Electricity regulation in Italy: overview

A Q&A guide to electricity regulation in Italy.

The Q&A gives a high level overview of the domestic electricity market, including domestic electricity companies, electricity generation and renewable energy, transmission, distribution, supply and tax issues. It covers the regulatory structure; foreign ownership; import of electricity; authorisation and operating requirements; trading between generators and suppliers; rates and conditions of sale and proposals for reform.

To compare answers across multiple jurisdictions, visit the energy and natural resources Electricity regulation Country Q&A tool.

This Q&A is part of the global guide to energy and natural resources. For a full list of content visit www.practicallaw.com/energy-guide.

Michele Cicchetti and Guglielmo Fabbricatore, Pavia e Ansaldo
Contents

Overview

Electricity market

1. Provide an overview of the electricity market in your jurisdiction, including recent trends over the last 12 months.

Overview

The electricity market in Italy was liberalised to further the objectives of Directive 96/92/EC (Electricity Directive) after almost 40 years of state nationalisation.

The Italian electricity market can be divided into three levels of activity:

  • Electricity generation from traditional and alternative sources.

  • Electricity imports and trading, including over-the-counter (OTC) wholesale, power exchange transactions and retail resale activities.

  • System services which include:

    • dispatching (the activity of issuing production orders to power stations and of balancing the grid by contracting energy reserve);

    • transmission (the delivery of electricity from power stations via the high voltage power lines of the transmission grid);

    • distribution (the delivery of medium and low voltage electricity to end users); and

    • metering (measuring the electricity in grid backbones and in offtake points of end users).

No licence is generally required to carry out generation, import, export, purchase, supply and metering businesses (Article 2, letter (a), Law No. 239/2004). The operation of the distribution grid is carried out by distribution system operators (DSOs) under a state concession regime. The transmission grid is a natural monopoly mostly owned and operated under a concession regime by Terna SpA, a publicly listed company.

The development and construction of new facilities (for example, transmission lines and power plants) require permits mandated by state and regional legislation to ensure, among other things:

  • Compliance with health and safety standards.

  • Environment protection.

  • Compatibility with existing infrastructure.

The process for obtaining such approvals is regulated by a combination of state and regional legislation and depends on the nature and location of the facility to be realised and permits required. The process is usually led by the regions (or, depending on regional legislation, further subdivisions delegated by the regions, for example, provinces), which co-ordinate the process involving all the agencies and authorities whose consent or opinion is required to finalise the permission process.

The Electricity and Gas Authority (AEEG) is the independent body that regulates, controls and monitors the electricity market in Italy. It provides an advisory and reporting service to the government and parliament, and formulates observations and recommendations concerning issues in the regulated sectors of electricity and gas. The AEEG may issue regulations that apply to market operators, and orders and decisions that affect single operators. The main sources of regulation in the energy market are state laws, regional laws and administrative regulations issued by the AEEG. See Question 2 and box, The regulatory authorities.

Recent trends

The economic downturn in Italy and the EU has led to a dramatic drop in total electricity consumption. However, the proportion of electricity generated from renewable energy sources has increased impressively due to the priority granted to renewable energy (dispatching priority). To meet the EU renewable energy targets accepted by the Italian state, Italian electricity regulations give priority to energy produced by renewable energy sources (see Question 7, Renewable energy targets). These two factors have led to a reduction in the quantity of electricity generated and sold by non-renewable energy providers.

Some types of renewable energy depend on weather conditions. Though the AEEG does not have the power to cancel dispatching priority, it has recently introduced penalties for shortfalls in injection by renewable plants.

In the second half of 2012, the electricity market experienced a sharp fall in consumer and wholesale demand thanks to lower gas prices and the entry of renewable production at nil variable cost. By mid-2013, electricity prices subsequently recovered to a level comparable with mid-2009, when Brent crude oil prices (the major trading classification that serves as a benchmark price for purchases of oil worldwide) were around half today's level. Italy has therefore significantly reduced price spread compared to other European markets, despite continuing differences in the electricity production mix which have always been highly disadvantageous for Italy.

Nevertheless, an analysis of prices currently paid by consumers in Italy's retail market shows a worrying upward trend. Domestic customers pay approximately 10% more per kilowatt-hour compared to 2009 as a result of the fiscal and parafiscal increase. On the other hand, the European Commission itself, looking at a decade-long timeframe in its Green Paper: A 2030 framework for climate and energy policies published last March, points out that while the general increase in wholesale energy prices in the EU has been moderate, final electricity prices, in real terms by various sectors and for households, have increased significantly. The main contribution to price increases for Italian consumers has come from tariff components of a fiscal or parafiscal nature (stranded costs).

For Italian and international investors, the key trends and developments in the Italian electricity market are as follows:

  • Finmeccanica, the Italian power engineering company, announced in October 2013 that it had decided to sell its power unit Ansaldo Energia to local state-owned bank, Cassa Depositit e Prestiti. The deal should help Finemeccanica reduce its debt.

  • In November 2013, E.ON announced that it had appointed Goldman Sachs to help advise it on the sale of its Italian businesses. E.ON has seven power stations in Italy, and 56% of the electricity it generates is from gas-fired power plants.

  • The Italian government revealed in November 2013 that it is planning to move its holdings in the gas and power grid networks into a single investment vehicle to help it attract investors.

Italy is trying hard to appeal to international investors. The government is reorganising its holdings in gas and power grid networks, and signing investment fund agreements with potential trade partners, such as Russia. In addition, improving economic performance is also having an impact on electricity consumption levels. Many analysts forecast that the renewable energy sector and transmission and distribution projects present the best opportunities for growth.

During the period from 2012 to 2022, Italy's overall power generation is expected to increase by an annual average of 0.9%, to reach 306.0TWh. Driving this growth is an annual 2.0% gain in gas-fired power. Coal-fired generation is expected to fall by 1.5% per annum, with the use of oil-fuelled generation to drop by an annual average of 13.0% over the period.

Following an estimated decrease in 2012 of real GDP (gross domestic product) of 2.4%, an average annual growth of 0.5% is forecast between 2012 and 2022. During the period of 2012 to 2022, the average annual growth rate for electricity demand is forecast to be 0.8%.

 

Regulatory structure

2. Describe the regulatory framework for the electricity sector, including the regulatory authorities.

Regulatory framework

The Bersani Decree. The first EU Electricity Directive (96/92/EC) was implemented by the Legislative Decree No. 79 of 16 March 1999 (Bersani Decree). The Bersani Decree introduced the first steps for liberalisation of the electricity market, by reviewing the entire power industry, reorganising its legal framework and laying down fundamental principles, including:

  • Full liberalisation of electricity generation and import from 1999.

  • Full liberalisation of the wholesale markets from 2004.

  • Full liberalisation of the retail markets from 2007.

  • Introduction of third party access to the grid (TPA), that includes:

    • fair and non-discriminatory terms and conditions for new connections to the grid;

    • regulated and non-discriminatory grid tariffs; and

    • fair and non-discriminatory dispatching activity.

  • Independence between generation, trading activities and transmission and dispatching activities from 2005 (unbundling).

  • An anti-monopoly threshold of 50% maximum market share by any single entity for the generation or import of electricity from 2000.

Law No. 239/2004. In implementing the second EU Electricity Directive (54/2003/EC) in 2004, Law No. 239/2004 introduced further measures, which include, among others:

  • A definition of central government's sphere of exclusive competence in the power industry.

  • Criteria of compensation to local governments for using land to build power plants to overcome the not in my back yard (NIMBY) syndrome.

  • Exemptions to the third party access regime for newly built grid infrastructures, including mainly interconnectors and transmission lines.

Further to Legislative Decree No. 79/99 and Law No. 239/04, subsequent legislation has been introduced reflecting EU law developments and demands in the electricity market.

In addition, pricing mechanisms have been amended to address some of the unintended consequences of the recent installation of large numbers of photovoltaic power generation plants. This aim is to reduce the impact on operators of conventional plants and certain intraday pricing distortions. A capacity payment mechanism has been introduced; conventional plants using non-renewable sources are granted specific compensation for making available their capacity to (Law Decree No. 83/2012 converted into Law No. 27 dated 24 March 2012 introduced):

  • Normalise input from non-programmable renewable sources.

  • Ensure grid security

Unbundling regulations. Regulations to ensure unbundling were also introduced (see Question 3, Unbundling requirements). Unbundling is the separation of management, accounting, and sometimes ownership or control, of the transmission and distribution activities from all other activities in the electricity industry. Through the structure of vertically integrated conglomerates and cross-subsidies between regulated and non-regulated businesses, the aim is to:

  • Guarantee efficient and non-discriminatory access to the infrastructure.

  • Prevent anti-competitive conduct.

Regulatory authorities

The Ministry of Economic Development (MSE) issues provisions that affect the general framework of the electricity industry.

The AEEG:

  • Issues detailed regulations, either independently or in accordance with principles laid down by the MSE.

  • Is a fully independent regulator.

  • Has power to set tariffs independently.

  • Employs decision-making commissioners appointed directly by the President of the Republic on the recommendation of the MSE and the approval of the government.

The Electricity Market Operator (Gestore dei Mercati Elettrici) (GME):

  • Organises the electricity exchange (including the day-ahead market, the intraday market, and the market for dispatching services) under the vigilance of the MSE.

  • Regulates the electricity exchange according to the principles of neutrality, transparency and objectivity where bids for the purchase and sale of power are traded.

In the context of renewable energy, the Electricity Services Operator (Gestore dei Servizi Energetici S.p.A.) (GSE), manages support schemes for renewable energy sources (RES) throughout Italy. GSE is a state-owned company, whose sole shareholder is the Ministry of Economy and Finance, which exercises its tasks under the vigilance of the MSE (see Question 7).

See box, The regulatory authorities.

 

Electricity companies

Main companies

3. What are the main companies involved in electricity generation, transmission, distribution and supply in your jurisdiction?

Generation

The main companies involved in electricity generation in 2012, listed by their share of national production, were:

  • Enel: 25.4%.

  • Eni: 9.5%.

  • Edison: 7.2%.

  • E.On: 4.4%.

  • Edipower: 3.9%.

  • GdF Suez: 3.6%.

  • A2A: 3.2%.

  • Tirreno Power: 3.1%.

  • ERG: 2.9%.

  • Iren: 2.2%.

  • Sorgenia: 1.9%

  • Axpo Group: 1.7%

  • Saras: 1.6%

  • Others: 29.6%.

Transmission

Terna - Rete Elettrica Nazionale SpA (Terna), is the transmission system operator (TSO). It is the owner of the majority of the transmission grid operation lines, and holds the concession agreement to operate that system. Terna is also in charge of dispatching municipal distribution grids, which it neither owns nor operates.

Terna's main responsibilities concern:

  • Dispatching services.

  • Balancing services.

  • Congestion management.

  • Reserve services.

  • Expansion and maintenance of transmission lines and the overall transmission grid.

Terna is a listed company. Its shares were first traded on the Italian Stock Exchange in June 2004. Its biggest shareholder is the state-run bank, Cassa Depositi e Prestiti (CDP), with a stake of 29.85%. CDP is a joint-stock company under public control.

Terna owns the concession relating to electricity dispatch and transmission activities (Decree of 20 April 2005 of the Ministry of Productive Activities), and maintains ownership of the capital assets and responsibility for planning, developing and maintaining the high-voltage National Transmission Grid.

Terna receives remuneration based on a tariff system set by the Authority for Electricity and Gas, in relation to the two important regulated activities granted under the Ministry of Economic Development's concession:

  • Transmission.

  • Dispatching.

As at 30 September 2013, the consolidated economic situation of Terna shows a net profit for the period of EUR411.6 million, an increase of EUR56.1 million (+15.8%) compared with the corresponding period for 2012. Revenue in the first nine months of 2013 amounted to EUR1,401.2 million, EUR102.5 million (+7.9%), more compared with the same period for the previous year. Of this, EUR1,241.8 million came from the transmission fee, divided between the parent company (EUR1,110.2 million) and its subsidiary Terna Rete Italia Srl (EUR131.6 million).

Distribution

Distribution grids are operated under a concession agreement regime. In medium and large cities, most of the concessions are awarded to utility companies controlled by municipalities (normally the majority shareholder). The operators holding concessions have authority to manage the service on a monopolistic basis in their territory (see Question 20). In most smaller towns, villages and rural areas, Enel's subsidiary, Enel Distribuzione S.p.A., operates the distribution grid (see above, Generation). The main distribution companies include:

  • Acea Distribuzione (Rome).

  • A2A (Milan and Brescia).

  • Aem Torino Distribuzione (Turin).

  • Hera (Bologna and surrounding towns).

  • Acegas (Trieste).

  • Deval (Aosta).

  • AGSM (Verona).

  • AIM (Vicenza).

  • SET (Trento).

  • AE-EW (Bolzano).

Distribution and supply activities must be unbundled (see below, Unbundling requirements). Separate companies forming part of the same group of companies are permitted but they must not share information or commercial centralised services. An exemption for smaller companies applies so long as there is accounting unbundling.

Supply

Supply is divided into the wholesale and retail levels:

  • Wholesale supply. In 2012, wholesale supply was divided between:

    • OTC transactions by independent traders (45%);

    • transactions in the power exchange by independent traders (35.4%);

    • purchases by Acquirente Unico, the company granted with an exclusive right to the wholesale procurement of electricity to be supplied under a regulated tariff to end users (15.4%).

    The remainder of the supply was negotiated abroad or in order to provide a back-to-back physical balance of financial transactions (including contracts for differences agreed on strike prices).

  • Retail supply. Major retail suppliers include:

    • Enel;

    • Edison;

    • Acea;

    • Eni;

    • A2A;

    • Hera;

    • E.On;

    • Iren;

    • Dolomiti Energia;

    • AGSM;

    • AE-EW;

    • CVA; and

    • Innowatio.

Unbundling requirements

The Bersani Decree introduced the principles behind unbundling requirements. The specific regulation was implemented by the AEEG through Resolution No. 11/2007, which approved an integrated system of unbundling requirements in the electricity and gas sector. The Resolution requires:

  • Functional separation (separazione funzionale) of vertically integrated companies to:

    • promote competition and efficiency;

    • ensure the independence of senior management involved in the operation of essential infrastructure;

    • avoid discrimination in access to commercially sensitive information; and

    • avoid cross-subsidies between different activities.

  • Accounting separation (separazione contabile) to:

    • ensure a reliable and consistent information flow regarding a company's economic condition;

    • promote neutrality in infrastructure operation; and

    • avoid cross-subsidies between activities and departments.

Unbundling requirements apply to companies that operate in one or more activities in the electricity sector and in the natural gas sector.

Following the completion of the liberalisation of retail competition (Law No. 125/2007), from 1 June 2007 (the main liberalisation of supplies to final users occurred on 1 April 1999) these unbundling rules also bind suppliers to residential end users.

 

Foreign ownership

4. Are there any restrictions concerning the foreign ownership of electricity companies in your jurisdiction?

The Italian government has special powers to veto the sale of strategic assets in the energy, transport and communications sector (Law Decree No. 21/2012). These are assets defined as "strategic", as they are considered necessary to ensure the safety of the system and continuity of supply. The Italian government can impose restrictions on any transactions or resolutions that may prejudice the public interest, among others, in the energy sector.

A company that owns or operates strategic assets must notify the government of any resolution, action or transaction that may affect the transfer to non-EU residents of the asset, including:

  • Resolutions of shareholders' and board of directors' meetings concerning a merger or demerger.

  • Changing the company's registered office to outside Italy.

  • The transfer of a business as a going concern, which includes the transfer of a strategic asset.

  • The transfer of a subsidiary owning a strategic asset.

A specific procedure applies to purchases by non-EU residents of strategic assets or shares in companies that own these assets. The Government (Presidenza del Consiglio dei Ministri) must be notified beforehand. It may approve the transfer during a standstill period during which voting rights relating to the relevant stake are suspended. If the transaction carries a risk of serious threat to national strategic interests, the Government may still annul the purchase. The regulations governing notification of strategic asset sales has not yet been issued but will list those companies and assets that must comply with the procedure.

 

Import of electricity

5. To what extent is electricity imported in your jurisdiction and are there interconnection issues?

Italy imported about 13.2% of the electricity it used in 2012, more than any other European country.

The Italian transmission grid is interconnected to foreign power systems, also under the vigilance of the Union for the Co-ordination of Transmission of Electricity (UCTE), via 22 interconnection lines:

  • France (four).

  • Switzerland (twelve).

  • Austria (one).

  • Slovenia (two).

  • Greece (one direct cable)

  • Between Sardinia and Corsica (two power lines, one of which also links Corsica to mainland Italy).

Further interconnection lines are being developed with Montenegro, France, Austria, Slovenia, Algeria and Tunisia.

Interconnection capacity over these lines is a limited resource and is allocated on a yearly basis through fair and non-discriminatory proceedings. The flow is normally inbound towards Italy, though outbound flows are increasingly common due to lower prices in Italy in certain market conditions and the need for reserve capacity by interconnected systems.

 

Electricity generation and renewable energy

Sources of electricity generation

6. What are the main sources of electricity generation in your jurisdiction?

Most electricity is generated in thermoelectric plants using non-renewable fossil fuels with a number of technologies including steam plants (mono and multi-fuels), CCGT (combined cycle gas turbine) plants and gas turbines. Thermoelectric generation counts for up to 67.8% of national energy production.

Fossil fuels

Of fossil fuels, natural gas is the most commonly used (65% equal to 125,150 GWh), followed by coal (23%) and other oil products (4.2%).

Gas-fired power plants account for just under half of Italy's electricity generation capacity. The current legal framework makes it likely that gas will continue to come from conventional sources, rather than shale gas exploration. However, the gas-fired power market is likely to see changes in the near future, given E.ON's announcement that it is considering selling its Italian assets.

Nuclear fission

In 1987, a national referendum voted to ban nuclear power plants in Italy in the wake of the Chernobyl accident. No further nuclear plants have since been built. This was re-confirmed by referendum in 2011 when a new nuclear programme was being considered. The referendum was diarised before the Fukushima disaster but was held shortly after it. 95% of effective voters rejected the re-introduction of a nuclear programme with 43% of registered voters abstaining.

Renewable energy

During 2012, Italy produced 91,640GWh of electricity from renewable energy sources. This corresponded to 32.2% of net domestic electricity production.

Out of total energy production in 2012, renewable sources made the following contribution:

  • Hydroelectric plants: 43,322GWh (-8.2%).

  • Biomass plants: 11,638GWh (+15.5%).

  • Wind powered plants: 13,119GWh (+34.2%).

  • Photovoltaic plants (the technology mainly used in generating electricity from solar light, the other being a number of solar thermal technologies): 18,323GWh (+72%).

  • Geothermic plants: 5,238GWh (-1.5%).

 
7. Are there any government policies, targets or incentives in place to encourage the use of renewable energy?

Government policies/incentives

Incentives to encourage the use of renewable energy were first introduced in 1992, before the liberalisation of the electricity market. Italy has since introduced many other incentives to meet its goal of reducing carbon emissions by 2020. The Electricity Services Operator (GSE) manages support schemes for renewable energy sources (RES) throughout Italy. GSE is a state-owned company, whose sole shareholder is the Ministry of Economy and Finance, which exercises its functions under the vigilance of the Ministry of Economic Development (MSE). GSE fosters sustainable development by providing support for renewable electricity generation and by taking action to build awareness of environmentally efficient energy uses.

Incentives being paid at present include:

  • The CIP 6 regime. In 1992, the Interministerial Committee on Prices (Comitato Interministeriale dei Prezzi) (CIP) introduced a regime for generation plants using renewable energy sources and assimilated renewable sources. Assimilated renewable sources are cogeneration (utilising the spare heat, exhaust fumes and other forms of energy recoverable from processes and plants and the use of industrial waste and fossil sources produced exclusively from small isolated deposits). Although it is no longer available for new plants, projects commenced under the CIP6 regime continue to benefit from related incentives. The incentives consist of:

    • a preferential off-take price for the duration of the CIP6 contract (15 years' duration from the plant's entry into operation); and

    • compensation for the higher cost of using new technology (eight years' duration).

  • The Green Certificates regime. The Green Certificates regime was introduced in 2002 to encourage the production of energy from renewable sources and construction of electricity generation plants allowing the conversion into electricity of primary renewable energy sources (for example, wind, solar, hydro, geothermal, biomasses, tidal and waves). Green Certificates (Certificati Verdi) are tradable instruments issued by the GSE on request to the owners of plants producing energy from renewable sources (Impianti Alimentati da Fonti Rinnovabili) (IAFR plants). Green Certificates may be issued for between eight and 15 years from entry into commercial operation of the plant. The owner may sell Green Certificates in the market at freely negotiated prices.

    No new RES plants can enter the Green Certificates regime after 30 April 2013. From 1 January 2016, the Green Certificates regime will be replaced by a feed-in tariff.

  • The 2008 feed-in tariff. This applies to renewable energy plants with production capacity below 1 MW, ranging between 180 and 300 EUR/MWh. A tariff is paid by GSE for electricity injected into the transmission grid, which is sold, in effect, to GSE. The regime lasts 15 years from the date on which the plant entered into commercial operation.

  • The Conto Energia regime. The Conto Energia regime applies specifically to photovoltaic plants. The GSE pays a premium tariff for 20 years from the date of operation of the plant. The MSE has approved five different Conto Energia decrees in the last eight years with different tariff levels and conditions. Independently from the payment of the premium tariff, the electricity produced by the plant can be sold by the generator on the market or directly to GSE, by entering into a power purchase agreement (convenzione per il ritiro dedicato). During 2013, the Conto Energia incentives scheme was terminated having reached the threshold of 6.7 billion in cumulative annual costs fixed by the Fifth Conto Energia Decree for photovoltaic plants (Ministerial Decree of July 5, 2012).

  • The 2008 feed-in tariff for solar thermal energy. A specific feed-in tariff was also introduced in 2008 for solar thermal energy (fonte solare mediante cicli termodinamici), which lasts for 25 years from the commercial entry into operation of the relevant plant. Once a specific surface cap is reached, the regime will no longer be available for new plants.

  • The 2012 feed-in tariff regime. This tariff applies to all renewable plants except photovoltaic plants and lasts as long as the technical lifespan of the specific technology lasts. This is set out in the relevant regulation and varies from 15 to 30 years, with an average of 20 years. Access to this regime takes place by pre-registration and competitive tender for plants with capacity above 5 MW. No pre-registration is required for plants with capacity below 5 MW.

  • The simplified purchase and resale arrangements (ritiro dedicato). GSE has offered simplified purchase and resale arrangements (ritiro dedicato) to small producers since 1 January 2008. Under these arrangements (AEEG' s Decision no. 280/07), producers sell the electricity generated and to be injected into the grid to GSE, instead of selling it through bilateral contracts or directly on IPEX. An agreement is entered between the producer and GSE, where GSE:

    • purchases and resells the electricity to be fed into the grid at the zonal price or at a minimum guaranteed price;

    • transfers the fees on behalf of the producer for the use of the grid (dispatch and transmission fees) to distributors and the TSO.

    The eligible parties are producers with:

    • plants having a nominal apparent power of less than 10 MVA, RES plants or hybrid plants for the portion of electricity generated from RES;

    • plants of any capacity using the following RES: wind; solar; geothermal; waves; tides; hydro (run-of-river only);

    • plants with a nominal apparent power of less than 10 MVA, non-RES plants or hybrid plants for the portion of electricity generated from non-RES;

    • plants having a nominal apparent power greater than or equal to 10 MVA, plants using RES other than wind, solar, geothermal, waves, tides and hydro (run-of-river only), provided they are owned by a self-producer as defined in paragraph 2, Article 2 of Legislative Decree no. 79/99.

    The simplified purchase and resale arrangements are not compatible with net metering (scambio sul posto) and with the all-inclusive feed-in tariff.

Renewable energy targets

Italy has agreed to be bound by EU regulations brought in to comply with the Kyoto Protocol to the United Nations Framework Convention on Climate Change. One of its main aims is to set internationally binding targets to reduce the emission of Greenhouse Gases (GHG). The EU has set a target towards this goal that 17% of a member state's domestic energy consumption must come from renewable energy sources by 2020. Italy is on track to achieve this.

When the target was agreed in 2009, 8.89% of Italy's domestic energy consumption came from renewable energy sources. By 2010, it was 10%. At the end of 2012, renewable energy sources played an important role within the national electricity system. The plants fuelled by renewable sources account for about 37% of the total power installed in Italy and 31% of the total gross production. The number of RES plants throughout the country continued to grow in 2012 to 484,587 RES plants, driven primarily by the growth of photovoltaic systems. The installed power in Italy in 2012 grew 47,335 MW from the previous year through the installation of new wind farms, plants fuelled with bio-energy and, in particular, solar power. Renewable energy production, with the contribution of new installations, set a new record, reaching 92,222 GWh, 11% more than in 2011.

An increase to 100 TWh by 2020 is considered achievable. This would ensure meeting the EU target of 17%. Other measures to achieve the target include:

  • Energy saving devices, such as:

    • smart grids (devices and systems to be installed on grid networks to improve efficiency, reliability and sustainability in the production and distribution of electricity);

    • special programmes (including electricity transportation and substitution of heating systems);

    • encouraging more insulation of buildings;

    • cogeneration (thermoelectric plants emit heat as a by-product of electricity generation. Cogeneration is the capture and use of this heat);

    • district heating (centralising heating systems at neighbourhood level).

  • The use of cleaner fuel for transportation.

By 2020, Italy hopes to exceed its 17% EU target with 26.4% of its domestic electricity consumption by end users coming from renewable energy sources, including 17.1% of heating from electricity and 6.4% from sustainable transport.

The large increase in the production of electricity from renewable energy sources changes the national position compared to other EU-15 countries. In 2012, only Germany and Sweden have produced more than Italy from renewable sources.

In 2005, the EU introduced the EU Emissions Trading Scheme (EU ETS) with a view to reducing CO2 emissions in energy-intensive sectors, such as electricity, cement, steel, aluminium, bricks and ceramics, glass, chemicals and aviation. The scheme is an integral part of the Climate-Energy Package and the main instrument through which the EU intends to achieve its CO2 emission reduction targets by 2020. EU-ETS installations must yearly monitor their GHG emissions and offset them with emission permits (allowances) which may be bought and sold in the market. The manufacturing sector will receive a share of allowances free of charge until 2020. Free allocation is carried out on the basis of ambitious benchmarks. However, since 2013, emission allowances have been auctioned.

Italy owned 9.4% of the allowances auctioned in 2012 and auctioned 87.9 million allowances in 2013 out of 808 million allowances in all the platforms. It is expected to auction an average of 90 million allowances per year. The Italian Government decided to auction its allowances on the European Common Auction Platform (T-CAP), where the allowances of 25 out of 28 EU member states are traded. GSE acts as its auctioneer. GSE participates, on behalf of the Italian Government, in each of the auctions managed by the (transitional and final) CAP, selling Italian allowances and transferring the proceeds to the Treasury. See box, Renewable energy sources.

 
8. What are the main obstacles to the development of renewable energy in your jurisdiction?

In the past, typical obstacles to the development of renewable energy were delays in the permitting procedures and grid congestion in certain areas of the country. These barriers no longer appear to apply: in 2012, over 148,135 photovoltaic plants were connected to the grids with a capacity of around 3,647 MW. In 2013, the Conto Energia incentives ended after reaching the cumulative annual cost threshold of EUR6.7 billion.

However one obstacle is the changes in the incentive regime, which has made financial planning difficult (see Question 7, Government policies/ Incentives). The changes are a natural result of an unexpectedly high level of investment in renewable energy. Unlike other countries, these changes do not affect plants that have already obtained the grant of the incentives.

The Destinazione Italia Decree, effective on 24 December 2013 (converted into law pursuant to Law no. 9 dated 21 February, 2014) provides:

  • Amendments to minimum guaranteed prices under the take-off regime (ritiro dedicato). From 1 January 2014, the minimum guaranteed prices under the take-off regime to be set by the Italian Authority for Electricity and Gas (AEEG), will be equal to the hourly zone price (and therefore equal to the market prices) if the energy is produced by photovoltaic plants which benefit from other incentive mechanisms borne by the electrical bills (for example, feed-in tariff) (paragraph 2, Article 1, Destinazione Italia Decree). The reduction does not apply to energy produced by photovoltaic plants with a nominal peak power up to 100 kW.

  • Re-modulation of the incentives. Producers of electricity from renewable sources owning plants benefiting from all-encompassing tariffs (tariffa omnicomprensiva) or green certificates can either (paragraphs 3 to 6, Article 1, Destinazione Italia Decree):

    • continue to benefit from the same incentive regime due for the residual period. In this case, for ten years from the due term for the incentives regime (20 years from the entry into operation of the plant), any work carried out in the same site (for example increases in the power of the plant and complete restructurings of the plant), will not be entitled to obtain any further incentives including the take-off regime (ritiro dedicato);

    • opt for the re-modulation of the incentive regime already granted to the plant by the GSE. In this case, the producer will be entitled to an incentive that is reduced by a percentage yet to be defined by a ministerial decree. The reduction applies for the residual period for the incentives for the plant plus an additional seven years. The ministerial decree which must be adopted, subject to the opinion of the AEEG, within 60 days from 24 December, 2013, must set out the amount of the reduction in the incentive taking into account the residual period of incentives for the plant.

    If the producer does not opt for the re-modulation of the incentives, negative consequences are limited to a bar to further forms of incentives (including the take-off regime in case of increases in power, or full reconstructions of the plant), for a period of ten years running from the end of the period of the right to the feed-in tariff regime.

    If the producer opts for the re-modulation of the incentives that will be lower than those already granted and received over more than seven years from the original period, it must take into consideration:

    • financial factors (inflation and the cost of lending);

    • loss of efficiency of the plant as a result of physical wear and tear;

    • possible expiry of the authorisations to build and operate the photovoltaic plants;

    • risk of exposure for a further seven years regarding the incentives.

 
9. Are there any plans to build new nuclear power stations in your jurisdiction?

There are no plans to build new nuclear power stations in Italy at present. Following the 2011 referendum, constitutional practice provides that nuclear programmes cannot be proposed until general elections are held (see Question 6, Nuclear fission). The first general election after the referendum was on 24 February, 2013. In theory, nuclear programmes may be re-considered but this is unlikely given the current political climate.

 

Authorisation and operating requirements

10. What are the authorisation requirements to construct electricity generation plants?

Thermoelectric generation plants

Law Decree No. 7/2002 implemented a unified authorisation procedure (Autorizzazione Unica) (AU), for both the construction and operation of thermoelectric generation plants with an installed capacity exceeding 300 MWth. See Question 12.

Renewable energy generation plants

Article 12 of Legislative Decree No. 387/2003 introduced an AU procedure for both the construction and operation of generation plants using renewable energy sources.

AU procedure

In relation to thermoelectric generation plants, the Ministry of Economic Development issues an AU after obtaining all the necessary consents from other bodies. The time limit for issue of the AU is six months from the relevant application.

In relation to renewable energy generation plants, the AU takes the place of most other necessary permits and consents, and also covers the connection cable. The AU is issued by regions (or by provinces when delegated), after a conferenza dei servizi. This is a non-judicial process ending in a hearing attended by authorised public representatives of interested bodies that may be affected by the proposed RES generation plant. The decision is made by vote either in person or by absentee poll. The time limit for issue of the AU is 90 days from the relevant application.

 
11. Are there any requirements to ensure new power stations are ready for carbon capture and storage (CCS) technology, or requiring a plant to retrofit CC technology once this is ready?

There are currently no requirements to ensure new power stations are ready for CCS technology or requiring a plant to retrofit CC technology once this is ready. Some pilot programmes have been launched by Enel. An offshore project in the Adriatic Sea is underway with the aim of capturing the carbon dioxide produced by power stations located in the polluted Po flatlands.

 
12. What are the authorisation and main ongoing requirements to operate electricity generation plants?

The AU covers the operation of both thermoelectric and renewable energy generation plants (see Question 10). In relation to thermoelectric plants (whether fed by renewable sources or not), Legislative Decree No. 152/2006 requires the issue of an integrated permit in accordance with Directive 96/61/EC concerning integrated pollution prevention and control (IPPC). The IPPC permit is not included in the AU and must be renewed periodically (unlike the AU). The IPPC permit includes authorisations for:

  • Air emissions.

  • Waste water discharges.

  • Disposal and recovery of waste.

The main ongoing requirements include:

  • Renewal of the initial five-year period of an IPPC permit. An application for a further five years must be filed six months before the expiry period (see above).

  • Scrutiny by the local health service (Azienda Sanitaria Locale) (ASL) to ensure a safe working environment.

  • Compliance with the directives of the International Organisation for Standardisation (ISO) regarding the operation of turbines.

  • Compliance with UNI regulations (Ente Nazionale Italiano di Unificazione) of any equipment involving pressurised components (Ministerial Decree No. 329/2004).

  • Compliance with Directive 96/82/EC on the control of major accident hazards involving dangerous substances (Seveso II Directive) and any implementing provisions.

 
13. What requirements are there concerning interconnection of generation to the transmission grid?

Interconnection obligation

The national transmission grid is subject to a general obligation to allow third party access. Granting access to the grid means:

  • Physically connecting the users. In Italy, interconnection refers only to cross-border interconnections between national systems or between the interconnection of distribution grids to the transmission grid. Terna and distribution grid operators must accept and implement any request for connection from a new power station and by end users. Terna can only reject a connection request if either:

    • accepting would threaten the reliability of the service; or

    • the requesting party does not observe the terms and conditions of the AEEG.

  • Allowing electricity flow. Allowance of electricity flow is an issue for dispatching and balancing, which falls outside of the connection obligation.

Interconnection difficulties

With the growth of a large number of generation plants, mainly from renewable energy sources wishing to be connected to distribution grids, requests for connection have reached virtual saturation of the grids' available capacity. The grids have not actually, in many cases, become physically congested. Connection consents are granted before plants are constructed but the corresponding grid capacity is allocated at the same time. If plants are not built, subsequent applicants may be denied connection consents on the same lines, and grid operators have refused to invest to increase capacity on the grids to meet a notional demand.

New systems for grid interconnection

The AEEG attempted to resolve the difficulties by implementing regulations aimed at discouraging excessive interconnection requests, including:

  • Frequent confirmation duties, by requesting that the applicant periodically send formal confirmation that the new power plant will be built.

  • Financial guarantees from new applicants.

After a number of judicial rulings, the following system is now in place:

  • A connection consent, which books grid capacity, is issued for a short time period.

  • If consent expires without the issue of a permit to construct the power plant, the consent remains valid, but the booking of the grid capacity is lost. The grid operator is free to use that capacity to connect other plants to the same line.

 

Electricity transmission

Authorisation and operating requirements

14. What are the authorisation requirements to construct electricity transmission networks?

To construct a new transmission line, a single authorisation from the Ministry of Economic Development and the Ministry of the Environment and Protection of Land and Sea (Ministero dell'Ambiente e della Tutela del Territorio e del Mare) (MATTM) is necessary (Law No. 290/2003). This authorisation includes a positive environmental impact assessment from the relevant delegated entity, generally at regional level.

Permission to build transmission lines for the connection of new renewable power plants is contained in the authorisation for the construction and operation of the plant (see Question 12).

Terna is responsible for the development of the electricity system on the basis of a three-year grid development plan, which is updated every year.

 
15. What are the authorisation and main ongoing requirements to operate electricity transmission networks?

The authorisation to operate high-voltage electricity transmission networks is set out in the concession agreement with Terna (see Question 14).

Grid operators must comply with the TPA regime to grant interconnection to third parties. Private investors financing new commercial lines that allow a wider cross-border interconnection may be able to obtain an exemption from the regime from the Ministry of Economic Development on the advice of the AEEG.

Generally, exemptions are only available to continuous voltage lines. Alternate voltage lines can benefit from the exemption only in exceptional circumstances where investment is extremely burdensome compared to the average market cost.

 

Rates

16. How are the rates and conditions for the transmission of electricity regulated?

The AEEG regulates the rates for the transmission of electricity. Regulations setting tariffs cover three-year periods and follow the cost cap mechanism. This mechanism sets a limit on annual tariff increases and is calculated on the basis of capital invested and recognised efficient operational costs:

  • Capital invested. This is calculated as the real asset base, on historical costs that are updated nominally. For instance the value of line will be deducted from their book value which will be indexed to inflation but not to appreciation of their market value.

  • Operational costs. These are set on the basis of:

    • those standardised operational costs that the AEEG considers to be efficient; and

    • capital costs amortised in the relevant year.

The operators calculate the relevant tariff on the basis of this method, and apply to the AEEG for approval.

TRAS (componente tariffaria di trasmissione), the 2013 transmission tariff, ranges between Eurocent 0.550/kWh and Eurocent 0.608/kWh. Detailed figures can be found on the AEEG's website.

 

Electricity distribution

Authorisation and operating requirements

17. What are the authorisation requirements to construct electricity distribution systems?

Distribution system operators manage the distribution service on a monopolistic basis, under the terms of concession agreements with the Ministry of Economic Development (see Question 3, Distribution).

To construct low and medium voltage lines, an application must be made to local authorities for a permit under Royal Decree No. 1775/1933. Local authority consents and waivers are also necessary if the voltage is greater than 5kV.

For example in Apulia, the construction of a cable line could be authorised by filing a simple notice of commencement of works (Denuncia di Inizio Lavori) (DIL). After a 30-day standstill period, in the absence of any objections by the province, works can commence.

For the construction of other distribution lines a simple assent from the competent local authority is sufficient (Presidential Decree No. 619/1955).

 
18. What are the authorisation and the main ongoing requirements to operate electricity distribution systems?

The concession agreement with distribution system operators includes authority to operate the system (see Question 17).

Distribution areas must have a minimum range of a municipality and a maximum range of 25% of the total number of national users. Around 200 distribution operators exist, some of which hold more than one concession agreement.

All existing concessions are due to expire on 31 December 2030.

The review of permits for existing lines has sometimes been required when issues arise regarding electromagnetic pollution during the installation of cable lines. The pollution can interfere with local telecom lines. Operators of electricity lines have an ongoing duty to maintain fire prevention safety standards.

Tree maintenance adjacent to lines passing through rural and mountain regions is also important.

 

Rates

19. How are the rates and conditions for the distribution of electricity regulated?

Distribution companies set their own tariffs according to the Electricity and Gas Authority (AEEG) guidelines.

There is a basic distribution tariff with optional tariffs subject to approval by the AEEG. Extra costs borne by distributors that exceed the basic tariff can be compensated through a tariff set-off mechanism if demonstrated to be justifiable.

The AEEG defines the method of tariff-calculation. The operators calculate the tariffs and apply for the AEEG's approval (see Question 16).

The 2013 distribution tariffs have three components:

  • A fixed fee for connection point.

  • A fee related to capacity.

  • A fee related to transported electricity.

Detailed figures are available on the AEEG's website.

 

Electricity supply

Authorisation and operating requirements

20. What are the authorisation and the main ongoing requirements to supply electricity systems?

No specific authorisation is required to supply electricity distribution systems.

There is a duty to provide data to the Electricity and Gas Authority (AEEG) for statistical purposes.

Suppliers must comply with a number of AEEG regulations, such as:

  • Preventing undesired supply agreements.

  • Managing a balance between unpaid bills and social rights for preserved protected categories by avoiding or limiting the interruption of supply.

  • Maintaining accurate metering and billing.

  • Giving clear explanations of levels of service, billing breakdown and new commercial offers.

  • Providing stringent client care in respect of call centres, the behaviour of commercial agents and flexible methods of payment to customers.

  • Compliance with rules regarding new supply agreements, documentation and the right of withdrawal within ten days.

  • Allowing a short-term prior termination notice by customers to facilitate switching between suppliers.

 

Trading between generators and suppliers

21. How is electricity trading (between generators and suppliers) regulated?

Since 31 March 2004, centralised electricity trading has taken place in the Italian power exchange (IPEX). To trade in the IPEX, traders must be admitted by the Electricity Market Operator (GME). OTC trading is allowed.

The current IPEX platform was replaced with the new EuroIPEX on 31 March 2014.

 

Rates and conditions of sale

22. How are the rates and conditions of sale regulated at the consumer and wholesale level?

Consumer

Generally, supply prices can be freely negotiated. A supply regulated price is available to all users and is normally a benchmark for alternative pricing offers by suppliers. The user can opt for either the regulated price or the one offered by the supplier.

At the consumer level, the retail supply tariff is set and regulated by the Electricity and Gas Authority (AEEG). Every quarter the AEEG sets a regulated price based on recognised costs that aims:

  • To minimise the impact of the variable costs of inflation.

  • To implement the social policy that prices have the same impact on all categories of end-user.

The regulated prices can be accessed in detail at www.autorita.energia.it/it/dati/condec.htm. The AEEG also provides estimates of the annual average cost of electricity for families: www.autorita.energia.it/it/elettricita/stimaspesa_ele.htm.

The metering tariff is separate from the regulated supply price and can be accessed at www.autorita.energia.it/it/elettricita/schede/mis.htm.

Wholesale

The wholesale price is not regulated. It tends to be highly volatile due to varying demand and supply, bottlenecks and other dispatching issues.

According to the AEEG, in 2012 the weighted average wholesale price was EUR75.53/MWh (4.6% more than in 2011).

Peak prices have moved from the central hours of the day to early evening. This is due to the high supply of electricity from photovoltaic plants in the central hours of the day. In the early evening, there is comparatively no photovoltaic generation. Daily wholesale market prices are available at www.mercatoelettrico.org/En/Default.aspx.

 

Tax issues

23. What are the main tax issues arising on electricity generation, distribution and supply?

Corporate taxes

Corporate profits are subject to two taxes:

  • Corporate income tax (Imposta sul Reddito delle Società) (IRES). This is a state tax, charged at 27.5%.

  • Regional tax on productive activities (Imposta Regionale sulle Attività Produttive) (IRAP). IRAP is a regional tax and is charged at different rates.

Electricity businesses pay reduced VAT of 10% but must also pay an additional company income tax, known as the Robin tax. Last regulated by Legislative Decree No. 138/2011, the Robin tax amounts to an additional tax on top of the IRES of 27.5% for companies engaged in:

  • The research and exploitation of hydrocarbon, oil refining, the production and sale of petrol, gasoline, gas, lubricating oil, liquefied gas of patrol and natural gas.

  • The production, distribution and sale of electricity.

  • The transportation or distribution of natural gas with revenues above EUR10 million and a taxable income of more than EUR1 million (in the previous year).

For the tax periods 2011 to 2014, an additional 10.5% Robin tax on top of IRES is payable, resulting in an IRES tax liability of 48.0%. After this period, it will be reduced to an extra 6.5% on top of IRES (34%).

Excise duties

Excise duties are stamp duties, charged under Legislative Decree No. 504/1995, on the consumption of electricity, as measured at the meters of end users and generators. They are paid only by end users and are collected by suppliers together with VAT. They are based on the consumption of electricity as measured by the meters.

Before generating electricity, a company operating a plant must file a communication to the local tax office (Ufficio Tecnico di Finanza) (UTF) to obtain a user code (codice utente) (Article 53-bis.1 of Legislative Decree No. 504/1995). If the plant:

  • Delivers 100% of production to the grid and meets its own energy requirements from an alternative low voltage supply from the grid, no tax implications arise. Part of the excise duty the supplier will hand over with VAT will include an element of the electricity consumed under its separate supply agreement as an effective end user.

  • If the plant does not deliver 100% of production to the transmission grid (because it needs to use its own energy production), it must obtain a licence from the UTF by filing a notification (denuncia di apertura di officina elettrica), verifying the plant's meters are sealed in line with tax standards so that the excise duty it must pay can be calculated.

 

Reform

24. What reform proposals are there for the regulation of the electricity sector?

There are no current proposals for regulatory reform of the electricity sector.

 

The regulatory authorities

The Electricity and Gas Authority (Autorità per l'energia elettrica e il gas) (AEEG)

Address. Piazza Cavour, 5 20121 Milan, Italy
T +39 02 65 56 51
F +39 02 65 56 52 66
E info@autorita.it
W www.autorita.energia.it

Main responsibilities. The AEEG:

  • Sets tariffs for the regulated sectors.
  • Establishes guidelines for production and distribution services.
  • Formulates observations and recommendations regarding market structure.
  • Reports to the Anti-trust Authority any suspected competition infringement.
  • Makes observations to the government and Parliament concerning licences and authorisations.

Ministry of Economic Development (Ministero dello Sviluppo Economico/Settore Energia) (MSE)

Address. Via Molise, 2 00187 Rome, Italy
T +39 06 47 05 1
W www.sviluppoeconomico.gov.it

Main responsibilities. The MSE manages and co-ordinates:

  • The security of supply and energy infrastructure.
  • Mineral and energy resources.
  • Nuclear fission, renewable energies and energy efficiency.

Electricity Market Operator (Gestore dei Mercati Energetici) (GME)

Address. Largo Giuseppe Tartini, 3 00198 Rome, Italy
T +39 06 80 12 1
W www.mercatoelettrico.org (English version of the website is available.)

Main responsibilities. The GME is responsible for:

  • Economic management of the Electricity Market.
  • Management of the Day-Ahead Market (MGP), the Intra-Day Market (MI), the Ancillary Services Market (MSD) and the Forward Electricity Market (MTE).
  • Management of the Environmental Markets (Green Certificates Market, Energy Efficiency Certificates Market, Emissions Trading Market).

Electricity Services Operator (Gestore dei Servizi Energetici) (GSE)

Address. Via Maresciallo Pilsdusky 92, 00197 Rome, Italy
T +39 06 80 11 1
W www.gse.it (English version of the website is available.)

Main responsibilities. The GSE is responsible for:

  • Support for renewable electricity.
  • Purchase of electricity from producers and resale in the market.
  • Support to institutions and to the Public Administration.
  • Promotion of renewables and of the renewable-energy industry.


Online resources

W www.parlamento.it/leg/ldl_new/v3/sldlelencoordcron.htm

Description. This website belongs to the Italian Parliament and contains all the national laws and regulations. It is regularly maintained with the latest laws and approved decrees. However, old laws and regulations are not updated or modified with related amendments. The information is only available in Italian.


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