Incentives to the Energy Production from Renewable Sources

By Gianfranco Puopolo
October 2001

The Author is partner in Puopolo Sistilli Geffers & Luise, an International law firm specializing in Environmental and Energy Law. They counsel foreign companies and multinationals in all aspects of Italian environmental and energy law, project finance and environmental audits. → See also:

This memorandum is intended to examine the incentives that the Public Authorities may grant to independent operators that intend to produce energy from renewable sources.

For this purpose, we conducted an analysis of recent Italian Energy Legislation, focusing on the relevant provisions concerning renewable sources, and we examined the web sites of Public Authorities operating in this sector.

To date, Italian Legislation sets forth no specific laws or ministerial regulations providing general incentives for independent operators that intend to produce energy from renewable sources. An exception is represented by those incentives that are available only for the production of energy from renewable sources «for personal consumption». Such incentives are intended to reduce the demand for energy and, therefore, cannot be granted to subsidize individual producers aiming to «sell energy».

In the following paragraphs we shall provide a brief and comprehensive review of the considerable legislation concerning renewable sources, and subsequently we shall analyze the sole law that, to date, provides for the above mentioned incentives.

Finally, we shall briefly examine the EU scenario and legislation providing incentives in this field.

I. Italian Legislation on Renewable Energy Sources

  1. Legislative Decree of March 16, 1999, No. 79, which implements EC Directive 96/92/CE, on the harmonization of the internal electric energy market. The Decree defines as renewable energy sources «the sun, wind, water and geothermic sources, tides, motion of the waves and the transformation into electric energy of vegetable products or organic and inorganic waste».

  2. Decree of the Ministry of Agriculture of September 11, 1999, No. 401, which implements art. 1, par. 3 and 4, of Legislative Decree April 30, 1998, No. 173, on the granting of aids in favour of the production and utilization of renewable energy sources in the agricultural sector. The incentives provided by the Decree consist in contributions, related to assets or investments, to those parties that intend to: i) produce or utilize of biomasses (such as firewood, other products and pure wood/paper waste, residual products of agricultural and ichthyc cultivations, farmings, sewages, etc.) to be destined for energy purposes; ii) utilize renewable energy sources in the agricultural and agro-industrial sectors.

  3. Decree of the Ministry of the Environment of July 20, 2000, No. 337, which sets forth criteria and modalities to implement the resources allocated for the year 1999 to finance national and local programs for environmental protection, pursuant to art. 8, par. 10, letter f), of Law December 23, 1998, No. 448. Art. 5 of the Decree sets forth the distribution of funds to Regions and autonomous local Districts (therefore, only to Public Entities), for a total amount of 50 billion Lira. Such funds shall be utilized to co-finance necessary investments for environmental protection related to the use of renewable energy.

  4. Decree of the Ministry of Industry Commerce and Craftsmanship of May 8, 2000. This is the sole piece of legislation that provides incentives for individual producers who intend to utilize renewable sources to produce energy. This Decree will be analyzed in Section II below.

  5. The Ministry of the Environment has approved specific projects for the year 2001, which include the distribution of funds or sharing of costs, for the purpose of promoting the utilization of renewable sources for energy production by public entities (Regions, Municipalities, Universities and National Bodies of Research) and by private individuals. Such incentives are intended exclusively for the production of energy from renewable sources for self-consumption, while they are not available to energy producers that solely intend to sell energy. The parties that may benefit from these incentives are specified in the Project Notices. These Projects include the following Programs: "Photovoltaic Cell"; "Sun-energized Municipality"; "Projects for smaller islands"; "Photovoltaic plants of high architectural value"; "Solar-energy Program for Municipalities and Gas-works".

  6. Law of December 23, 2000, No. 388 (Financial Law for 2001): art. 110 sets forth the creation, within the Ministry of Environment, of a special Fund for the reduction of emissions into the atmosphere and the promotion of energetic efficiency and of sustainable energy sources. The Fund is intended "to finance national and regional programs for the purpose... of promoting the renewable sources of energy".

  7. Decree of the Ministry of Industry, Commerce and Craftsmanship of May 9, 2001, which ratifies the electric market discipline set forth in Legislative Decree No. 7971999 (providing rules, also on the so called "green certificates").

II. Incentives for the Production of Renewable Energy: Decree of the Ministry of Industry Commerce and Craftsmanship of May 8, 2000

This Decree, as previously reported (see paragraph E) above), is the sole piece of legislation that sets forth incentives for individual producers who intend to produce energy from renewable sources for personal consumption only. As a preliminary matter, it is important to note that, examining the main aspects of the Decree, these incentives are available exclusively to those producers that intend to operate in Southern Italy (the so called "Mezzogiorno") and meet the requirements established in the special provisions on aids for the Mezzogiorno.

The Decree broadens the categories of subjects who are allowed to benefit from the uncovered loans and facilitated mortgages provided by Law Decree of October 22, 1992, No. 415 – as converted and amended. Specifically, the Decree includes among the above mentioned subjects "also" those enterprises operating in the field of the production and distribution of electric energy, whose plants are «fuelled by renewable or assimilated sources, with a power not superior to 50 electric MW and with a generic index not inferior to 0.60» (art. 1).

In particular, the Legislative Decree assimilates to plants fuelled by energy renewable sources «co-producing plants, plants utilizing resulting heat, waste streams and other sources of energy that may be recovered through specific processes and plants, those utilizing production scraps and those utilizing fossil sources that are exclusively produced by minor isolated deposits» (art. 1).

While recognizing the innovative aspects of this Decree, the incentives are limited and anyway of no use to those enterprises generally aiming to produce energy from renewable sources: the incentives, in fact, have been provided exclusively for enterprises settled and operating in the Mezzogiorno, and whose plants are in compliance with specifically determined characters. Furthermore, incentives are granted according to the chronological order of the filed applications and with no distinction between the sectors the enterprises intend to operate in.

As a consequence, the Decree of May 8, 2000 does not promote the field of energy production from renewable sources as such, but merely broadens the facilities that are generally granted to enterprises operating in the Mezzogiorno.

III. The Incentives Provided by the European Community

Although Italy still lacks a general legislation providing incentives for the production of energy from renewable sources, in the near future, Italy, as well as the entire European Community, is expected to provide numerous financial benefits for whoever intends to invest in such field. The increasing production of energy from renewable sources is in fact considered by the European Union as «a high priority target of the Community» (Premise No. 4 to the Parliament and Council Directive Proposal on the promotion for electric energy produced from renewable energy sources No. 500PC0279).

We shall briefly review current and proposed community legislations that provide the above mentioned incentives:

  1. Decision No. 646/2000/EC – This decision adopted a multi-year program to promote renewable energy sources in the Community (Altener 1998 – 2002) with the target to create the basic conditions to carry out a community plan of action for renewable energy sources and to encourage public and private investments in this sector. To that end a financial endowment of 77 million EURO has been allocated in order to finance: a) analysis and actions for the development of the measures adopted by the Community and the Member States in this field; b) pilot actions in order to create the necessary infrastructures; c) measures intended to promote the exchange of information and experience; d) actions to promote investments in this sector; e) monitoring and evaluation activities.

  2. Parliament and Council Directive Proposal No. 500PC0279 – this Proposal, in order to meet the engagement undertook by the EU in Kyoto, suggests measures that the Member States may adopt in order to achieve, within the year 2010, the target of 22,1% of energy produced from renewable energy sources. These measures consist in aids for investments, tax exemptions and reductions, tax refunds and financing in general the producer. The Proposal simply dictates the general principles and targets concerning the matter that shall be adopted and implemented by Member States.


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