Renewable energy subsidies in Italy – GSE publishes the outcome of the first Auction for long-term Contract For Difference and Register process for smaller plants. The second procedure for the Auction and Register is open now and will close on March 1, 2020.
The Italian Energy Services Manager (GSE) has published on its website the rankings of the first auction and registries applications, which was launched in the frame of the Ministerial Decree dated July 4, 2019 (FER Decree) for the awarding of subsidies to electric renewable energies.
The bid process for the first Auctions and Registers (dated September 30, 2019) offered a capacity of 730MW and the GSE has received 880 applications for an overall capacity of 772MW.
The sources have been divided into three groups:
- Group A: onshore wind farms and newly built photovoltaic plants, including the Group A2 for newly built photovoltaic plants aimed at replacing asbestos on roof tops.
- Group B: newly built hydroelectric plants and newly built residual gas purification process plants.
- Group C: refurbishment of onshore wind farms, hydroelectric plants and residual gas purification process plants.
The bidders have been divided into four different categories:
- Tabella A: plants awarded with the subsidy, up to the total capacity threshold.
- Tabella B: plants not eligible.
- Tabella C: eligible plants exceeding the capacity threshold.
- Tabella D: plants in relation to which a waiver request has been submitted after filing of the bid.
For a description of the FER Decree see the link here.
Group A auction outcome: limited participation and almost only by wind plants – discount on the base price (EUR70/MWh) ranging from 30% to 4%
The auction for Group A plants includes onshore wind farms and newly constructed photovoltaic plants with capacity higher than 1MW, including aggregation of smaller plants.
The GSE registered 26 applications (595MW): a total of 19 bids in the Tabella A (awarded) for the capacity of 500MW, 3 bids in the Tabella B (excluded) for a capacity of 20MW, 4 in the Tabella C (not admitted because the threshold has been exceeded) for a capacity of 70MW, 1 in the Tabella D (the bid has been withdrawn) for a capacity of 5MW.
The results show that this auction – in which the photovoltaic and wind sources were admitted to compete – attracted almost uniquely wind plants: 18 bids have been awarded to wind plants while only 1 to a photovoltaic plant.
There may be several reasons for the low participation. Photovoltaic plants on agricultural land (the vast majority of the developed projects) are not eligible for the CFD subsidies awarded through the GSE Auction. In addition, several operators with ready-to-build plants and "fresh" authorizations (i.e. with a long expiry date) were waiting for the second procedure, in order to monitor the outcome of the first auction and not compete against projects with the oldest authorizations and the most urgent need to be awarded and start construction work. Another reason could be identified in the length and complexity of the authorization process for large power plants in Italy.
Among the awarded wind and photovoltaic plants, there are no plants on landfill despite this being determined a priority right in the ranking.
It is worth noting that the plants selected as eligible for the award of the contract for difference offered a significant discount on the EUR70/MWh base price: the maximum discount offered by the first bid in the ranking was by 30.54% (EUR48.62/MWh) and the minimum discount offered by the last bid in the ranking was limited to 4.29% (EUR67/MWh), with an average discount of 18%.
Given the relatively limited participation to the tender, the bidders which took the risk to offer a low discount have been rewarded.
The duration of the contracts for difference awarded to the bidders is generally equal to 20 years.
Group A and A-2 Register outcome: the demand for obtaining subsidies saturated the available capacity offered with regard to Register A, while the applications for Register A2 was lower than the expected.
The Register for Group A plants includes onshore wind and newly built photovoltaic plants with a capacity lower than 1MW, including aggregation of smaller plants.
Some 522 applications have been submitted, with an overall capacity of 92MW compared to 45MW threshold provided under the auction.
A separate Register was set up for Group A-2: photovoltaic plants installed to replace asbestos on rooftops. Some 96 applications have been submitted for the registration with the Registry A2, amounting to 15MW, only 7.9MW of which has been admitted to the Tabella A and awarded with the subsidies, out of 100MW total capacity threshold.
The outcome shows that there are not yet many developed projects on rooftops with the removal of asbestos and that the opportunity to be awarded with the highest tariffs still very high.
Group B and C Auctions and Registers
For the Group B Registries (i.e. hydroelectric and gas plants) the GSE received 229 applications amounting to 36MW (against the 10MW offered). Only 77 applications have been considered eligible and they covered the overall capacity offered; 114 plants have been considered not eligible, 17 have been excluded and a waiver request has been submitted in relation to further 22 plants. With respect to Auction of Group B, the available capacity amounted to 5MW, in relation to which a sole demand has been submitted and it awarded a capacity of 1.7MW.
Focusing on Group C, a capacity of 60MW has been made available for Auction C, while 10MW has been granted by the GSE for Register C. With specific regard to Auction C, six applications have been submitted to the GSE for an overall capacity of 27.2MW, among which five demands have been admitted (with a capacity totally amounting to 21.5MW) and only one plant has been excluded. For Register C, eight plants applied for awarding the subsidies up to a capacity of 5.3MW. The GSE's final decision led to six awarding plants having an overall capacity of 3.1MW against 10MW offered under the ban.
With regard to the duration of the contracts for difference awarded to the bidders included in Groups B and C, we can point out the following:
- onshore wind farms with a capacity higher than 1,000KW shall be entitled to receive the subsidies for 20 years. The reference tariff/CFD is equal to EUR70/MWh;
- gas fired plants which are residual of gas purification processes shall be entitled to receive the subsidies for 20 years, regardless of the circumstance that their capacity is lower or higher than 1,000KW. The reference tariff/CFD is equal to EUR110/MWh for plants with a capacity between 1 and 100KW, EUR100/MWh for plants with a capacity of 100 and 1,000KW and EUR80/MWh for plants with a capacity higher than 1,000KW;
- the flowing-water power hydroelectric plants shall be entitled to receive subsidies for 20 years if they have a capacity between 1 and 400KW, for 25 years if they have a capacity between 400 and 1,000KW, against the 30 years of those with a capacity higher than 1,000KW. The reference tariff/CFD is equal to EUR155/MWh for plants with a capacity between 1 and 400KW, EUR110/MWh for plants with a capacity between 400 and 1,000KW and EUR80/MWh for plants with a capacity higher than 1,000KW; and
- hydroelectric plants with a reservoir, which if they have a capacity between 1 and 1,000KW shall be entitled to receive the subsidies for 25 years, against the 30 years for of those with a capacity higher than 1,000KW. The reference tariff/CFD is equal to EUR90/MWh for plants with a capacity between 1 and 1,000KW and EUR80/MWh for plants with a capacity higher than 1,000KW.
Plants which have been ranked as eligible in the Tabella A have to enter into commercial operation within the deadlines set forth in the FER Decree and in article 3.1.3 of the operating rules for the access to FER Decree's tariff (Regolamento operativo per l'accesso agli incentivi del DM 4 Luglio 2019 – Italian version available here) (Operating Rules), otherwise the tariff/incentive will be forfeited.
In particular, for the plants that are ranked in the Registers for Groups A, A-2 and B, the failure to comply with the deadlines for the entry into commercial operation set forth in the FER Decree determines the application of a reduction on the tariff offered, for the purposes of the determination of the due tariff, equal to 0.5% for each month of delay, up to a maximum of six months.
As far as the plants that are ranked in the Auctions for Groups A, A-2 and B are concerned, the FER Decree does not provide for any tolerated delay in the deadline for the entry into operation of the plants, therefore failure to comply with the terms provided therein leads to the loss of the incentive (this is why in EPC agreements a special indemnification is provided in favour of the owner of the plants in case of failure to complete the construction works within the terms provided in the FER Decree).
As far as the plants ranked in the Group C Registers and Auctions are concerned, failure to comply with the deadlines for the entry into commercial operation set forth in the FER Decree determines the application of a reduction on the tariff offered, for the purpose of determining the due tariff, equal to 0.5% for each month of delay, up to a maximum of eight months.
The plants ranked in the Registers, including those of Group C, which lose their right to access the incentives due to failure to comply with the deadlines mentioned above and which, subsequently, are readmitted to the Register through participation in a new procedure, will suffer a 5% reduction in the offered tariff.
According to article 4 of the Operating Rules, the requests for the incentives shall be submitted to the GSE by way of the FER-E portal within 30 calendar days from the commercial operation date of the plants admitted to the rankings, providing through the above mentioned portal all the data and information necessary for the technical-administrative preliminary investigation for the acceptance of the request.
In the event that the commercial operation date of the plants has been already reached before the publishing of the aforementioned rankings, the 30-day period will begin on the date the rankings have been published.
Delays with respect to the terms for the submission of the incentive requests lead to the forfeiture of the tariff/incentive for a period of time equal to that between the commercial operation date and the date of submission of the documentation to the GSE.
Moreover, to obtain the incentives for the plants admitted to the Registers whose power capacity exceeds 100kW as well as for the plants which have been ranked in the auction, a definitive personal guarantee shall be granted and delivered to the GSE within 90 days from the publication of the rankings, replacing the provisional personal guarantee delivered by the same at the time of the application which will be therefore returned by the GSE within 15 days from the receipt of the said definitive guarantee.
The formalisation of the convention with the GSE to obtain the incentives will take place within 90 days from the aforementioned relevant request submitted through the FER-E portal.
According to the FER Decree, two different types of incentives might be awarded to the selected plants:
- an all inclusive incentive tariff; or
- an incentive calculated as the difference between a fixed value and the hourly zonal price of energy (referring to the area in which the electricity is fed into the grid) (i.e. contract for difference).
Plants with a power capacity less than or equal to 250kW may opt for (i) or (ii) above, with the possibility to switch from one system to another no more than twice during the entire incentive period.
On the contrary, only the incentive is granted to plants with a power capacity higher than 250kW.
The second procedure is now open
The second procedure for Auctions and Registers applications will be held from January 31, 2020 until March 1, 2020 and it will also include the available capacity not awarded during this first procedure.
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.