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FOCUS: PHOTOVOLTAIC AND WIND POWER PLANTS – “RES 1” DECREE APPROVED

This article is an update of the newsletter published on 18 June 2019 on the previous Draft of the RES1 Decree, and takes into account the changes made to the Draft Decree between the version approved in the European Commission and the signed version.

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The RES1 Decree is aimed at promoting the deployment of clean energy power plants in Italy from 2019 through to 2021. The RES1 Decree is part of the European Clean Energy Package 2020-2030.

A. REGULATORY CONTEXT

On January 23rd, 2019, the Ministry of Economic Development, in consultation with the Ministry of Environment, notified the draft of the Inter-Ministerial Decree on the incentive regime for renewable energy power plants (“RES 1”) to the European Commission. The previous Decree (Ministerial Decree of 23 June 2016) had provided financial incentives for large power plants (except for photovoltaic systems) only until 2015 (annual capacity quotas eligible for incentives).

On June 14th, 2019 the EU Commission has given its green light, with decision n. “C(2019) 4498 final”, to the final draft, given its consistency with EU Rules. The final draft has therefore been sent to the Corte dei Conti to be registered before being published in the Italian Official Bulletin (“Gazzetta Ufficiale”).

The “RES 1” Decree provides financial incentives for photovoltaic, wind (and hydro) power plants until 2021, while no incentives are provided for geothermal energy.

Here below, a snapshot of the main points contained in the draft of the Decree.

B.RELEVANT PROCEDURE

1) WHO CAN APPLY? ESSENTIAL REQUIREMENTS

No incentive mechanism is provided for projects and plants that have been supported by GSE (State-owned energy supplier), even within simple Environmental Impact and socio-economic analysis, with the exception of projects and plants for which GSE support’s activities are equally available to all the potentially interested subjects through a transparent and non-discriminatory process, and with the exception of projects and plants of public entities that can access the incentives through the Register procedure (i. e. projects and plants of public entities, which have benefited of GSE’s support are not allowed to participate to reverse bid actions).

The requirements are the following:

  1. only renewable energy plants with a capacity exceeding 20 KW are entitled to have access to this incentive mechanism, subject to the condition that the plants are not located and built in areas classified as “agricultural”;
  2. the possession of the necessary authorisation for the construction and operation of the plant (according to Art. 4 Legislative Decree 28/2011);
  3. the possession of the right of connection to the electricity grid (for all types of plants, both photovoltaic and wind power);
  4. the Plant registration (or update) on the GAUDÌ system validated by the network manager;
  5. Photovoltaic plants shall be new plants and made of new construction parts.

2. PUBLIC PROCEDURE GOVERNING THE ACCESS TO INCENTIVES

Access to the incentives will either be by registration in Registers or participation in competitive Reverse Bid Auctions and the procedures will depend on nominal plant power capacity. Photovoltaic plants and wind power plants with a nominal plant power capacity of less than 1MW shall have access to the incentives mechanism by entering in the Registers. Plants with a nominal plant power capacity exceeding 1 MW shall have access to the incentives mechanism through the Reverse Bid Auctions procedure.

Submission of the applications, together with all the relevant documents according to art. 9, paragraph 2 of the Decree, to be sent to GSE within 30 days after the tender is published. The network manager shall specify the percentage reduction which shall not exceed 30% offered on the relevant tariff. The tariff due is equal to the tariff offered, but it can be further reduced according to art. 7 paragraph 3 of the Decree.([1])

GSE will publish the public tenders as follows:

September 30th, 2019;

January 31st, May 31st, September 30th, 2020;

January 31st, May 31st, September 30th, 2021.

The tenders will be divided into four groups:

Group A: (i) wind power plants; (ii) photovoltaic power plants

Group A-2: (i) photovoltaic power plants with photovoltaic panels installed on buildings, even rural ones, as replacement of the previously existing coverage after eternit or asbestos removal. The surface of the photovoltaic panels shall not be larger than the removed coverage.

Group B: (i) hydro electrical plants, (ii) gas residues from waste treatment plants.

Group C: (i) plants included in Group A(i) or in Group B that have been totally or partially renewed.

3. REGISTERS: plants with a capacity of less than 1MW

Access to Registers is reserved to wind power plants and photovoltaic power plants (Group A) and to photovoltaic power plants with photovoltaic panels installed on buildings, even rural ones, as replacement of the previously existing coverage after eternit or asbestos removal (Group A-2), even if aggregated (meaning composed of more than one plant belonging to the same group specified in art. 8, provided that the unitary capacity exceeds 20 kW and the total capacity is less than 1 MW), with a capacity of less than 1 MW.

Registration is not allowed for upgrade interventions on plants that follow other interventions on the same plant after a period of at least 3 years, if due to the last intervention the total power of the plant is increased over 1 MW.

To summarize, registration in the Registers is allowed in the following cases:

  1. new plants totally renewed and reactivated with a capacity less than 1MW;
  2. plants that have been subjected to upgrade interventions which did not determine a power capacity increase higher than 1MW;
  • plants that have been renewed with power capacity less than 1MW.

Plants can access the incentives provided that the construction process started after their inclusion in a good position in the rankings.

Plants listed in the rankings are admitted to the incentives according to the limits specified in Table 2 included in the Decree.

Should the limit availability be lower than the last plant admitted power capacity, the owner may decide to access the incentives only for the quota of the power capacity covered by the limit.

Power capacity available in each public tender is the following:

Nr.

procedure

Group A
[MW]
Group A-2
[MW]
Group B
[MW]
Group C
[MW]
1 45 100 10 10
2 45 100 10 10
3 100 100 10 10
4 100 100 10 10
5 120 100 10 20
6 120 100 10 20
7 240 200 20 40
TOTAL 770 800 80 120

 

Please note: the transfer to third parties of a registered plant before it enters into service and before the conclusion of the agreement with GSE determines a 50% reduction of the incentives.

Plants listed in the rankings must enter into service following the criteria listed in the following table:

Months
Onshore wind plants 24
Hydro electrical(*) 31
Solar photovoltaic(**) 19
All other sources and types of plants 31
(*) The term is extended up to 39 months in case of hydro-electrical plants with geological works in gallery aimed at improving the environmental impact.

(**) As for the Group A-2 the term is extended up to 24 months. As for totally public plants, the term is increased up to 6 months.

 

4. REVERSE BID AUCTIONS: plants with a capacity exceeding 1 MW

Access to reverse bid auctions is reserved to wind power plants and photovoltaic power plants (Group A) and to photovoltaic power plants with photovoltaic panels installed on buildings, even rural ones, as replacement of the previously existing coverage after eternit or asbestos removal (Group A-2), even if aggregated (meaning composed of more than one plant belonging to the same group – hereinafter “Aggregate” – specified in art. 11, provided that the unitary capacity exceeds 20 kW but is less than 500kW and the total power of the Aggregate exceeds 1 MW), with a capacity exceeding 1MW.

To summarize, access to reverse bid auctions is reserved to:

  1. new plants totally renewed and reactivated;
  2. plants that have been subjected to upgrade interventions which determined a power capacity increase of at least 1MW;
  3. plants that have been renewed, with power capacity exceeding 1MW.

Reverse bid auctions are realized through percentage reduction offers on the relevant tariff which are submitted to GSE with the specification of the reduction offered, which shall neither be lower than 2% nor higher than 70%. Should the GSE receive more than one 70% reduction offer, during the following auction all reduction offers over 80% shall be excluded. Should (during such subsequent auction) the GSE receive more than one 80% reduction offer, during all the following auctions all reduction offers over 90% shall be excluded.

Rankings are formed with regards to the higher percentage reduction offer.

Plants listed in the rankings are admitted to the incentives according to the limits specified in Table 3 included in the Decree.

Should the limit availability be lower than the last admitted plant power capacity, the owner may decide to access the incentives only for the quota of the power capacity covered by the contingent. It is not possible to take part in following reverse bid auctions for the quota of the power capacity not covered by the limit.

Power capacity available in each tender is the following:

Nr.

procedure

Group A
[MW]
Group B
[MW]
Group C
[MW]
1 500 5 60
2 500 5 60
3 700 10 60
4 700 15 60
5 700 15 80
6 800 20 100
7 1600 40 200
TOTAL 5500 110 620

 

Please note, the transfer to third parties of a registered plant before its entry into service and the conclusion of the agreement with GSE determines a reduction of 50% of the incentives.

4.1 FINANCIAL REQUIREMENTS (exclusively set for plants with power capacity exceeding 1MW)

Economic and financial soundness adequate to the initiatives access to incentives is required, which shall be shown by at least one of the following requirements:

  1. Statement from a bank regarding the economic and financial capacity related to the entity of the intervention, with regards to the expected profitability and the economic and financial capacity of the group to which it belongs, or, alternatively, related to the bank’s commitment to financially support the intervention.
  2. Capitalization (in terms of fully paid up share capital and / or in terms of future capital contribution) the minimum value of which is established in relation to the expected investment necessary to build the plant as follows:
  • 10% on the part of the investment up to € 100 ML;
  • 5% on the part between € 100 and € 200 ML;
  • 2% on the part exceeding € 200 ML.
  • Deposit: as a warranty of the quality of their project, while registering themselves to the auction, the plant managers shall pay a temporary deposit (5% of the investment) and then, within 90 days from the communication of the positive outcome of the procedure, they shall pay a final deposit in the form of a guarantee (10% of the investment).

With regards to the Aggregate Plants the capitalization and the deposit are halved.

Plants included in the rankings must enter into service within 24 months (solar photovoltaic plants) or 31 months (onshore wind plants), starting from the communication of the positive outcome of the procedure.

C. REGIME OF PREMIUM

  1. Plants with a power output up to 100 kW that are installed on buildings are entitled to a premium of 10 €/MWh on the quota of net production self-consumed on site on all energy generated, which is due provided that on an annual basis the self-consumed energy is 40% more than the net production of the plant;
  2. In addition to the premium on electric power, plants included in Group A-2 are entitled to a premium of 12 €/MWh, on the total energy produced.
  3. For plants that access incentives through registers and for the realization of which regenerated components were used, the reference tariff is reduced by 20% (according to art. 7, paragraph 2, of the Decree).

Note: premium under lit. C.1 can be summed with premium under lit. C.2.

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For more details, you can contact the Author.

[1] The tariff due is equal to the tariff offered, but it can be further reduced in the following cases:

  1. 1%reduction per year until the plant enters into service, applied for the first time after 15 months from the communication of the positive outcome of the procedures.
  2. if the plant does not enter into service within the time limits set out in art. 10, paragraph 2, e and art. 17, paragraph 7 of the Decree;
  3. in case of capital contributions, according to Annex 1 of the Decree;
  4. in case regenerated components were used according to art. 7, paragraph 11 of the Decree;
  5. if the plant does not enter into service within the time limits set out in art. 10, paragraph 3 of the Decree;
  6. 50% reduction if the plant is transferred to third parties according to art. 9, paragraph 5 and art. 14, paragraph 7 of the Decree.

 

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