Kyoto Protocol

On February 16 2005 the Kyoto Protocol entered into force. Under the protocol, developed nations have agreed to limit their greenhouse gas emissions (taking 1990 levels into consideration), pursuant to the objectives of the 1992 Framework Convention on Climate Change. Specifically, the countries in question have committed to reducing the collective emissions of six key greenhouse gases by at least 5.2%.

Under the protocol, the European Union is committed to reducing 1990 levels of greenhouse gas emissions by 8% between 2008 and 2012. Individual member states' reduction targets are specified in the EU ratification act, having been agreed in June 1998 under the Burden Sharing Agreement. The greenhouse gas reduction target for Italy is 6.5%.

Italy ratified the protocol through Law 120/2002 and simultaneously issued a national plan for reducing its greenhouse gas emissions by 2010. The plan outlines various tools for reducing emissions, and, in particular, for promoting the development of alternative sources of energy.

The plan provides for an increase of about 75 terawatts (TW) of energy from renewable sources. However, a stronger policy on green energy promotion may bring about an additional increase of 11TW by 2010, thanks to the potentially vast amount of energy that can be generated by biomass, wind and waste. The production of electricity from renewable sources (except water) will increase from 3.3% to 7.8%.

Under Italian law, sun, wind, geothermal resources, tides, waves and vegetal products or organic and inorganic waste all constitute renewable sources of electricity. Legislative Decree 387/2003 also includes waste (including non-biodegradable waste) as a credible source of energy.

Currently, the following mechanisms are being used to promote renewable sources of electricity:

  • green certificates;

  • financial contributions at community, national and regional levels;

  • the renewable energy certificate system; and

  • grants of origin.

Green Certificates

Green certificates were introduced by the Ministerial Decree of November 11 1999, implementing Legislative Decree 79/1990. The introduction of green certificates is tied to the requirement under Legislative Decree 79/1990 that all operators importing or generating electricity from non-renewable sources exceeding 100 gigawatts (GW) annually must introduce 2% of electricity from renewable sources into the national power system in the subsequent year.

Each green certificate represents 50 megawatts (MW) of renewable energy (initially, the amount was 100MW, but Law 239/2004 set new amounts).

Green certificates are issued by the domestic Independent Transmission System Operator, are valid for one year and are renewable for eight years. The only limit is that green certificates cannot be issued for green energy generated using certain kinds of waste indicated in Legislative Decree 387/2003.

The fundamental feature of green certificates is that they are tradable: they can be negotiated directly among producers and other interested operators or exchanged on a special market managed by the Independent Transmission System Operator. Green certificates are bearer instruments and are distinct from the amount of energy that they represent. Thus, they can be exchanged separately without the transfer of the corresponding energy. The owners of green certificates receive gains from their sale, along with the price of the energy. Their price depends on the electrical market's conditions (bid-to-cover ratio), but it is generally fixed at about €0.7 per kilowatt. As a result of these features, operators that do not produce renewable energy can comply with the requirements laid down by Legislative Decree 79/99 by buying the necessary amount of green certificates.

All operators in the energy sector must submit annual self-certifications declaring the amount of electricity that they have produced and imported in the previous year. The Independent Transmission System Operator has the task of checking self-certifications and compliance with all the rules related to this procedure. It then calculates the amount of renewable energy that must be produced annually by each operator for the following year. If an operator does not produce the requisite renewable energy, it must buy a number of green certificates equal to that amount.

The Ministerial Decree of November 11 1999, as modified by the Ministerial Decree of March 18 2002, provides for a specific procedure to obtain green certificates:

  • technical procedure for qualification as a plant supplied by renewable sources. This procedure is managed by the Independent Transmission System Operator. Operators must apply to obtain this qualification, and a special commission checks the submitted application form and issues or refuses the qualification. The list of qualified plants is published every year by the Independent Transmission System Operator and is available in a special bulletin;

  • specific requirements for obtaining the qualification. Only new, re-powered, completely renovated or partly renovated plants (this last requirement is solely for hydro and geothermal plants, and was introduced by the Ministerial Decree of March 18 2002) that began operating after April 1 1999 can qualify as plants supplied by renewable sources; and

  • issue of green certificates by the Independent Transmission System Operator. Plants that have obtained the qualification must declare, through self-certification, the amount of renewable energy produced in the previous year, and will receive a green certificate for each 50MW of renewable energy.

The Electricity Market Rules were approved by the Ministry of Industry on May 9 2001 and Instructions to the Electricity Market Rules were issued by the Ministry for Productive Activities on March 14 2003.

Financial Contributions

Problems are inherent in starting up a business for producing energy, most of which relate to the very high costs of building the plants. Hence, financial contributions are essential for renewable energy production. In general, there are three financial contributors: the European Union, states and regions. No general rule or procedure exists for obtaining financial help. Instead, information should be obtained directly from the relevant office. European financing often requires projects that involve the participation of operators from other countries, so asking the various professional associations for information may prove fruitful.

Renewable Energy Certificate System

The last method by which the principle of free trade is introduced into the sector of renewable energy is the Renewable Energy Certificate System.

This system was established in Europe to promote the development of a voluntary international green energy market. Currently, it boasts around 200 operators throughout Europe.

Renewable energy certificates are bonds certifying the production of electricity from renewable sources in the amount of 1MW each. They promote the production of green energy by small plants that do not produce sufficient renewable energy to obtain a green certificate. The bonds can be negotiated and exchanged on the renewable energy certificates market.

In Italy, renewable energy certificates are issued by the Independent Transmission System Operator and are accepted in all countries where a specific national issuing body has been created.

Companies must choose between applying for green and renewable energy certificates, as they cannot hold both at any one time.

Grants of Origin

The grant of origin is a certificate that proves the renewable origins of electricity. Grants of origin were introduced by Article 11 of Legislative Decree 387/2003 and are issued by the Independent Transmission System Operator upon application. At least 100MW of energy must be produced annually in order for a grant of origin to be issued.

The grant of origin indicates:

  • the company's location;

  • the type of renewable energy source;

  • the technology used;

  • the plant's capacity; and

  • the amount of electricity produced each year.

At the producer's request, it may also contain information on green certificates or other bonds obtained.

Before issuing renewable energy certificates the Independent Transmission System Operator must verify the data submitted. This may include a physical inspection of the plant in question.

Future Trends

Legislative Decree 387/2003 increases the percentage of 2% established by Legislative Decree 79/1999 by 0.35% annually until 2006. Other ministerial decrees will establish further increases of at least 0.35% for the two successive periods of 2007 to 2009 and 2010 to 2012. The increases are necessary for compliance with the EU Renewable Energy Directive (2001/77/EC), which requires that by 2010 Italy must achieve renewable energy production that is equal to 25% of total electricity demand.

According to the national plan, this percentage will increase further - although not to the point where it will satisfy the levels necessary to comply with the Kyoto Protocol. Therefore, related policies are set to be undertaken to support the green energy sector.

In accordance with the national plan, the Italian regions are to become more involved and will simplify procedures for obtaining plant authorizations and promoting renewable sources of energy at local levels.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.