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The European Commission has approved, under EU State aid rules, an Italian scheme to support a total of 4590 MW of new capacity for electricity production from renewable energy sources. The scheme contributes to the EU’s strategic objectives relating to the European Green Deal, while helping to end dependence on Russian fossil fuels and fast forward the green transition.
The Italian scheme
Italy notified the Commission of its intention to introduce a scheme to support the production of electricity from renewable energy sources. The measure, which will run until 31 December 2028, will be financed through a levy included in the electricity bills of final consumers.
The scheme will support the construction of new plants running on innovative and not yet mature technologies, namely geothermal energy, offshore wind power (floating or fixed), thermodynamic solar, floating solar, tidal, wave and other marine energy as well as on biogas and biomass. The plants are expected to add a total of 4590 MW of renewable electricity capacity to the Italian electricity system. Depending on the technology, the deadline for successful plants to enter into operation varies between 31 to 60 months.
Under the scheme, the aid will take the form of a two-way contract for difference for each kWh of electricity produced and fed into the grid, and will be paid for a duration equal to the useful life of the plants. The projects will be selected through a transparent and non-discriminatory bidding process, where beneficiaries will bid on the incentive tariff (the strike price) needed to carry out each individual project. The reference price for electricity will be calculated as the hourly zonal price, which is the electricity price at the time the energy is fed into the grid and in the market area where the plant is located.
When the reference price is below the strike price, the beneficiaries will be entitled to receive payments equal to the difference between the two prices. However, when the reference price is above the strike price, the beneficiaries will have to pay the difference to the Italian authorities. The scheme will ensure long-term price stability for the renewable energy producers by guaranteeing a minimum level of return, while at the same time ensuring that the beneficiaries will not be overcompensated for periods when the reference price is higher than the strike price.
The Commission’s assessment
The Commission assessed the scheme under EU State aid rules, in particular Article 107 (3)(c) of the Treaty on the Functioning of the European Union, which enables Member States to support the development of certain economic activities subject to certain conditions, and the 2022 Guidelines on State aid for climate, environmental protection and energy (‘CEEAG‘).
The Commission found that:
- The scheme facilitates the development of an economic activity, namely the production of renewable electricity from innovative or not yet mature technologies as well as from biogas and biomass. At the same time, it supports the EU’s strategic objectives, such as of the European Green Deal and the REPowerEU Plan.
- The measure is necessary and appropriate for Italy to meet the European and national climate targets. Moreover, it is proportionate as the aid is limited to the minimum necessary to trigger investments. In addition, necessary safeguards are in place, including a competitive bidding process for awarding the aid and a two-way contract for difference mechanism that limits profitability in case of energy price increases, since the guaranteed remuneration cannot exceed the incentive tariff that the applicant initially bid.
- The aid has an incentive effect, as the beneficiaries would not carry out the investments in renewable plants to the same extent without the public support.
- The aid brings about positive effects that outweigh any potential distortion of competition and trade in the EU.
On this basis, the Commission approved the Italian measure under EU State aid rules.
Background
The Commission’s 2022 CEEAG provide guidance on how the Commission will assess the compatibility of environmental protection, including climate protection, and energy aid measures which are subject to the notification requirement under Article 107(3)(c) TFEU.
The Guidelines create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the Green Deal objectives in a targeted and cost-effective manner. The rules involve an alignment with the important EU’s objectives and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas and will cater for the increased importance of climate protection.
Related Article: EU Commission Sanctions €1.4 Billion State Aid for Key Hydrogen Project to Advance Green Mobility
With the European Green Deal Communication in 2019, the Commission set an objective of net zero emissions of greenhouse gases in 2050 that is enshrined in the European Climate Law. In force since July 2021, the law also introduced the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030. Through the adoption of the ‘Fit for 55′ legislative proposals, the EU has in place legally binding climate targets covering all key sectors in the economy.