The new FER decree: A fresh breath of air for the renewables?

Energy Alert

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On June 29, 2016 the new decree aimed at regulating the new incentives for the renewable sources other than photovoltaic ones (the "New FER Decree") has been finally published on the Official Gazette. After a long process, which lasted more than 12 months, during which announcements were followed by denials the New FER Decree has finally obtained the green light from the European Commission on April, 29.

The New FER Decree has come into force on June 30, 2016.

The delay in the publication of the decree has caused serious uncertainties in the renewable energy market. In fact, it is to be noted that the former Italian Ministerial Decree dated 6 July 2012 (the "FER Decree") substantially ceased to be effective in 2014 and that therefore the development and implementation of many projects had been suspended or postponed.

The FER Decree provides for an annual threshold of Euro 5.8 billion for indicative, cumulative costs for all types of incentives of renewable energy plants with the exception of photovoltaic plants, the achievement of which would have caused the FER Decree to cease to be effective. The GSE counter records indicated that said threshold had been very close for a large part of 2015, alarming the entire sector, even though the latest GSE estimates now indicate that the threshold will not be reached for the entire duration of 2016.

The duration of the New FER Decree

The New FER Decree will cover a very limited period, since without prejudice to the different terms for the registries and the auctions, the acceptance of the requests for the access to the new incentive mechanism will cease after 30 days from the first date between December 1, 2016 (December 1, 2017 for plants having direct access to the incentive) and the date of achievement of the abovementioned threshold of Euro 5.8 billion. 

According to the new calculation method provided in the New FER Decree which makes reference to the average of the monthly expenditure values for the three subsequent years and not, as otherwise previously provided, to the maximum value achieved in a given month, the threshold should not be reached in 2016 and it is therefore possible to suppose that the final date of effectiveness of the New Decree FER will be December 31, 2016.

The New FER Decree is therefore aimed at covering a period of few months, insufficient, according to operators and professional associations, to constitute the background for the implementation of a medium or long term policy in the field of energy exploitation from renewable sources. In fact, for the time being the incentives applicable from the year 2017 are still to be regulated. As underlined by the operators, it is easy to foresee that this brief time span will not allow them to properly plan their investments. In this regard, over the past months, on several occasions the Italian Government and the MISE confirmed that they are considering new measures to be implemented after 2016 with a time span of at least three years. 

The provisions of the New FER Decree

The regulation provided for by the New Decree FER is largely similar to the regulation provided for by the FER Decree, and therefore we will limit our analysis to the main innovations.

The new tenders and the capacity quotas

As provided for by the FER Decree, new plants may have access to incentives directly or through the procedures of the Dutch auction and the enrolment into registries. Among the innovations regarding the direct access, pursuant to the New FER Decree the thermodynamic solar plants with a capacity not exceeding 100 kW will have direct access to the incentives.

Within the 20th of August 2016 the GSE shall publish the tender for the enrolment into the registries and for the Dutch auction. There will be only one tender, for both the registries and the auctions, unlike what provided for in the previous drafts of the decree whereby two tenders (one for each method) were foreseen. The operators shall have 90 days to participate in the procedure. 

The threshold beyond which the participation to the Dutch auction becomes necessary, now applicable to all types of renewable sources, is equal to 5 MW. The chart below summarizes the capacity quotas eligible for incentives, expressed in MW, for each source:

Dutch auction

Wind onshore  800 
Wind offshore  30 
Geothermal  20 
Thermodynamic solar  100 
Biomass  50 

Register

Wind onshore  60 
Hydroelectric  80 
Geothermal  30 
Biomass  90 
Ocean 
Thermodynamic solar   20 

Among the innovations, the New FER Decree now provides for a capacity quota eligible for incentives for thermodynamic solar power, equal to 100 MW for the auction and 20 MW for the register.

Since only one tender is envisaged for both the auctions and the registries, the entire contingent will be made available at the first tender. 

Access to incentives

In order to access the incentive, the plants must enter into operation within the specific deadline set out in the New FER Decree, which is different for each source, starting from the date of the notice of the positive outcome of the relevant procedure.

It should be noted that for all types of plants the terms are longer than those set out in the FER Decree.

However, the provision of longer terms is compensated by the reduction of the grace period preceding the loss of the right to the incentive. In fact, in case of non-compliance with the relevant deadline, the plants enrolled into the registries will suffer a curtailment of the tariff equal to 0.5% for each month of delay, for a maximum period of 6 months (compared to the 12 months provided for by the FER Decree) after which the plant will lose the right to the incentive. In addition, in case of plants participating to the auctions the New FER Decree does not provide for any grace period, specifying that at the expiration of the abovementioned deadline the plant will lose the right to the incentive.

It is also clarified that the plants can access to the incentives provided that the relevant construction works commenced after having been successfully listed in the relevant ranking, except for the plants that have requested the access to the incentives under the FER Decree and the plants which have direct access to the incentive pursuant to the mentioned decree. This provision has been criticized because it does not consider that for many operators the need to start, and in some cases to conclude, the works within a specified time limit is imposed by the relevant authorizations or regulatory provisions, under penalty of forfeiture of the authorization, and that these operators were not able to delay the works until the issuance of the New FER Decree. 

Finally, it is worth noting that for the first time the prohibition to split up the plant capacity has been provided for (article 29 of the New FER Decree).

The registries 

Among the innovations regarding the registries, it is worth noting that the plants eligible not classified in the ranking under the FER Decree which have been already provided with the authorization or, as the case may be, the concession, as well as the plants requiring a tariff equal to 90% of those set forth in Annex 1 of the New FER Decree will be preferred in the ranking for the enrolment into the registries. 

The agreement with the GSE, in addition to the entry into commercial operation of the plant, is now required in order to be allowed to transfer to third parties the enrolment of a project into the registry. 

No security or guarantee is requested for plants admitted to the registry.

As per a specific request of the European Commission, the New FER Decree now provides that the hydroelectric plants operating by virtue of a water body derivation concession can access the incentives only provided that the operator delivers a certificate, issued by the competent authority, ascertaining that the concession does not jeopardize the maintenance or the achievement of the quality objectives defined for the waterway. This requirement raised many criticisms since there could not be enough time to obtain such a certificate. 

The auctions

The New FER Decree confirms, as requirement for the participation to the competitive Dutch auction, a financial and economic capability appropriate for the level of the performed intervention, as attested by both a declaration of a bank institute - and not also by a declaration of an authorized intermediary, as provided for under the FER Decree - and a capitalization for a value which is inversely proportional (between 10% and 2%) to the size of the planned investment for the realization of the plant. 

The reduction offers cannot be lower than 2% of the auction base price (as provided for also in the FER Decree) nor higher than 40% of the auction base price. Therefore, pursuant to the New FER Decree the maximum percentage value of the reduction is increased from 30% to 40%. Such decision was criticized since it would lead the operators to offer reductions which could have distortive effects on the market, with the risk to cause an increase of the initiatives which will be then abandoned due to their no profitability. 

In order to guarantee the real quality of the project, the subjects participating to the auction must submit a provisional security during the enrolment phase and a definitive one after the notice of the positive conclusion. 

Innovations have been provided with reference to the waiver by the operators to their incentives right. Should the successful bidders decide to give up the implementation of the intervention within 6 months from the publication of the ranking, GSE will move on to the next plant on the ranking and will enforce an amount equal to 30% of the final security issued by the renouncing operator. Should such waiver take place in the period between 6 and 12 months from the publication of the ranking, GSE will enforce an amount equal to 50% of the final security. Finally, beyond the twelfth month, the enforcement would be for the total amount.

With reference to the auction, the new decree provides for another significant innovation, i.e. the legality rating as first parameter of priority for the ranking, in addition to an earlier authorization and concession. In the event that within a given tender more offers having the same reduction with respect to the minimum incentive fee are presented, the operators who have obtained by AGCM a legality rating of at least two "stars" will be preferred to the others in the ranking. For the purpose of the assignment of a such minimum score, AGCM has to ascertain the compliance by the company to several requirements specified in the appropriate regulation certifying the investment by the latter in ethical behavior and legality.

The new incentives

The incentives provided for by the FER Decree will continue to be applied to the plants classified in the ranking which formed as a result of the auction and registries procedures pursuant to such decree, as well as to the plants which have direct access to the incentive or which will be classified in the registries pursuant to the New FER Decree, provided that such plants will enter into operation within one year from the entry into force of the decree. All the other plants will benefit of the new tariffs which in some cases have remained unchanged compared to the previous values, whilst in other cases have been significantly reduced. 

The value of the base feed-in tariff is the one applicable on the date of entry into commercial operation of the plant and will be awarded by GSE for a period equal to the conventional useful life-time of the plant; the duration of such periods remains unchanged compared to that provided by the FER Decree (e.g. 20 years for wind onshore).

Pursuant to the New FER Decree the relevant threshold to be complied with in order to ask for the all-inclusive feed-in tariff regime, whereby GSE withdraws all the energy injected into the grid, has been reduced from 1 MW to 500 kW. Such plants may also decide to change the incentive scheme twice (and no longer only once) during the incentive period. 

Moreover, with reference to the access to the incentives for the plants which are totally rebuilt, pursuant to the New FER Decree the total rebuilding shall be realized using new or already used components which, as a result of specific processing, if necessary, are reset to normal operating levels. 

Finally, pursuant to article 32, third paragraph, of the New FER Decree the plants classified in the ranking for the registries under FER Decree, which have not been realized within the relevant deadline, may have access to the incentive provided for under the New FER Decree suffering a reduction equal to 6% the applicable incentive tariff at the date of entry into operation. 

Provisions for the operating plants

The New FER Decree also includes a provision applicable to the modification activities carried out on operating plants (not to be confused with refurbishment activities), including photovoltaic ones. 

In particular, within 90 days from the publication of the New FER Decree, GSE shall publish or update the procedures for the implementation of maintenance and renovation activities of the plants which benefit of incentives, including photovoltaic ones, in order to protect the efficiency of the plant and avoid an increase of the incentive costs. 

This is explained in the light of the suspension by GSE, on July 2015, of the validity of the technical document concerning the rule for the maintenance of the incentives published on 1 May 2015. The new document which will be prepared by GSE will have to comply with the parameters listed under Article 30 of the New FER Decree. 

In particular, the maintenance services which will involve a capacity increase greater than 1% of the nominal capacity of the plant and the relevant individual machines or sections (the threshold is equal to 5% for the plants having nominal capacity until 20 kW) are not allowed. 

In case of replacements, new or repowered components shall be used, overcoming the prohibition provided for in the previous technical document regarding the installation of components already used in other plants which benefit of incentives. 

In addition, the New FER Decree provides for the obligation to inform GSE, through a self-certification, of any replacement activity related to main components of the plants (for the photovoltaic ones modules and inverters), except for plants having a capacity lower than 3 kW.