Alternative Energy & Power 2019 Comparisons

Last Updated July 31, 2018

Contributed By DLA Piper Italy

Law and Practice

Authors



DLA Piper Italy is a global law firm with lawyers in more than 40 countries throughout the Americas, Europe, Africa, the Middle East and Asia Pacific positioning us to help companies with their legal needs around the world. The firm in Italy is made up of over 200 professionals based in Milan and Rome. The team, which is truly international being formed by Italian, US and German lawyers, is able to combine an in-depth knowledge of the domestic market with a multi-jurisdictional approach. The Energy group in Italy is made up of professionals with a significant track-record across the energy markets, with a specific focus on infrastructures and trading, both on renewables projects (wind, photovoltaic, biomasses, hydroelectric energy, waste disposal, etc.) and traditional (natural gas, including LNG, thermoelectric generation and oil). Its lawyers have gained a remarkable know-how on regulatory issues and have provided assistance in some of the largest M&A and financing deals closed in Italy in recent years. The team has a wealth of experience in advising on the structuring and documentation of complex power projects and other structured financings in Italy, and is also familiar with up-to-date structures available for major transactions. Finally, for cross border matters and thanks to the large global DLA Piper network, the team is also adept at working closely with other professionals within the firm, enabling us to assist our clients in any situation and region where lawyers are asked to operate.

The ownership and structure of the power industry is governed by:

  • Legislative Decree No 79, dated 16 March 1999, ("Bersani Decree") implementing the EU directive on the creation of an internal energy market (Directive 96/92/EC, repealed by Directive 2003/54/EC); and
  • Legislative Decree No 387, dated 29 December 2003, implementing the EU Directive for the promotion of electricity from renewable sources and the internal energy market (Directive 2001/77/EC) and related guidelines set out by the Ministerial Decree of 10 September 2010; and
  • Legislative Decree No 28, dated 3 March 2011, implementing the EU Directive 2009/29/CE and 2009/30/CE for the promotion of electricity from renewable sources and the internal energy market.

Production, import, export, purchase and sale of electricity are free and are not subject to any state-reserve regime.

Energy transmission and distribution is a state-reserved activity subject to concession, that can be owned by state-owned entities or by a combination of state-owned and privately-owned entities with the local authorities, or by private investor(s).

Unbundling requirements apply to companies operating in one or more activities in the electricity and natural gas sectors. Distribution and sale to final customers must be provided by different companies.

The main generation companies listed by share contribution to national generation are:

  • Enel (22.1%);
  • Eni (9.1%);
  • Edison (7.7%);
  • A2A (5.1%);
  • Engie (3.5%);
  • Czech Gas Holding N.V. (3.5%);
  • Iren (3.1%);
  • Tirreno Power (2%);
  • ERG (2.2%);
  • Edipower (2.4%);
  • others (42.3%).

Electric transmission is carried out by the following state-owned companies:

  • Terna S.p.A.;
  • Terna Rete Italia;
  • Rete9;
  • Agsm Trasmissione;
  • Mincio Trasmissione;
  • Edyna Transmission;
  • Arvedi Trasmissione;
  • Seasm;
  • El.It.E;
  • Nord Energia;
  • Eneco Valcanale 10.

The transmission system operator (TSO) role is separate from the transmission asset owner. Terna S.p.A. performs the TSO role while Terna Rete Italia owns and manages most (99.7%) of the transmission assets.

Electric Distribution based on the volume of energy distributed are:

  • E-distribuzione (Enel group) (85%);
  • Unareti (A2A group) (4.2%);
  • Areti (Acea group) (3.7%);
  • Ireti (Iren group) (1.3%).
  • others (1%).

The main supply companies include:

  • Enel;
  • Eni;
  • Acea;
  • A2a;
  • Edison;
  • Iren;
  • Hera;
  • Dolomiti energia;
  • Gdf suez;
  • Sorgenia;
  • Agsm Verona;

Foreign investment is not subject to any particular restriction or protection. Several priority criteria are applicable in case of technical, financial and honourability requirements. 

Golden Powers

The Italian Law Decree No 21 of 15 March 2012, as subsequently amended (the “Law Decree”), grants the Italian Government special powers (so-called “golden powers”) with respect to certain transactions and extraordinary operations listed therein involving companies holding assets deemed of strategic importance in the fields of energy, transport and communications.

With specific reference to the energy sector, Article 2, paragraphs 2 and 5 of the Law Decree identifies two kind of transactions that may trigger the exercise of golden powers:

  • any resolution, deed or transaction carried out by a company holding assets deemed of strategic importance in the energy field (also called "strategic assets") whenever any such resolution, deed or transaction entails change of the ownership, control, availability or destination of use of such strategic assets;
  • the purchase – at any title – by a non-EU entity of controlling stakeholding of companies owning strategic assets such as to cause a stable establishment of the purchaser as a result of the "control" acquired over the target company.

With specific reference to the energy sector, the strategic assets relevant for the purposes of the exercise of golden powers under the Law Decree are identified under Article 2 of Presidential Decree No 85 of 25 March 2014 ("Presidential Decree") as the following:

  • the national gas transmission network, compressor stations and dispatching centres, as identified pursuant to Article 9 of Legislative Decree No 164 of 23 May 2000, as amended, as well as gas storage plants;
  • the infrastructures necessary for the import of energy and gas from other countries, as well as onshore and offshore gas regasification terminals;
  • the national energy transmission grid and the relevant control and dispatching centres;
  • the management activities related to the usage of the infrastructural networks referred to in the three bullet points above.

As wind farms are not expressly indicated within any of the categories provided by the Presidential Decree to qualify as strategic assets, the special discipline set forth under the Law Decree would not be applicable in the context of the offers and thus no notification to the PCM following acquisition will be required. 

Antitrust

Both EU and national merger control rules provide for certain dimensional thresholds (based on the turnover of the “undertakings concerned”), the triggering of which gives rise to the obligation to notify the concentration to the European Commission or the Italian Competition Authority prior to their implementation.

According to Article 3(1) of Regulation No 139/2004 (EU Merger Regulation), the concept of concentration encompasses those operations which bring about a lasting change of control in the undertakings concerned and, as such, a lasting change in the structure of the market.

In particular, a concentration may result from “the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more undertakings”.

The same definition is valid under the Italian Competition Law (Article 5(1) of Law No 287/1990).

At EU level, a concentration must be notified where (first set of thresholds):

  • "the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR5,000 million; and
  • the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State".

A concentration that does not meet the first set of thresholds must be notified where (second set of thresholds):

  • "the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR2,500 million;
  • in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR100 million;
  • in each of at least three Member States included for the purpose of point (b) [immediately above], the aggregate turnover of each of at least two of the undertakings concerned is more than EUR25 million;
  • the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR100 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State”.

At the Italian level, according to Article 16 of the Italian Competition Law, concentrations must be notified to the Italian Competition Authority prior to their implementation where the following cumulative conditions are fulfilled:

  • the combined aggregate domestic turnover of all the undertakings concerned exceeds EUR495 million; and 
  • the aggregate domestic turnover of each of at least two of the undertakings concerned exceeds EUR30 million.

The turnover to be taken into consideration under EU and Italian merger control rules comprises “the amounts derived by the undertakings concerned in the preceding financial year from the sale of products and the provision of services falling within the undertakings’ ordinary activities after deduction of sales rebates and of value added tax and other taxes directly related to turnover” (Article 5(1) of the EU Merger Regulation).

In order to calculate the relevant turnover, it is important to identify the undertakings concerned.

With reference to the acquisition of sole control (which we assume would be the case at issue), undertakings concerned will be the acquiring undertaking (ie, its group, up to the last parent company) and the target undertaking (only the turnover of the undertaking/assets that are to be acquired should be taken into consideration and not all the turnover of the seller).

The central authority is the Italian Regulatory Authority for Energy, Networks and the Environment (Autorità di Regolazione per Energia Reti e Ambiente, ARERA) which is an independent body created under Italian Law No 481 of 14 November 1995 for the purposes of protecting consumers' interests and promoting the competition, efficiency and distribution of services with adequate levels of quality, through regulatory and control activities. Initially limited to electricity and natural gas, the authority's scope of action has been extended by means of some regulatory interventions.

ARERA regulates the areas of competence, through rulings (resolutions) and, specifically, for the energy sectors, it establishes the tariffs for the use of infrastructures and guarantees equal access for operators and defines the minimum quality levels for services in terms of the technical and contractual aspects and the service standards. In addition, ARERA encourages the rational use of energy, especially with regard to the dissemination of energy efficiency and the adoption of measures for sustainable development and monitors, supervises and controls the service quality, safety, access to networks, tariffs, incentives for renewable and similar sources, including in collaboration with the Guardia di Finanza (Tax Police) and other bodies, including the Cassa per i Servizi Energetici e Ambientali (Fund for Energy and Environmental Services, CSEA) and the Gestore Servizi Energetici (Energy Services Manager, GSE). It can impose sanctions and assess and possibly accept commitments by companies to reinstate the adversely affected interests (Italian Legislative Decree No 93/11).

Pursuant to ARERA Deliberation No 111/2006, Terna S.p.A. is entitle to manage the flows of electricity – such service is known as "dispatching service" ("servizio di dispacciamento"). For this purpose, the owners of power plants have to enter into a specific agreement with Terna S.p.A. for the regulation of the dispatching service. The successful agreement of the contract for the dispatching service and the contract for the transmission service, either directly or through a third party, is a prerequisite for injecting/withdrawing electricity into the national grid. The contract covers the rights and obligations of the user of the dispatching service and of the grid operator regarding the dispatching service, and includes the obligation of the user to provide a suitable guarantee.Inthe event of balancing, Terna S.p.A. has the task of rebalancing the system, also finding the necessary resources on the MSD, in order to ensure the balance between the energy injected and withdrawn from the National Grid. The related cost – the "balancing costs" ("costi di sbilanciamento") – are charged by Terna to the user of the dispatching service who made the errors in the forecast, in compliance with Article 38 and Deliberation 111/2006.

The Energy National Strategy (SEN 2017) is a ten-year governmental plan for the sector, setting out the core targets of the energy strategy:

  • reducing final energy consumption by a total of 10 Mtoe by 2030;
  • reaching a 28% share of renewables in total energy consumption by 2030, and a 55% share of renewables in electricity consumption by 2030;
  • strengthening supply security;
  • narrowing the energy price gap;
  • furthering sustainable public mobility and eco-friendly fuels;
  • phasing out the use of coal in electricity generation by 2025.

The above targets will be pursued by supporting the energy efficiency investments, renewable energy plants and e-mobility, as well as the development of gas interconnectors and other infrastructures that will make Italy a European gas hub.

See 1.6 Material Changes in Law or Regulation, above, and 3.1 Principal Climate Change Laws and/or Policies, below.

With Law Decree No 91 of 24 June 2014, converted into Law No 116 of 11 August 2014 and entered into force on 21 August 2014, the Italian legislator introduced several provisions that affected both the amount of feed-in tariffs already granted to photovoltaic plants with nominal power higher than 200 kW and the respective payment modalities.

In particular, Article 26 paragraph 3 of said Law Decree 91/2014, as converted, provides that, by 30 November 2014, owners of photovoltaic plants with a power higher than 200 kW must choose one of three options of tariff reduction applicable from 1 January 2015. In more detail, feed-in tariffs awarded to photovoltaic plants with a nominal capacity above 200 kW were recalculated pursuant to one of the following three alternative mechanisms starting from 1 January 2015, according to the operators' choice, to be notified to the GSE by 30 November 2014. 

Option A provides that the feed-in tariffs already granted for the period of 20 years will be reduced by the percentages listed in Annex 2 to the Law Decree No 91/2014 in exchange for a simultaneous extension of the incentive period from 20 to 24 years (see Article 26 paragraph 3 lit a of the Decree). The reduction rate is established in relation to the length of the remaining incentive period under the specific agreement (convenzione) entered into with the GSE. In particular, feed-in tariffs are spread over a period of 24 years (running from the initial operation of the plant) and reduced by the corresponding percentage.

Option B – the so called "butterfly-option" – provided for the revision of the current incentive period according to the following mechanism: feed-in tariffs will be reduced by a certain percentage in a first phase and increased by the same ratio in the subsequent phase, without any extension of the original incentive period of 20 years (see Article 26 paragraph 3 lit b of the decree). The percentages of the feed-in tariffs' reduction and increase have been specified by the GSE in its technical guidelines published on 3 November 2014 on the basis of the remaining years and months of the respective incentive period of the relevant plant. Similar to Option A, Option B entails the payment of the same overall amount of the granted feed-in tariffs, since the lower payments in the first phase will be equalised by the higher payments in the second phase of the incentive period.

Option C consists of a fixed reduction of the feed-in tariffs as originally granted by the GSE as from 1 January 2015 (Article 26 paragraph 3 lit c of the decree). This option does not entail an extension of the original incentive period of 20 years. The percentages are as follows:

  • 6% for plants with a power between 200 kW and 500 kW;
  • 7% for plants with a power between 500 kW and 900 kW;
  • 8% for plants with a power higher than 900 kW.

In case no option was been chosen by the respective operator by 30 November 2014, Option C was automatically applied by the GSE with regard to an operator.

The legitimacy of the decree was challenged by the Lazio Regional Administrative Court and the case was referred to the Italian Constitutional Court (during which time any pending dispute was suspended).

On 7 December 2016, the court issued a press release stating that the decree is compliant with the constitution and rejecting the unconstitutionality claims. The decision of the Constitutional Court, which is the highest judicial authority in the country, is final and not subject to any kind of scrutiny or appeal by any party before any other Italian court/judge.

On 24 January 2016 the Italian Constitutional Court published its ruling. In a nutshell, the court stated that there is no violation of the legitimate expectation of investors given that the content of the decree is reasonable, limited in its scope, and non-arbitrarily foreseeable.

Investors are concerned about the impact on the renewable sector as a whole because they see the decree and the decision to uphold it as potentially opening the floodgates to further cuts. However, the social purpose relevant to sustainability and the costs burden has already been addressed and taken into account in the new supportive scheme for renewable solar energy sources. The decree has therefore accomplished the envisaged target (allegedly adjusting excessive sector returns on investments and reducing the energy costs burden on small and medium enterprises) so that overall the system is now balanced and well-functioning and no reasons for new cuts are deemed to exist.

The electricity market, namely the place where transactions involving electricity are conducted, was set up in Italy as a result of Legislative Decree No 79, dated 16 March 1999, implementing the EU directive on the creation of an internal energy market (Directive 96/92/EC, repealed by Directive 2003/54/EC) and the Ministerial Decree of 21 September 2016.

The electricity market is divided into:

  • Day-Ahead Market – MGP (energy market);
  • Intra-Day Market – MI (energy market);
  • Daily Products Market – MPEG (energy market);
  • Ancillary Services Market – MSD.

The Day-Ahead Market (MGP) hosts most of the electricity sale and purchase transactions.

In the MGP, hourly energy blocks are traded for the next day. Participants submit bids/asks where they specify the quantity and the minimum/maximum price at which they are willing to sell/purchase. The results of the MGP are announced by 12.55pm of the day before the day of delivery. Bids/asks are accepted after the closure of the market sitting based on the economic merit-order criterion and taking into account transmission capacity limits between zones. Therefore, the MGP is an auction market and not a continuous-trading market.

All the supply offers and the demand bids pertaining both to pumping units and consuming units belonging to foreign virtual zones that are accepted in the MGP are valued at the marginal clearing price of the zone to which they belong. This price is determined, for each hour, by the intersection of the demand and supply curves and is differentiated from zone to zone when transmission capacity limits are saturated. 

The accepted demand bids pertaining to consuming units belonging to Italian geographical zones are valued at the “Prezzo Unico Nazionale” (PUN – National Single Price); this price is equal to the average of the prices of geographical zones, weighted for the quantities purchased in these zones.

Gestore dei Mercati Energetici ("GME") acts as a central counterparty. In the MSD, Terna procures the resources it needs to manage and control the system (solving intra-national congestions, creating energy reserves, real-time balancing).

The Intra-Day Market (MI) allows market participants to modify the schedules defined in the MGP by submitting additional supply offers or demand bids. The MI takes place in seven sessions. Supply offers and demand bids are selected under the same criterion as the one described for the MGP. GME acts as a central counterparty.

The Daily Products Market (MPEG) is the venue for the trading of daily products with the obligation of energy delivery.

The MPEG automatically admits all participants in the electricity market. Trading in the MPEG takes place in continuous mode.

The MPEG allows trading daily products with:

  • “unit price differential” – for which the price indicated in the preparation of bids/asks, and so the price determined on completion of the trading phase, is the differential expression compared to the PUN, to which participants are willing to trade such products;
  • “full unit price” – for which the price indicated in the preparation of bids/asks, and so the price determined as a result of the trading phase, is the expression of the unit value of electricity exchange subject of the traded contracts.

Participants of the electricity market that are also participants of the PCE, enabled to register translations on the electricity accounts available, can buy and sell daily products in the MPEG.

GME acts as a general counterparty. The sessions of the MPEG take place on several weekdays.

The Ancillary Services Market (MSD) is the venue where Terna S.p.A. procures the resources that it requires for managing and monitoring the system relief of intra-zonal congestions, creation of energy reserve, and real-time balancing. In the MSD, Terna acts as a central counterparty and accepted offers are remunerated at the offered price (pay-as-bid).

There was a strong reduction in net imports in 2016, mainly since September, due to the French nuclear plants outages. The market registered a reduction in import to Italy from France and Switzerland and an increase in export to these countries.

New Montenegro-Italy and France-Italy interconnections are expected to be commissioned by Terna in 2019. An Italy-Austria interconnection is also expected, but so far without an official deadline.

Based on official reports of 2015, the percentages of the principal sources of electricity supply – coal, nuclear, natural gas, imports, diesel, hydro, wind, solar, geothermal, tidal, biofuel, biomass, etc – are as follows:

  • coal – 15%;
  • natural gas – 39%;
  • oil and other – 7%;
  • hydro – 17%;
  • other renewables (wind, solar, geothermal, tidal, biofuel, biomass) – 22%.

Italy abandoned nuclear power following a referendum in the wake of the 1986 Chernobyl disaster.

The national incumbent is still the main player, with a 25.7% market share; this is a stable share, being 27% in 2014. The first six operators (ie, Enel, Eni, Edison, A2A–Edipower, Engie and EPH) produce nearly 50% of all generated Italian power.

There are no concentration limits regarding percentage of electricity supply.

The Autorità Garante della Concorrenza e del Mercato (AGCM) has responsibility for market surveillance and enforcement. Its scope and powers include conducting investigations, compelling the production of records, entry to property, searching and seizure of records, conducting interviews for the purpose of obtaining evidence, and prosecutorial powers.

Climate change has become a central issue in terms of the world’s energy consumption. The Paris Agreement on Climate Change of December 2015 defines a plan of action to keep global warming below 2°C, marking a fundamental step towards decarbonisation.

In 2016, in a global context of economic recovery and low prices of raw materials, Italy proceeded on its path to strengthen its environmental sustainability, reduce its greenhouse gas emissions, and improve the efficiency and security of its energy system. Renewables covered 17.5% of gross final energy consumption, energy efficiency continued to grow, the GDP energy intensity dropped by 4.3% as compared to 2012, Italy’s dependence on foreign supply sources continued to fall, energy imports were down by 7% versus 2010, while there is still an energy cost gap between Italy and the EU, which puts Italy at a disadvantage.

More specifically, such policies have been implemented in the National Energy Strategy (Strategia Energetica Nazionale – SEN 2017) which is the most significant programme instrument that allows the government to identify – usually on a five-year basis – all priorities and necessary measures in order to grant, inter alia, safe energy production, diversification of energy sources and geographical production areas, improvement of competitiveness of the energy national system, development of infrastructures in the perspective of the European internal market, growth of investments in the energy sector and participation in international agreements on technological co-operation and, last but not least, environmental sustainability in the production and uses of energy for the reduction of the gas emissions. Following a 2011 referendum, SEN has no longer concerned nuclear energy, since the nuclear programme has been closed.

SEN 2017

SEN 2017 is currently in force in Italy, having been approved with an Inter-ministerial Decree dated 10 November 2017. In particular, SEN 2017 lays down the targets to be achieved by 2030, in accordance with the long-term scenario drawn up in the EU Energy Roadmap 2050, which provides, inter alia, for a reduction of emissions by at least 80% from their 1990 levels alongside a projected growth of world energy consumption by 18% by the year 2030. These targets are:

  • Enhancing Italy's competitiveness by way of actions to narrow cost and price gaps for customers and enterprises, in a global context of rising energy prices.
  • Achievement of all the environmental and decarbonisation targets by 2030 in sustainable ways, in line with the targets set by COP21. The main strategic actions are the following:
    1. promotion of the dissemination of low-emission renewables;
    2. promotion of energy-efficiency projects that maximise sustainability benefits while keeping system charges low;
    3. acceleration of the decommissioning of coal-fired thermal power plants by 2025, decarbonising of the energy system; and
    4. a 100% increase of investments in research and development of clean-energy technologies.
  • Improvement of security and adequacy of energy systems, as well as the flexibility of gas networks and power grids, by way of:
    1. integrating a growing amount of renewable energy sources in electricity, by strengthening and fostering the evolution of networks, grids, and markets towards smart, flexible, and resilient configurations;
    2. managing the variability of natural-gas flows and demand peaks, and diversifying supply sources, in the complex geopolitical context of the countries from which Italy imports gas and of the increasing integration of European markets; and
    3. improving the cost-effectiveness of the energy expenditure thanks to technological innovation.

Furthermore, SEN 2017 provided different priorities to be considered in order to achieve the three aforementioned targets, as outlined below.

Alternative Energy Priorities

Renewable Energy Sources

Italy has already achieved its renewable energy sources targets for 2020, with a penetration of 17.5% in total energy consumption in 2015 versus a 17% target to be reached by 2020. The target of a 28% share of renewable energy sources in total energy consumption by 2030 is ambitious but feasible, to be broken down as follows:

  • 55% of renewables in electricity by 2030 (33.5% in 2015) by way of: (i) promoting long-term contracts for large-scale power generation; (ii) enhancing self-consumption for small-scale power generation; (iii) streamlining the permitting process for repowering wind and hydro plants; (iv) maintaining existing power generation from bioenergy sources; and (v) increasing hydro power generation with innovative projects in existing large-scale plants;
  • 30% of renewables in heating and cooling by 2030 (19.2% in 2015) by way of promoting heat pumps and mitigating biomass facilities emissions;
  • 21% of renewables in transport by 2030 (6.4% in 2015) by way of promoting the transition towards electricity and fuels having low lifecycle greenhouse gas emissions and low land use (advanced biofuels).

Energy Efficiency

The target is to foster low energy-consumption initiatives so as to achieve 30% of energy savings by 2030 with respect to their trend in 2015, and give impetus to the Italian energy efficiency industry. Specific actions are identified for residential, transport, service and industrial sectors.

Decarbonisation

The aim is to speed up the decarbonisation of the energy system, starting from the use of coal in power generation, and to progressively introduce measures spanning the entire energy process. The envisaged phasing out of coal-fired thermal power plants by 2021 is feasible on the basis of a plan for the revamping of current sites and for managing the growing share of renewables in electricity, to be supplemented with additional actions on infrastructures, plants and facilities.

Energy Security in the Power System

The target is providing the power system with innovative instruments and infrastructures, in order to guarantee its adequacy and flexibility in a context of growing penetration of renewables. The actions identified are: (i) the launching of the capacity market in 2018 to guarantee system adequacy, maintaining the still necessary gas-fired capacity (with priority to flexible capacity), and integrating new resources into the market (cross-border renewable energy power-generating units, storage systems, active demand side); (ii) the further strengthening of interconnections with neighbouring countries; (iii) the increasing of the capacity of storage systems; and (iv) the implementation of grid projects to integrate renewables, increasing the resilience of the system.

Energy Security in the Natural Gas System

Natural gas will continue to play a key role in the energy transition, representing a back-up resource for the power system. The strategy deems it vital to: (i) diversify supply sources, by optimising the use of the existing infrastructures, and develop new connection infrastructures; (ii) improve the flexibility of supply sources, by strengthening gas pipelines and the peak-demand security margin; and (iii) co-ordinate national contingency plans, including mutual support between EU countries. The actions identified are: (i) the promotion of the construction of new gas import pipelines by private parties, in accordance with market principles, in order to diversify supply sources and routes; (ii) the holding of auctions (instead of using tariffs) for LNG regasification services, in order to make the use of Italian gas terminals more attractive; and (iii) the conversion of local networks of LPG distribution and propane-air mixtures in Sardinia to natural gas from regasified LNG.

Electricity and Gas Markets

The target of narrowing the gap between Italian final electricity prices and European final prices will be achieved through the reduction of the average cost of power generation from renewable energy sources, the convergence of power generation mixed across European countries, the natural gas cost alignment, the full liberalisation of final markets and the progressive reduction of system charges.

Oil Market and Logistics

The demand for oil products shrank progressively from 2005 to 2015, leading to the conversion of refineries into bio-refineries and storage systems. The target in this area is to decrease primary consumption of oil products by 13.5 Mtoe by 2030 as against its 2015 levels.

Research and Innovation

Italy is among the promoters of Mission Innovation – a global initiative resulting from COP21 to launch leading-edge clean-technology projects – and committed to doubling the value of public resources allocated for investments in clean-energy research and development from EUR222 million in 2013 to EUR444 million in 2021.

Governance and Regulation

The strategy provides for the setting-up of a special steering committee, composed of representatives of all the main entities involved in the processes. Additionally, to ensure transparency in monitoring the implementation of the strategy, the government will have to present a yearly report to the parliament on the status of implementation of the strategy, and on the actions taken to achieve its targets, as well as undertake a participative process of revision of the strategy every three years.

To achieve European targets, the Italian government has introduced a number of legislative schemes, decrees and support mechanisms for renewable energy, including:

  • preferential access to the grid;
  • feed-in tariff schemes;
  • capital subsidies for equipment;
  • income tax credits for installation;
  • incentives for self-consumption.

The Ministerial Decree of 23 June 2016 set out some incentives for renewable energy facilities commissioned after 1 January 2013 (other than solar photovoltaic plants). The award procedures allow 20 years of incentives including:

  • all-inclusive feed-in tariffs (with limited exceptions covering duration in hydro, geothermal and solar thermodynamic installations) composed of the incentive and price for the electricity produced if the facility has a capacity under 500 kW; or
  • a standard feed-in tariff for all other plants, calculated based on the following formula: base tariff + premium - hourly zonal price. The base tariff is set out in the decree for each energy source and type of installation. For big plants, the base tariff is determined by an allowance offered at a Dutch auction.

In addition, Italy implemented Directive 2014/94/UE by means of Legislative Decree No 257 of 16 December 2016 (AFID Decree) providing mandatory objectives concerning electricity and natural gas (LNG and CNG) fuels and elective objectives concerning hydrogen (experimental projects only) and LPG.

The Italian legislative decree provided specific prescriptions for the diffusion of refuelling point in residential buildings and along high-speed roads in order to promote the utilisation of electric vehicles outside city centres.

Each region shall implement the AFID Decree. With this aim, on 6 April 2017 the Italian Conference State-Region published the guidelines, allowing the diffusion of recharging points both in disadvantaged areas and, mainly, in already existing infrastructures. The project shall be filed by 31 December 2018 or by 31 December 2020 (depending on the capacity) and realised within 24 months from its filing.

Finally, on 2 March 2018 the European Commission approved the new decree of the Ministry of Economic Development (Ministero dello Sviluppo Economico), together with the Ministry of Environment (Ministero dell'Ambiente e della tutela del Territorio e del Mare), setting out the supporting measures for the production of bio-methane from biogas ("Bio-methane Decree"). It applies to:

  • new bio-methane production plants which began operation after the entry into force of the Bio-methane Decree and before 21 December 2022;
  • existing biogas production and utilisation plants converted, either partially or totally, to produce bio-methane, after the entry into force of the Bio-methane Decree and before 21 December 2022;
  • existing plants already qualified, or in the process of being qualified pursuant to the Ministerial Decree of 5 December 2013, upon request to be made to the GSE within 30 days from the entry into force of the Bio-methane Decree.

The incentives are granted to the bio-methane fed into the distribution and transport systems of natural gas, including fuel distribution stations (either connected or not to the public gas distribution networks). The incentive mechanism is based on the obligation for the producers of gasoline and diesel to supply also a minimum quantity of biofuels. From the year 2018 such obligation is broken down into different minimum percentages for biofuels, advanced biofuels and other advanced biofuels other than bio-methane. The bio-methane producers are entitled to certificates attesting the feeding into the gas network of bio-methane ("CICs"). The CICs can be purchased by the producers of gasoline and diesel to comply with their minimum bio-fuel supply obligations. CICs are issued on a monthly basis and can either be delivered to the GSE or sold on the exchange managed by the GME. In addition to the feeding into the gas network by the producers, the Bio-methane Decree provides for the off-take of the advanced bio-methane and advanced biofuels by the GSE for ten years at a reference price equal to EUR375/CIC (less the costs invoiced by the GSE for the off-take).

The construction and operation of generation facilities is governed by:

  • Legislative Decree No 79, dated 16 March 1999 ("Bersani Decree"), implementing the EU directive on the creation of an internal energy market (Directive 96/92/EC, repealed by Directive 2003/54/EC); and
  • Legislative Decree No 387, dated 29 December 2003, implementing the EU Directive for the promotion of electricity from renewable sources and the internal energy market (Directive 2001/77/EC) and related guidelines set out by Ministerial Decree of 10 September 2010; and
  • Legislative Decree No 28, dated 3 March 2011, implementing the EU Directives 2009/29/CE and 2009/30/CE for the promotion of electricity from renewable sources and the internal energy market.

Power plants with a capacity higher than 300 MW come under the competence of the Ministry of Economic Development, whereas power plants with a lower capacity come under the competence of the regions or its delegated territorial entity (ie, province or municipality). Therefore, each region has introduced additional regulations to rule details of the permitting procedures.

Under Legislative Decree 387/2003 and related guidelines set out by the Ministerial Decree of 10 September 2010, renewable energy plants are authorised through the single authorisation regime (Autorizzazione Unica) granted by the relevant region or province.

The regime applies to plants with a capacity higher than the following thresholds:

  • wind – 60 kW;
  • photovoltaic – 20 kW;
  • hydroelectric – 100 kW;
  • biomass – 200 kW;
  • gas from waste/depuration treatments and biogas – 250 kW.

The single authorisation is issued after a local authority meeting in which all the relevant entities examine the various public interests involved. The authorisation is then granted within 90 days after the completion of the sub-procedure concerning the environmental assessment of the project. Before this regime, several permits and authorisations have to be obtained to build a renewable energy plant.

The issuance of the single authorisation is a free activity and it is not subject to the prior participation in public tender.

Environmental and socio-economic impacts, cultural goods and landscape protection and public health safety are the main factors that are taken into consideration in the decision to approve or not approve a generation project. The negative opinions issued by the competent authorities on these matters are mandatory and usually lead to the denial of the single authorisation.

Public participation and input is permitted during the sub-procedure concerning the environmental impact assessment of the project.

For plants with capacity lower than the above thresholds, a simplified authorisation procedure applies. Regions can increase the threshold for the simplified authorisation procedure up to 1 MW.

The single authorisation covers not only the construction and operation of the plant, but also the construction and operation of the relevant interconnection facilities.

For non-renewable electricity generation source plants with a capacity over 300 MW, the single authorisation is issued by the Ministry of Economic Development.

The typical terms and conditions imposed in the single authorisation concern the mandatory terms to commence and complete the works and the prohibition to carry out variations to the project during construction without the prior approval of the relevant authorities.

Any postponement of the said terms shall be approved by the competent authority which has issued the single authorisation. Usually the competent authority are reluctant to approve a postponement of the said term if the reason is because of a force majeure event.

The process to obtain a variation of the single authorisation is subject to a simplified procedure only if the variation can be qualified as “non-substantial” (eg, variations which do not entail a change in the functioning of the facility or a repowering of it). Otherwise, the process to obtain a variation entails a new procedure similar to the one for the granting of the single authorisation.

As generation facilities are of public interest, the rights to the surface of land for the purpose of constructing and operating a generation facility can also be obtained through the expropriation procedure. The expropriation procedure determines the compulsory acquisition of the ownership of the land subject to payment of compensation. The quantum of compensation takes into consideration the market and cadastral value of the land. The private owner of the land can challenge the quantum of compensation in front of the court. 

The single authorisation usually requires the issuing of a bank or insurance guarantee to cover the costs of decommissioning over the physical life of the facility, or at the end of its physical or economic life. Depending on the specific regional legislation, the amount of the guarantee is subject to updating every five years.

The construction and operation of transmission lines and associated facilities with a power higher than 150,000 V are governed by Royal Decree No 1775 of 11 December 1933, whereas those with a power lower than 150,000 V are governed by Regional Laws or Regulations, according to the transfer of competences set out by Presidential Decree No 616 of 24 July 1977.

Additional laws and regulations govern the engineering, projection and construction of the transmission lines, especially in case of air transmission lines (Law No 339 of 28/06/1986, Ministerial Decree No 449 of 21/3/1988, Ministerial Decree No 16/01/1991, and Ministerial Decree 5/08/1998).

The construction and operation of transmission lines belonging to the National Transmission Grid and related infrastructures are subject to the issuance of a single authorisation (Autorizzazione Unica) granted by the Ministry of Economic Development together with the Ministry of Environment, upon prior agreement with the relevant region, following a single procedure whereby all interested public entities are invited to participate and to express their own opinion.

If the electrical infrastructures to be approved are part of the National Electric Transmission Grid Development Plan approved by the Ministry of Economic Development, a Strategic Environmental Assessment pursuant to Legislative Decree No 152 of 3 April 2006 should have been already carried out as a pre-condition for the approval of the plan.

If the electrical lines are equal or longer than 15 km and shorter than 40 km, the authorisation procedure requires the prior obtainment of the Environmental Impact Assessment. If the electrical lines are equal or longer than 3 km, the Environmental Screening at regional level is applicable.

Public participation and input is permitted during the sub-procedure concerning the environmental impact assessment of the project.

Environmental and socio-economic impacts, landscape protection and public health are usually the factors that can prevent the issuance of the authorisation.

The typical timeline to obtain the single authorisation is 180 days (excluding suspension of the procedure for the delivery of additional documents or for further assessments).

The typical terms and conditions imposed in the single authorisation concern the mandatory terms to commence and complete the works and the prohibition to carry out variations to the project during construction without the prior approval of the relevant authorities.

Any postponement of the said terms shall be approved by the competent authority which has issued the single authorisation. Usually the competent authority are reluctant to approve a postponement of the said term if the reason is because of a force majeure event.

The process to obtain a variation of the single authorisation is subject to a simplified procedure only if the variation can be qualified as “non-substantial” (eg, variations which do not entail a change in the location of the transmission lines). Otherwise, the process to obtain a variation entails a new procedure similar to the one for the granting of the single authorisation.

As transmission lines are of public interest, the rights to the surface of land for the purpose of constructing and operating a transmission line can also be obtained through the expropriation procedure. The expropriation procedure determines the compulsory acquisition of the ownership of the land subject to payment of compensation. The quantum of compensation takes into consideration the market and cadastral value of the land. The private owner of the land can challenge the quantum of compensation in front of the court.

Transmission entities have exclusive rights to construct and operate transmission facilities within a defined territory. The exclusive rights are obtained by the law in case of the transmission line belonging to the National Transmission Grid (ie, Terna S.p.A.), or in case of the transmission lines belonging to the distribution activity by public tender pursuant to the Bersani Decree.

Tariffs for the transmission of electricity are set by ARERA.

The TRAS transmission tariff (tariffa per il servizio di trasmissione) covers the costs of energy transmission through the national grid and is charged to end-users as part of their bill (except for low voltage domestic users).

The tariff has a two-tier structure:

  • the TRASE – transmission tariff applied on the energy at point of delivery to non-domestic and domestic high voltage users, charged as euro cents per kWh;
  • the TRASP – transmission tariff based on connection capacity (potenza impegnata), charged only to high voltage users as euros per kW per year.

The transmission tariff for any particular year is determined by ARERA by 30 November of the previous year.

ARERA sets out the fees for the transmission, distribution and metering of electricity to be paid by users.

Transmission, distribution and metering costs are covered through fees which are charged to end-users in their bills (with the exception of low voltage domestic users). The fees are mandatory and are applied to any final users, excluding domestic users in low voltage (for which a special protected flat regime is applicable). The fees are divided in three components expressed in: (i) euro cents for the point of withdrawal by year, (ii) variable quota euro cents for kW for year, and (iii) variable quota in euro cents for kWh consumed.

The fees are subject to annual updating by ARERA, and are non-discriminatory rates for service.

Resolution of ARERA No 907/2017/R/eel of 27 December 2017, updated for 2018, regarding fees for the services of transmission, distribution and metering for domestic clients.

Any entity has the right to challenge the decision of ARERA in setting rates and terms and conditions of service. There is an administrative complaint process available to challenge existing rates and terms and conditions of service, but any interested entity could also challenge the decision in front of the Regional Administrative Court of Milan.

The transmission entity must provide transmission service to all parties that request it, either to transmit electricity from generator or receive electricity supply.

The right to have access to the grid is provided by Legislative Decree No 79, dated 16 March 1999.

The ARERA issued the Unified Text for Active Connections (TICA) containing rules that apply to high, medium and low voltage connections to the power grid.

According to TICA, a request for interconnection must be filed with either:

  • the operator of the local distribution grid if the injection power requested is below 10,000 kW; or
  • Terna S.p.A. if the injection power requested is equal to or above 10,000 kW.

The procedure for high voltage connections is governed by rules that are slightly different from those covering medium and low voltage connections and includes the following stages.

The offer to connect the power project to the grid is divided in a two-stage process: a preliminary offer and a definitive offer. The applicant must accept a preliminary offer within 120 business days of receipt. Once all the permits for construction of the power project have been obtained, the applicant requests the grid operator to issue the definitive offer, which contains the document enabling actual connection of the project to the grid.

The applicant is always permitted to carry out all the connection works (including those falling within the competence of the grid operator). The applicant must obtain the approval of the grid operator to connect and then communicate to it when the interconnection works are completed so it can test the interconnection facilities and subsequently take them over. The grid connection will then be activated after all the works of the power plant have been completed and the applicant has sent to the grid operator all the documentation specified by the TICA.

Electric distribution facilities are subject to the same laws and regulations as transmission lines.

Of particular significance in relation to the construction and operation of electric distribution facilities are (i) Article 9 of Legislative Decree No 79, dated 16 March 1999, implementing the EU directive on the creation of an internal energy market (Directive 96/92/EC, repealed by Directive 2003/54/EC), and (ii) the Ministerial Decree of 11 January 2017 concerning the determination of the national quantitative targets for energy saving to be reached by the companies operating electricity distribution activity for 2017 to 2020.

The construction and operation of electric distribution facilities are subject to the issuance of a single authorisation (Autorizzazione Unica) granted by the relevant local entity (the region or province, as the case may be), following a single procedure whereby all interested public entities are invited to participate and to express their own opinion.

If the electric distribution lines are equal or longer than 15 km and shorter than 40 km, the authorisation procedure requires the prior obtainment of an Environmental Impact Assessment. If the electric distribution lines are equal or longer than 3 km, an Environmental Screening at regional level is applicable.

Public participation and input is permitted during the sub-procedure concerning the environmental impact assessment of the project.

Environmental and socio-economic impacts, cultural goods and landscape protection and public health are usually the factors that can prevent the issuance of the authorisation.

The typical timeline to obtain the single authorisation is 180 days (excluding suspension of the procedure for the delivery of additional documents or for further assessments).

The typical terms and conditions imposed in the single authorisation concern the mandatory terms to commence and complete the works and the prohibition to carry out variations to the project during construction without the prior approval of the relevant authorities.

Any postponement of the said terms shall be approved by the competent authority which has issued the single authorisation. Usually the competent authority is reluctant to approve a postponement of the said term if the reason is because of a force majeure event.

The process to obtain a variation of the single authorisation is subject to a simplified procedure only if the variation can be qualified as “non-substantial” (eg, variations which do not entail a change in the location of the transmission lines). Otherwise, the process to obtain a variation entails a new procedure similar to the one for the granting of the single authorisation.

As transmission lines are of public interest, the rights to the surface of land for the purpose of constructing and operating a transmission line can also be obtained through the expropriation procedure. The expropriation procedure determines the compulsory acquisition of the ownership of the land subject to payment of compensation. The quantum of compensation takes into consideration the market and cadastral value of the land. The private owner of the land can challenge the quantum of compensation in front of the court.

Electric distribution entities have an exclusive right to construct and operate distribution facilities within a defined territory. For existing electric distribution entities operating by means of concession issued by the Ministry of Economic Development before 31 March 2001, the exclusive rights to operate the said concession can be continued until the expiry of 31 December 2030.

By means of a new regulation to be issued by the Ministry of Economic Development, prior to the opinion of the Unified Conference and the Energy Authority, new concessions are issued on the basis of tenders for a territory not less than the municipal one and not higher than a quarter of all final clients. 

If, within a municipal territory, there is more than one concession for electric distribution, the relevant entities have to aggregate into one.

In the municipalities, whereby the shareholder of the entities is the municipality and such entities carry out the distribution for more than the 20% of the users, such entities can purchase the on-going concern of Enel S.p.A. in order to carry out the service for the municipal territory.

The provision of electric distribution service and the regulation of electric distribution system charges and terms of service are ruled by:

  • Italian Law No 481 of 14 November 1995 which has entrusted the Italian Regulatory Authority for Energy, Networks and the Environment (Autorità di Regolazione per Energia Reti e Ambiente, ARERA) as an independent body for the purposes of protecting consumer interests and promoting the competition, efficiency and distribution of services with adequate levels of quality, through regulatory and control activities. Initially limited to electricity and natural gas, ARERA's scope of action has been extended by means of some regulatory interventions;
  • Resolution No 654/2015/R/EEL, concerning the “Integrated and Consolidated Test of the ARERA rules for the provision of electric transmission and distribution services for the period 2016-2019”.

See 5.2.2 Establishment of Transmission Charges and Terms of Service, above.

DLA Piper Italy

Via della Posta, 7
20123 Milan
Italy

+3902806181

+39 02 80 61 82 01

milinfo@dlapiper.com www.dlapiper.com
Author Business Card

Law and Practice

Authors



DLA Piper Italy is a global law firm with lawyers in more than 40 countries throughout the Americas, Europe, Africa, the Middle East and Asia Pacific positioning us to help companies with their legal needs around the world. The firm in Italy is made up of over 200 professionals based in Milan and Rome. The team, which is truly international being formed by Italian, US and German lawyers, is able to combine an in-depth knowledge of the domestic market with a multi-jurisdictional approach. The Energy group in Italy is made up of professionals with a significant track-record across the energy markets, with a specific focus on infrastructures and trading, both on renewables projects (wind, photovoltaic, biomasses, hydroelectric energy, waste disposal, etc.) and traditional (natural gas, including LNG, thermoelectric generation and oil). Its lawyers have gained a remarkable know-how on regulatory issues and have provided assistance in some of the largest M&A and financing deals closed in Italy in recent years. The team has a wealth of experience in advising on the structuring and documentation of complex power projects and other structured financings in Italy, and is also familiar with up-to-date structures available for major transactions. Finally, for cross border matters and thanks to the large global DLA Piper network, the team is also adept at working closely with other professionals within the firm, enabling us to assist our clients in any situation and region where lawyers are asked to operate.

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.