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Italy’s new FER 2 Decree: focus on incentives for offshore wind projects13 August 2024

On 12 August 2024, the new FER 2 decree adopted by Italy’s Ministry of the Environment and Energy Security, in agreement with the Ministry of Agriculture, Food Sovereignty and Forestry, was published on the official website of the Ministry of the Environment and Energy Security and entered into force on 13 August 2024 (“FER 2”). It supports electricity production from innovative renewable energy plants and plants with high generation costs such as offshore wind, through incentives that stimulate competitiveness and contribute towards Italy’s 2030 decarbonisation targets.

In particular, FER 2 establishes the terms and conditions under which offshore wind, biogas, biomass, thermodynamic solar, geothermal, offshore and inland floating photovoltaic plants as well as those fuelled by tidal, wave and other forms of marine energy can access the incentives, provided they meet certain innovation and environmental criteria.

Below is a summary of the terms and conditions, with a focus on offshore wind power plants, including those on floating platforms and fixed offshore foundations located at least 12 nautical miles from the coast.

"For plants with a capacity exceeding 10 MW, the GSE will examine the project in parallel with the single authorisation procedure."

Procedures for accessing public procedure incentives

Competitive public procedures.

Access to incentives for offshore wind power plants is reserved exclusively for new constructions, regardless of their capacity. These incentives are granted through online participation in TYPE E-1 competitive public procedures, announced by the Gestore dei Servizi Energetici (“GSE”) for the period 2024-2028. During this five-year period, a power capacity threshold of 3,800 MW is available for offshore wind plants.

Basic tariff percentage reduction

Applicants must offer, in their application, a percentage reduction on the relevant tariff which must not be lower than 2%.

Dates for competitive procedures

The dates on which the competitive procedures take place will be set out in the operating rules approved by MASE within 30 days of FER 2’s entry into force, guaranteeing at least three procedures over the entire five-year period for those falling under type E-1.

Determination of incentive tariffs and payment methods

Basic tariffs and operational lifespan of the plants

The basic tariffs for competitive procedures in 2024 for offshore wind plants is set at €185/MWh. This value is valid for the entire period of entitlement to the incentives and corresponds to the conventional average operational lifespan of these plants, which amounts to 25 years, net of shutdowns due to force majeure, or non-incentivised modernisation or upgrading.

For the following years, the tariffs will be reduced annually by 3%, with the exception of plants with a capacity of up to 300 kW (for which such reduction will apply from 2026).

Payment methods

The GSE pays incentives starting from the date of a plant’s entry into commercial operation, as follows:

a) for plants with capacity not exceeding 300 kW: unless a request is made to apply the scheme outlined below sub b), the GSE will directly provide for the collection and sale of electricity and pay the applicable tariff (in the form of an all-inclusive tariff) on the net production injected into the grid; and
b) for plants with capacity exceeding 300 kW: all energy produced remains at the disposal of the producer who can autonomously provide for its sale on the market. The GSE calculates the difference between the tariff due and the market price of the energy and:

1. where this difference is positive, the GSE pays the incentives by applying a premium tariff to the net production injected into the grid; and
2. where the difference is negative, the GSE adjusts or requests the corresponding amounts from the producer.

Suspension of incentives

Where established by Italian electricity market regulations, the payment of incentives is suspended during hours in which recorded market prices are set at zero or are negative.

Requirements for participating in competitive procedures and accessing incentives

Access requirements

Participation in competitive procedures and access to incentives are subject to compliance with the specific requirements listed below:

a) holding an authorisation title for the construction and operation of a plant (or, alternatively, a favourable environmental impact assessment decision);
b) a definitively accepted grid connection estimate (“preventivo di connessione”);
c) compliance with the minimum environmental and performance requirements (as set forth in Annex 2 of FER 2); and
d) compliance with the following dimensional and construction requirements for offshore wind plants: floating offshore wind plants or offshore wind plants on fixed foundations located at least 12 nautical miles from the coast.

Access to incentives is not permitted under FER 2 to:
  • companies in financial distress (as defined in the Commission Communication Guidelines on State Aid for rescuing and restructuring non-financial firms in distress);
  • applicants for whom one of the causes of exclusion from participation in a tender or concession procedure pursuant to Artt. from 94 to 98 of LD 36/2023 applies;
  • applicants who are subject to the prohibition, disqualification or suspension referred to in Art. 67 of LD 159/2011;
  • companies against whom a recovery order is pending as a result of a previous decision by the European Commission declaring any incentives received were illegitimate and incompatible with the internal market; and
  • plants that started construction works prior to the publication of the ranking related to the competitive procedures under the FER 2.

Maximum time frames for the implementation of interventions and notification of entry into operation of plants

Time of entry into operation

In accordance with FER 2, the “date of entry into operation of a plant” is defined as the date on which, upon completion of the works functional to the operation of the plant, the first operation of the plant is carried out in parallel with the electricity system, as resulting from the system Management of the Unique Production Plant Registers established by ARERA Resolution ARG/elt 124/10 (GAUDÌ). It is anticipated that the date of entry into operation for newly constructed offshore wind power plants will be 60 months from the date of publication of the rankings, net of any “downtime” in the construction of the plant and related works, resulting from force majeure.

Reductions in the tariff entitlement

The applicable tariff is reduced:

  • by 0.5% for each month of delay with respect to the entry into operation, up to a maximum limit of nine months;
  • by 20% of the applicable reference tariff in the event a plant is re-admitted to the incentive tariff mechanisms, unless, within 12 months of the date of publication of the rankings, the applicant communicates to the GSE its waver to the implementation of the intervention; and
  • by 100% for the period between the date of entry into operation of a plant and the first day of the month following the date of any late communication of the entry into operation of the plant, if not communicated within 30 days from the entry into operation.
Commercial entry into operation

Following entry into operation, according to the timing and procedures indicated in the operating rules, an applicant may carry out a start-up and testing phase at the end of which the GSE must be notified of the date of commercial entry into operation, starting from when the incentive period begins.

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"Plants located within the territory of other EU member states or states bordering Italy can participate in the procedures under FER 2 only under certain conditions."

Project selection criteria and admission to incentives

Selection and ranking criteria

The GSE carries out two checks of the documentation submitted for participation in the rankings:

a) before the conclusion of the procedure, verifying the completeness of the application and notifying the applicant of the results; and
b) after the conclusion of the procedure, examining the documentation and, within the deadline for the rankings publications, completing the compliance assessment with the requirements for accessing the incentives.

The rankings are drawn up at the end of each procedure, within the limits of available quotas, taking into account the percentage reduction offered with respect to the reference tariff.

Exceeding the available quota

If applications exceed the power quota available for a specific procedure, the GSE applies the following additional priority criteria to cases where the percentage reduction offered is identical:

a) plants built in eligible areas identified under Art. 20 and 23 of LD 199/2021 (“RED II”). In particular, paragraph 3 of Article 23 of RED II states that disused oil platforms and the area two nautical miles from each platform (as well as ports) are considered suitable for wind power plants with up to 100 MW of installed power, subject to a variant of the Port Master Plan (Piano regolatore portuale), where necessary, to be adopted within six months of the submission of the request; and
b) the earliest date of an application’s completion.

Accelerated procedure for large projects
  • for plants with a capacity exceeding 10 MW, the GSE, following a request from an applicant, will examine the project in parallel with the single authorisation procedure referred to in Art. 5 of Law Decree 28 of 2011;
  • within 30 days from the date of issuance of the authorising title, the GSE will provide the applicant with an eligibility qualification to apply for incentives;
  • qualifying applicants will then be only required to provide the GSE with a reduction offer on the reference tariff;
  • the GSE may enter into agreements with the authorities responsible for issuing the single authorisation (“autorizzazione unica”) in order to facilitate the exchange of documents and efficient analysis of the project(s).

Supplementary provisions

Combining incentives

FER 2 incentives can be combined with aid mechanisms falling into the following categories:

a) exclusively for newly built plants, capital contributions not exceeding 40% of investment cost;
b) guarantee funds and revolving funds; and
c) tax breaks (“agevolazioni fiscali”) in the form of tax credits (“credito di imposta”) or tax relief from business income (“detassazione dal reddito di impresa”) for investments in machinery and equipment.

In such cases, the applicable tariff is adjusted according to the modalities set out in FER 2.

Monitoring

The GSE is required to carry out monitoring activities. If the FER 2 incentives are no longer necessary or sufficient to ensure effective competition or competitive procedures, in accordance with the principles of transparency, protection of competition and non-discrimination, the Minister for the Environment and Energy Security may by decree:

a) adjust the total available power capacity thresholds, on the basis of the rate of implementation of the initiatives and the values of the relevant tariff, including by updating them to rate of inflation between the date of entry into force of the FER 2 and the date of publication of the individual calls for tenders; and
b) adjust the values of the due tariff by providing for the new rate of inflation, in particular if said rate differs from the expected 2%, occurring between the date of publication of the individual calls for tenders and the date of the expected entry into service of the asset.

Operating rules

The Operating Rules, which shall be approved within 30 days of the entry into force of FER 2, will govern:

a) the application models to participate in procedures for accessing incentives;
b) the timetable of procedures to be carried out and those by which any unallocated power is automatically reallocated;
c) public notice schemes in compliance with the principle of “Do Not Significantly Harm” (DNSH);
d) model contracts signed by applicants for the recognition of incentive tariffs;
e) the obligations of beneficiaries;
f) the methods and timing by which any imbalance charges for plants with a capacity not exceeding 300 kW will be transferred to beneficiaries;
g) the timing and methods for the acquisition of electricity measurements and the payment of the related incentives due;
h) the methods for verification and control;
i) the methods by which, two years after the date of entry into force of FER 2, the power thresholds for accessing accelerated procedures provided for therein may be reduced;
j) investigative and management charges; and
k) the operating procedures by which compliance with the provision set forth in Art. 5(5)(d) of RED II, concerning the artful splitting of initiatives is verified.

Participation in auction procedures of installations located in other member states

Plants located within the territory of other EU member states or states bordering Italy with which the EU has entered into a free trade agreement with, which physically export their electricity production to Italy, can participate in the procedures under FER 2 only under certain conditions which include:

  • an agreement with the member state or neighbouring country where the plant is located pursuant to RED II;
  • the agreement must establish a system of reciprocity and the methods with which proof of the physical import of renewable electricity is provided; and
  • the plants must meet all the subjective and objective requirements for plants located on national territory.

The power made available in access procedures for this type of installation is calculated on an ad hoc formula.

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