Promotion of RE Installations in Italy: FER-X Decree to be adopted in two Stages

Published on 5th December 2024

As already describedin our article of 11 June 2024, the installation of renewable energy systems in Italy is to be subsidised. In order to speed up the adoption of the decree, the authorities have decided to present a transitional decree (the so-called ‘Decreto FER-X Transitorio’) which provides for regulations limited in time to the end of 2025 and which, according to the Ministry of the Economy, can be approved more quickly by the EU Commission. In our article, we look at the changes and summarise the main contents of the already known draft of the FER-X.

The draft FER-X transitional decree has been available for a few days now, which is intended to guarantee the promotion of PV, wind, hydropower and residual gas plants until the end of 2025, while a second decree is planned for the period from 2025 to 2028. The content of the transitional decree builds on the regulations contained in the most recently circulated draft of the FER-X decree, but also contains some changes.

The ARR-X transitional decree is limited in time to the end of 2025. However, if a subsidy volume of 3GW is reached for RE plants with a capacity of up to and including 1MW, the subsidy for these RE plants will end before the end of 2025 (the original version of the FER-X decree provided for a subsidy volume of 10GW until the end of 2028).

Access to funding has remained unchanged overall:

RE plants with a capacity of up to and including 1MW - and for which construction may only begin after the decree comes into force - have direct access to support without participating in a bidding process.
RE installations above 1MW must participate in a bidding process to access the subsidy. In this case, the building permit must already have been granted or, alternatively, at least the environmental impact assessment must have been successfully completed. In this case, construction may only begin after the application for the bidding process has been submitted.

While direct funding is capped at a capacity of 3GW, the draft provides for the following estimated quotas for the bidding process:

Technology	Estimated total quotas (GW)
Solar	10
Wind	4
Hydropower	0,63
Residual gases from cleaning processes	0,02
In total	14,65

However, it must be noted that the GSE constantly analyses and monitors the effects of the subsidy. If it is determined in this context that the planned support is insufficient or no longer necessary, both the estimated quotas and the operating prices relevant for the bidding process can be adjusted to the new circumstances by means of a corresponding ministerial decree for the auctions still to be held.

The upper operating price (prezzo di esercizio superiore) has been eliminated for RE plants up to and including 1 MW. The level of support for these plants will be determined by the Italian electricity authority ARERA within 90 days of the support decree coming into force. The determination is based on the principle of guaranteeing appropriate remuneration for the investment, which in turn takes into account certain investment costs set out in the decree, which have been adjusted downwards compared to the previous version of the decree for PV systems. The subsidy tariffs can also be differentiated depending on the type of RE system and output.

For renewable energy installations above 1 MW, the amount of the subsidy granted is determined in the bidding process, for which GSE invites tenders for the respective quotas in accordance with the table above. For the bidding procedures and the determination of the respective subsidy to be recognised, so-called operating prices will continue to be used, which - apart from the lower operating price for photovoltaics, which has been reduced by EUR 5.00 - have remained unchanged compared to the previous version of the decree:

Renewable Source	Operating Price €/MWh	Upper Operating Price €/MWh	Lower Operating Price €/MWh
Solar	85	95	65
Wind	85	95	70
Hydropower	90	105	80
Residual gases from cleaning processes	85	100	75

To participate in the bidding process, the applicant must also submit a bid that is at least 2% below the value of the upper operating price (prezzo di esercizio superiore). It is also envisaged that a deposit will be required to guarantee the quality of the project and then, if the bid is accepted, the realisation of the renewable energy plant.

No changes are planned to the procedure for drawing up the ranking list for determining and awarding funding in the bidding process. Once a procedure has been completed, the GSE examines the applications for which a price has been offered that is below the operating price (prezzo di esercizio). If the cumulative output of these applications is higher than the respective tendered subsidy quota increased by 5%, 5% of the total subsidy output applied for by the applicants will be excluded from the procedure. However, this exclusion does not apply to those applications that are below the lower operating price (prezzo di esercizio inferiore).

Once this first step has been completed, the GSE draws up the ranking list for the granting of support on the basis of a demand curve, which in turn is drawn up in accordance with a procedure described in detail in Annex 2 of the draft.

The upper farm price therefore continues to be the base price for submitting applications, while the farm price and the lower farm price are used by the GSE to draw up the ranking list.

The various priority criteria already provided for have also been confirmed (removal of asbestos; revamping on agricultural land; RE plants built in the so-called aree idonee; installation of storage systems; signing of PPAs with a duration of at least 10 years; date of application).

The type of subsidy also remains unchanged: for RE systems with an output of up to 200kW, the applicant can apply for the GSE to purchase the electricity and pay the subsidised tariff. RE plants with an output of over 200kW must market the electricity produced themselves while the subsidised tariff is applied according to the CfD principle. If the market income of the plant operator falls below the amount of the subsidised tariff, the plant operator receives a compensation payment from GSE. However, if the electricity price achieved is higher than the amount of the subsidised tariff, the plant operator is obliged to pay this amount in compensation to GSE.

The term of the subsidy remains at 20 years from commissioning, although there is still the option of cancelling the subsidy early - and at a cost.

The indexation of the subsidy already provided for in the previous draft of the decree and also confirmed in the new draft is described again below with some more detailed explanations:

- The operating price as well as the upper and lower operating price (as shown above) will be updated in each tender based on the purchase price index. This therefore only affects the amounts published by the GSE when each individual tender is published;

In the period between the publication of the ranking list (for plants over 1 MW) or the publication of the operating prices by ARERA (for plants up to 1 MW) and the date of commissioning of the RE plant, 100% of the inflation determined according to the Italian purchase price index is absorbed by adjusting the subsidy tariffs accordingly.
Thereafter, and therefore from the commissioning of the renewable energy plant and for the entire duration of the subsidy, only limited compensation will take place based on the O&M costs, which in turn will be determined by the GSE in accordance with operational regulations yet to be adopted.

The new decree also contains various correction factors for the subsidy tariffs for PV systems:

If the disposal of asbestos is planned, the subsidy tariff awarded will be increased by €27.00/MWh;1
Depending on whether the PV system is located in a region in central Italy (Lazio, Marche, Tuscany, Umbria, Abruzzo) or in northern Italy (all regions that lie above the regions of central Italy), the subsidy tariff granted will be increased by EUR 4.00/MWh and EUR 10.00/MWh respectively;
PV systems on water areas will receive an additional 5.00 euros/MWh.

However, another specific market correction coefficient, which was provided for in the previous draft for the offers in the bidding process and which had an impact on the preparation of the ranking list, hasbeen omitted.

All other key provisions of the previous draft, such as the deadlines for the commissioning of renewable energy installations and the corresponding penalties, and the cumulability with other types of subsidisation, have been confirmed overall. We therefore refer to our previously published article in this regard.

The Ministry of Economic Affairs hopes that this new - time-limited - version of the draft will enable it to obtain approval from the EU Commission more quickly. According to a high-ranking official at the ministry, the Commission has promised to review the draft within one month of receiving it. However, there is no information on how quickly the other Italian authorities to be consulted - in particular the Conference of Regions and the Ministry of Finance - will be.

Once the decree has been passed, the publication of implementing regulations is planned, as is customary for all other subsidy decrees to date, which the GSE will prepare within 90 days and in which many detailed aspects will be defined more precisely.