculate the amount of GCs that will be granted, the power produced by
the renewable plant is multiplied by a coefficient set out in the law which is based on the underlying
technology. For example, the coefficient is 1 for onshore wind farms and 1.5 for offshore wind
farms. GCs are granted to plants which entered into operation before April 2013.
GC prices are established by the market, but are greatly influenced by the value which is set by law
for the surrender of GCs from the market by the GSE. Currently, the price of surrender is equal to
78 per cent of the price calculated on the basis of the Budget Law 2008, which is 180/MW minus
the average price for the sale of electricity during the relevant year. By law, amounts paid by the
GSE from 2011 onwards are 30 per cent lower than those paid in 2010.
GCs will continue to be traded on the market and withdrawn, in stages, by the GSE until the end of
2015.

Transition to a FiT regime

From 2016, the GC market will cease to operate and will be replaced by a FiT scheme. All existing
plants that were authorised by 11 July 2012 and came into operation before 30 April 2013 (30 May
in case of waste treatment plants) will switch to a FiT support regime.
The incentive will be calculated as follows:
Incentive = k x (180 - Re) x 0,78
Whereas:

k is equal to 1 for plants that were operational by 31 December 2007. For plants that became
operational after such date, their level of support will be determined in accordance with the
coefficient introduced for different technologies by Law 2007; and

Re is the price of sale of electricity as determined every year by the AEEG.

Although not expressly stated in the law, it is anticipated that the value of the FiT will vary annually
with the price of electricity (as established by the AEEG).
Generators will no longer be dependent upon the market to realise the benefit of the GCs, the FiT
payments will be made directly by the GSE. As under the GCs regime, plants will continue to sell
their output on the market or through bilateral contracts. The duration of support will not be
affected.
Although the implementation rules have yet to be published, the market participants are so far
looking upon the new regime favourably.

National caps
Decree 6 July 2012 introduced a new incentive regime for renewable generating plants which enter
into operation from 1 January 2013, and included for the first time a cap on national spending for
renewables incentives. In particular, for the years from 2013 onwards the Decree establishes a
maximum of 5.8 billion in public funds which can be used to support renewable plants. In
addition, the Decree sets a cap on public funds which may be used to support the refurbishment
and/or rebuilding of existing plants. The cap does not however apply to solar PV installations.

Obtaining incentives post Decree 6 July 2012

Decree 6 July 2012 establishes alternative ways to gain access to the incentives for new projects
operational after 1 January 2013. There are three basic procedures:

Enrol in the Register of Qualified Plants. The operator of a new plant with <5MW capacity
must apply to GSE to request that the plant be enrolled in the Register of Qualified Plants. This
must be done within a deadline and according to the requirements and procedures set out in
Decree 6 July 2012. The GSE will admit plants to the Register according to a priority criteria
which is established by the legislature and will publish the names of the enrolled plants.

Participate in a Descending Auction. The operator of a new plant with capacity which
exceeds the threshold of 5MW must apply to GSE to obtain permission to participate in a
descending auction, managed by the GSE. This must be done following the requirements and
procedural rules established by Decree 6 July 2012. The applications for participation in the
descending auctions which are accepted by GSE will be ranked according to the applicants best
offer.

Direct access. This option is available only to very small plants. Timing for applications and
conditions for obtaining direct access to incentives are established by Decree 6 July 2012. As long
as the national cap is not reached, plants admitted to the ranking for direct access are granted the
incentive.
Premium incentives are available for certain types of plants, such those using biofuels.
Incentives will be paid for a period that varies depending on technology.

Solar PV and Conto Energia V

In June 2012, the Italian Government approved Conto Energia V, the fifth version of the legislation
governing the renewable energy sector - including the incentives regime that applies to solar PV.
Conto Energia V introduced a specific national caps for incentives for ground mounted solar PV
plants. Under Conto Energia V, very small plants (i.e. those having a capacity of less than 12kW)
will be automatically admitted to the incentive scheme, whilst all other plants must go through a
registration procedure.

Conto Energia V also provides for premium and special tariffs for self-consumption plants, plants
which have sustained works to remove asbestos, plants developed by public entities, and others.

Single authorisation
As in the case of other FER plants, the single authorisation is issued by a regional authority, or by
another delegated authority, in compliance with local environmental and town planning laws. Prior
to the issuance, any public authority having an interest in the matter has a right to issue an opinion
on the proposed project. These opinions are considered in the context of the single authorisation
process. The single authorisation will contain binding conditions for the development of the project.
At the conclusion of the single authorisation procedure, the authorisation is published and can be
appealed by interested third parties for a variety of reasons. The developer has the right to enter into
agreements with local authorities to establish compensatory measures as long as these are in
compliance with criteria set out in the relevant regional legislation.

Interconnection
For interconnection of a new renewable plant to the grid, an agreement must be reached between
the developer and the local grid operator, pursuant to the rules and criteria established by TICA. The
single authorisation will contain instructions on interconnection to which the grid operator must
adhere. The developer or plant owner must enter into an agreement with the grid operator for the
management of the interconnection and the provision of relevant services.
The energy produced can be sold in the market or to the GSE by way of a special agreement. The
revenues generated from such sales are, for now, to be counted in addition to the revenues provided
by the incentive scheme, but from 2013 the FiT for solar PV plants will include both this and the
public incentive revenue.

Public interest
Pursuant to Decree 387/2003, renewable energy plants and related infrastructure are classified as
public interest properties. As such, a developer is entitled by law to expropriate the land required
for the development of such projects in the event that an agreement with the relevant land owner(s)
is not reached amicably. The expropriation procedure is led by the relevant local authority, which
notifies all the interested landowners who, in turn, either enter into an agreement with the developer
or face expropriation of their property in exchange for an indemnity from the developer.

Opportunities and challenges

Italys renewable energy market offers great opportunities for investors and developers. The growth
of this sector will create jobs and stimulate innovation in the overall economy.
As regards the PV sector, more and more roof-top plants, using cutting-edge technologies, will be
developed and Italy is also expected to attract investment in new technologies for the development
of wave and tidal projects, offshore wind projects and waste to energy projects.
Once a significant hurdle, solutions have been or are currently being found to streamline permitting
procedures and cut back the red tape for obtaining the authorisations for new plants. Grid
connection issues are still a weak spot, but at least it is an acknowledged weakness which the
authorities are working to resolve.

Conclusions
As a result of strong government support and co-operation from banks and other financial
institutions, the Italian renewable energy market continues to thrive. The registered capacity of solar
PV has grown at an overwhelming 3000% over the past three years. The wind market has also seen
sustained high levels investment, with the number of installations increasing by 39 per cent over the
last year.
While the rate of developing ground mounted (as compared to roof-top) PV plants has slowed in the
last year as a result of recent cuts in incentives available under the Conto Energia V, all the other
RES are still benefiting from a very favourable public incentive regime. In addition, in recent
months, developers have also noticed improved efficiency in the permitting procedures.
Given the existing government incentive regime, the renewable energy market in Italy looks set for
sustained growth in the following years. The current legislation still provides incentives at an
adequate level for developers who are looking at the Italian renewable energy market with interest.