Energy Release 2.0 – Fixed-price energy advance for energy-intensive end customers

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Introduction

Ministerial Decree No. 268 of July 23, 2024 (the Energy Release Decree), in implementation of Article 1, paragraph 2, of Decree-Law No. 181 of December 9, 2023, introduced the Energy Release 2.0 mechanism. It aims to encourage the development of new renewable generation capacity by energy-intensive companies.

With Directorial Decree No. 11 of October 30, 2024, the Ministry of Environment and Energy Security (MASE) approved the operating rules of the Energy Services Manager (GSE).

A few days later, on November 14, the GSE published the call for expressions of interest from energy-intensive end customers and aggregators. And it opened the portal through which it will be possible to submit applications to access the mechanism.

The deadline for submitting expressions of interest, originally set for January 13, 2025, has been extended by the GSE to February 14, 2025, on the recommendation of the MASE.

 

The Energy Release 2.0 incentive mechanism

The measure is structured as a kind of exchange or subsidized loan. Energy-intensive companies will obtain an advance of electricity from the GSE, for three years at a fixed price. In return they have to commit to return this volume of electricity later through the construction of new generation plants. The plants – using photovoltaic, wind and hydroelectric sources – should have a capacity at least twice as large as that covered by the advance and return contract. According to the criteria established by the Energy Release Decree, the energy advanced will then be returned to the GSE by energy end customers/aggregators over a period of 20 years from the date the new renewable source plants were commissioned.

The advance and return of energy will take place through two-way contracts for difference (the advance contract and the return contract), which provide for the same transfer price, determined by the GSE to be EUR65/MWh.

Based on the provisions of the notice published by the GSE, the amount of energy made available by the GSE for the Energy Release mechanism will amount to 23 TWh for each of the three years of the validity of the advance contract.

The measure is of extreme interest to energy end customers and renewable source plant developers, as it aims to enable energy end customers to stabilize energy costs, improving business competitiveness and contributing to the growth of renewable generation capacity in Italy.

It's estimated that about 5 GW of new generation capacity from renewable sources will be realized through this measure.

 

The beneficiaries of the Energy Release 2.0

Companies eligible for the Energy Release mechanism are energy-intensive end customers, either individually or in aggregate. This means energy-intensive companies that are registered, as of the date of publication of the notice, in the special list established at the Cassa per i Servizi Energetici e Ambientali (CSEA).

As specified in the operational rules published by the GSE, expressions of interest can also be submitted by companies that are, as of the date of publication of the call, in the process of being investigated for inclusion in that list.

These enterprises can participate either individually or in aggregate. An “aggregator” entity must be identified who will sign the advance contract and the repayment contract with the GSE, unless a third party is delegated to sign it.

 

The obligation to build new generation capacity from renewable sources

The Energy Release Decree stipulates that the party awarded the energy advance must undertake to realize, including through third parties, new generation capacity from renewable sources with a total capacity of at least twice the amount of that subject to restitution, by:

• installing new photovoltaic, wind or hydroelectric plants with a minimum capacity of 200 kW each;
• upgrading or refurbishing photovoltaic, wind or hydroelectric plants that allow an increase in power of at least 200 kW.

This is known as New Generation Capacity.

The New Generation Capacity may also be realized through third parties that energy-intensive end customers have signed forward procurement contracts with.

The New Generation Capacity must come into operation within 40 months from signing the advance contract. This deadline can be extended exclusively due to force majeure or in the event of delays (not attributable to the end customer or third party) in the conclusion of administrative procedures, but in any case can't exceed December 31, 2030.

 

The available energy and the transfer price

The amount of renewable electricity made available by the GSE for the Energy Release mechanism is that derived from renewable plants that benefit from all-inclusive tariffs, dedicated withdrawal and onsite exchange mechanisms.

As anticipated above, this energy will amount to 23 TWh for each year of the advance contract.

The electricity allocated to participants and their GOs will be spread over the different months of the year, according to the following percentage shares:

MONTH	% MONTHLY
January	6%
February	6%
March	8%
April	10%
May	11%
June	11%
July	11%
August	10%
September	8%
October	7%
November	6%
December	6%

As anticipated above, the transfer price was determined to be EUR65/MWh, taking into account the average efficient cost of producing renewable energy from large-scale plants using mature and competitive technologies (eg photovoltaics and wind power). This price will not be subject to indexation or inflation and will remain fixed for the entire advance and repayment period.

 

Submitting expressions of interest and allocation procedure

To participate in the procedure for the allocation of electricity in the GSE's availability, energy-intensive customers will have to submit an expression of interest through the E-Release Portal made available by the GSE by February 14, 2025 (deadline thus extended by GSE on the recommendation of MASE).

The expression of interest must indicate the volume of electricity requested in advance (expressed in MWh/year). It can't exceed, on an annual basis, the average annual consumption relevant for the company's inclusion in the list of electricity-intensive companies maintained by the CSEA (for end customers in aggregate form, this requirement applies to each participant in the aggregation).

For the purposes of the allocation procedure, the GSE will consider as the volume of electricity requested in advance the lesser of the consumption relevant for the purposes of inclusion in the list maintained by the CSEA; and the value of energy requested in the expression of interest.

A deposit of EUR10,000 is also required. It will be returned by the GSE within 15 days of signing the advance contract or in case of exclusion from the allocation procedure. The deposit will be retained permanently by the GSE if the energy end customer/aggregator fails to sign the advance contract within the stipulated timeframe.

The end customer/aggregator will also be able to indicate a minimum acceptance threshold, ie a minimum energy value below which the allocation of electricity is waived, when submitting the expression of interest, without enforcement of the security.

Once the expressions of interest have been received, the GSE will verify the requirements and allocate, at the advance stage, the volume of energy in its availability apportioned monthly according to the percentages indicated above. The GSE will base the allocation on the quantity requested, with the GOs attributable to advance energy.

If the energy in the GSE's availability is less than the total amount requested, the amount of electricity will be allocated in proportion to the volumes requested.

Any volume of energy not awarded as a result of the procedure will remain in the availability of the GSE.

The amount of energy subject to advance and any cases of exclusion from the procedure will be communicated by the GSE in an outcome letter published on the E-Release Portal.

The end-customer/aggregator has the right to change the quantity of electricity subject to advance payment downward, effective from the first day of the month following the request. Modifying the quantity subject to advancement will entail an update:

• of the fees generated by the advancement contract;
• of the allocated guarantees of origin, recalculated with the same logic applied by the GSE during the allocation phase, based on the energy that still has to be advanced by the GSE;
• reduction of the New Generation Capacity that the individual end customer/aggregator is required to realize, proportional to the months still undisbursed by the GSE.

Within 30 calendar days of the publication of this letter, the advance payment contract must be signed between the energy end customer or aggregator and the GSE.

The advance payment contract

The advance contract is a two-way contract for difference signed by the GSE and the assignee energy end customers or aggregators as a result of the “Energy Release 2.0” procedure. It provides for the assignees' right to obtain an advance of electricity and related guarantees of origin, delivered by the GSE for 36 months.

Under the terms of the advance payment contract, in relation to the monthly share of the volume allocated to the energy end customer/aggregator for each month of the period between January 1, 2025 and December 31, 2027 (regardless of the date on which the New Generation Capacity becomes operational), the GSE:

• will pay to the allottees the differential, if negative, between the “Sale Price” (equal to EUR65/MWh) and the “Sale Price” (equal to the average monthly sale price on the electricity market); or
• will equalize or claim from allottees the differential, if positive, between the Transfer Price and the Sale Price.

In addition, the GSE will recognize the guarantees of origin to the allottees and automatically cancel them in the allottees' proprietary account.

The advance contract provides for a mixed system of guarantees in favor of the GSE, with the guaranteed amount equal to the value of the energy advanced (including through the possible provision of risk-sharing instruments among the energy-intensive end customers involved). In fact, provision is made for the delivery in favor of the GSE of:

• an autonomous guarantee of an increasing guaranteed amount for the period of validity of the advance contract, which can be updated annually (by June 30 of each year) on the basis of the energy advanced, to be delivered within 60 days of the signing of the advance contract on the basis of the format attached to the operating rules, and which will be released on the date of entry into operation of the New Generation Capacity; and
• a collective guarantee in the form of withholding part of the fee paid by the GSE to guarantee the realization of the minimum New Generation Capacity.

The release of the guarantee and repayment of the withholding fee will also take place following the commissioning of all facilities/interventions necessary to guarantee the minimum New Generation Capacity to be realized. The GSE can also put in place forms of compensation with any incentives that the end customer receives from the GSE.

The advance by the GSE is made against the assumption of a commitment of restitution of electricity by the assignee, who is obliged to sign (or have signed by a third party with whom they've stipulated electricity supply contracts), within 40 months from the effective date of the advance contract, a restitution contract with respect to each plant involved in the restitution of the assigned volume of energy and the related guarantees of origin.

The restitution will take place through the realization of New Generation Capacity having at least twice the capacity required for the restitution of the energy advanced by the GSE, which has to come into operation within 40 months from the effective date of the advance contract, except for force majeure.

The energy end customer/aggregator has to notify any force majeure causes or cases of delay in the conclusion of administrative procedures aimed at realizing the New Generation Capacity in no way attributable or attributable to the energy end customer/aggregator or third party and occurred during the 40 months following the signing of the advance contract. They have to send the relevant documentation as proof. The GSE will ascertain the recurrence of these conditions, to apply the suspension of the deadline for entry into operation.

The repayment contract

As anticipated, the energy end-customer/aggregator is entitled to fulfill the obligation of energy restitution also by delegating third parties with whom it will have entered, even indirectly, into a forward contract for procuring electricity from renewable sources.

Pursuant to the return contract, the energy end-customer/aggregator or third party has to return in favor of the GSE the allocated volume of electricity and the countervalue of guarantees of origin, over a period of 20 years from the date of entering into the contract. It can do this by making available to the GSE the electricity produced by the plants/interventions implemented for the purpose of restitution, for the portion fed into the grid, on the electricity market operated by the GSE. And the GSE will pay to the energy end customer/aggregator or delegated third party, the differential, if positive between the “Purchase Price” (equal to the price identified in the PGM market determined during the relevant period of transactions, in the market area where the plant is located) and EUR65/MWh. Or it will equalize or request from the final energy customer/aggregator or the third party delegated by the latter, the differential, if positive between EUR65/MWh and the “Purchase Price” (equal to the price identified in the day-ahead market determined during the relevant period of transactions, in the market area where the plant is located). Or it will equalize or request from the final energy customer/aggregator or the third party delegated by the latter, the differential, if negative, between EUR65/MWh and the Purchase Price.

The party signing the Restitution Contract must own the facilities involved in the restitution and can't transfer ownership of the plant to third parties without the prior consent of the GSE. In the Restitution Contract, as well as in the Advances Contract, there are no change of control clauses referring to the party signing the contracts.

Return of energy advanced by self-consumption on site

The electricity subject to restitution can also be self-consumed on site in the manner defined by the DM. In this case, the restitution contract must be signed by the energy end customer and will provide for the settlement between the latter and the GSE of the amount equal to the product between the volume of energy produced and self-consumed and the differential between the organized market price and EUR65/MWh. ARERA has to define the relevant measurement and data transmission methods.

Possible contractual structures between energy-intensive end customers and third parties

The Operating Rules don't regulate the contractual forms that will govern relations between energy-intensive end customers and third parties delegated to implement the New Generation Capacity. In this regulatory context, third parties can be involved by energy-intensive end customers in various capacities, including after the date of the expression of interest and eventual allocation, through different types of contracts, according to which:

• the third party undertakes to obtain the authorization title for the construction and operation of the New Generation Capacity and to subsequently assign the project to the energy-intensive end customer, which builds it on its own for self-consumption purposes;
• the third party undertakes to obtain the authorization title and put the New Generation Capacity into operation and subsequently assign the constructed facility to the energy-intensive end customer, who uses it for its own self-consumption;
• the third party undertakes to obtain the authorization title, to put the New Generation Capacity into operation, and to make the plant available to the energy-intensive end customer through an operating lease agreement; or
• the third party undertakes to obtain the authorization title, put the New Generation Capacity into operation, and make the energy produced by the plant available to the energy-intensive end customer, through virtual or physical, onsite or offsite PPA contracts.