Back to Europe Rankings

ITALY: An Introduction to Energy & Natural Resources

Contributors:

Ivano Saltarelli

Daria Buonfiglio

Green Horse Legal Advisory Logo

View Firm profile

Analysis of the Most Rapidly Growing Renewable Technologies in Italy

Since COVID-19 was declared a global pandemic, followed by the Russian invasion of Ukraine and the Israel-Hamas war, the Italian energy market, similar to globally, has been on a rollercoaster. We have become used to experiencing significant price fluctuations, both upward and downward, in relation to both energy prices and materials costs. However, renewables have kept growing and investors were resilient and have showed great flexibility in mitigating the volatility of the market.

The installed capacity of renewables in Italy in 2023 grew tremendously, and for the first time Italy has almost reached 6GW of installed capacity, almost doubling the installed capacity of 2022. We are still behind on our path to achieve the 2030 targets; nonetheless we are recording significant increases every year.

Solar still has and will continue to hold the lion’s share of installed capacity of renewables. This is evidently linked to the great maturity achieved by this technology, as well as by the incredible competitiveness of solar compared to various other sources of electricity production. Furthermore, the solar sector has shown great innovation; one notable example of this is agrivoltaics, a technology which allows the combination of the production of energy from renewable sources and the continuation of agricultural activities below the solar panels (along with the protection of the soil).

The Italian government is supporting the growth of renewables both in terms of accelerating and simplifying the permitting procedures and providing economic support.

In this paper we will delve into the most rapidly growing renewable technologies in Italy: agrivoltaics, BESS and advanced biomethane.

Agrivoltaics 

As mentioned above, this technology is experiencing a significant growth in Italy as it allows the support, at the same time, of decarbonisation and agriculture. However, the Italian regulatory framework is not yet completely defined, and the expansion of this technology is still slowed by the process of identification of the areas suitable for the realisation of these kinds of plants. Italy has experienced a strong simplification of agri-PV permitting, starting from the environmental impact assessment thresholds increased up to 20 MW when the project explores so-called suitable areas, and ending in the proper authorisation where a municipal fast-track procedure (so-called PAS) is envisaged, irrespective of project-related power capacity, in case the plant is located in the so-called agro-belt (ie, within a 3 km buffer from industrial and commercial areas), and complies with certain technical features (as a minimum height from ground).

However, the issuance of the decree aimed at identifying the “suitable areas” is still pending. The draft of the decree provides that agrivoltaic plants can be installed on suitable agricultural lands without any limits. Outside suitable areas, agrivoltaic plants – in compliance with the requirement set forth by ministerial Guidelines – can be built on utilised agricultural land, with a maximum percentage of utilisation of the utilised agricultural land at the disposal of the applicant, in any case not less than 5% and not more than 10%; if the hosting land is unused, then the agri-PV can be installed without surface limitation.

The national legal framework will be further implemented by the adoption of an agrivoltaic decree concerning the incentive mechanisms. According to the mentioned incentives decree, the agrivoltaic plants are entitled to (i) capital contribution up to 40% of the investment costs; (ii) benefit from an incentive tariff applied to the energy injected into the grid; and (iii) profits from the sale of the energy on the market. The incentives are granted for 20 years from the entry into operation of the plant: the national agency in charge of paying the incentives (GSE) calculates the difference between the tariff granted (following a public auction) and the reference electricity market price and: (i) in case of positive difference, an adjustment or a request of payment of the corresponding amounts occurs (ie, the producer shall reimburse the GSE); and (ii) in case of negative difference, a premium rate, equal to the aforementioned difference, on the net production injected into the grid, is paid to the producer.

BESS (Battery Energy Storage System) 

Italy is considered to be the second-most interesting market for BESS in Europe (after the UK). Italy has, in fact, a very advanced regulation both in terms of permitting and support mechanism. Storage is an essential infrastructure to support an effective growth of the renewable energy system as it allows energy to be stored and then released when the power is needed most, therefore solving the “intermittent” production risk linked to natural sources of energy (as the sun does not always shine and the wind does not always blow).

The new PNIEC (last version available is dated June 2023) requires Italy to install 22.5 GW of storage by 2030, including 11 GW of utility-scale batteries and 4.0 GW of distributed batteries to be added to the existing capacity.

In terms of support mechanisms, in addition to the revenue stream already available (including the capacity market and the ancillary services for example), in the second semester of 2024, we expect to see the first auctions held by the TSO (Terna). These will award a fixed premium price remunerating the investment costs and guaranteeing a fixed return to BESS owners.

Since the BESS-related subsidies will ensure a strong and steady cash flow to BESS owners, thus meaning a strong bankability of such projects, we expect a prompt reaction from lenders and, consequently, a quick growth of BESS technology – connected to a significant increase of BESS project value.

Biomethane 

Biomethane plants can be defined as plants aimed at producing methane from the purification of biogas; biomethane is intended for use in the transport sector as well as in the industrial, residential and agricultural sectors, being only excluded from use for thermal power plant generation.

The potential of this technology in Italy is significant given the wide availability of biomass sources and the technological maturity of this technology. Furthermore, the Italian gas transportation system does not need to be adapted to also transport biomethane (contrary to green hydrogen for example, another renewable gas). However, there are some critical issues which are mainly linked to the support mechanism and permitting process of these plants.

The Ministerial Decree of 15 September 2022 provides for two incentive schemes for agricultural plants (newly built or converted from existing biogas plants) and for newly built organic waste plants. The incentives are accessible through auctions and provide capital grants aimed at providing (i) a feed-in premium (feed-in tariff reduced of the offered percentage of reduction, the average monthly gas price, and the average monthly guarantees of origin); and (ii) up to 40% of the financial coverage of the investment costs.

The outcome of the first auction was very disappointing so, in September 2023, the MASE amended the feed-in premium to consider indexation. Furthermore, the government is evaluating a simplification of the authorisation procedure which is another key factor which prevented many business initiatives from joining the auction. Law Decree 57/2023 has already broadened the scope of the PAS (a simplified authorisation procedure at a municipal level whose perfection may occur per silentium after the application, thus with no need of a municipal measure) by including further interventions, such as the conversion of biogas power plants to biomethane plants. In addition, the most recent case law has confirmed the validity and effectiveness of a PAS perfectioned per silentium even when the application lacks a constitutive condition in case the relevant municipality did not point out the irregularity within the 30-day term provided by the PAS regulation.