Transitional FER X: New Italian Incentives for Solar, Wind, Hydro and Biogas

What you need to know

• Ministerial Decree of 30 December 2024 No 457, implementing articles 6 and 7 of Legislative Decree no. 199/2021 (the "Transitional Fer X Decree" or the "Decree"), aims to incentivize the electricity production generated by the following renewable energy plants, provided that the relevant construction works have not started yet:

a) photovoltaic solar plants;

b) wind farms;

c) hydroelectric plants;

d) biogas plants (not biomethane)¹.

• The Decree entered into force on 28 February 2025 and is called "transitional" because it will remain in force only until 31 December 2025, except for plants with a capacity ≤ 1 MW for which the Decree will remain in force for an even shorter period of time (i.e. 60 days following the date on which a cap of 3 GW of such plants is reached).
• For plants with a capacity >1 MW, the estimated cap to the incentives is set at 14.65 GW
• Within 29 May 2025, the operational rules (Regole Operative) for accessing the incentive mechanism will be approved, based on the proposal of the Energy Service Operator (Gestore dei Servizi Energetici or "GSE").

Introduction

Ministerial Decree of 30 December 2024 No 457, implementing articles 6 and 7 of Legislative Decree no. 199/2021 (the "Transitional Fer X Decree" or the "Decree"), aims to incentivize the electricity production generated by the following renewable energy plants, provided that the relevant construction works have not started yet:

a) photovoltaic solar plants;

b) wind farms;

c) hydroelectric plants;

d) biogas plants (not biomethane)¹.

The Decree entered into force on 28 February 2025 and is called "transitional" because it will remain in force only until 31 December 2025, except for plants with a capacity ≤ 1 MW for which the Decree will remain in force for an even shorter period of time (i.e. 60 days following the date on which a cap of 3 GW of such plants is reached). The rationale for this accelerated entry into force is that the Transitional Fer X Decree is funded with specific EU funds from the so-called PNRR which must be disbursed within a certain timeframe. It is expected that the renewables plants subsidised by the Decree will continue to be subsidised also by the upcoming definitive Fer X decree which will not rely on PNRR funds.

For plants with a capacity >1 MW, the estimated cap to the incentives is set at 14.65 GW² (10 GW for photovoltaic plants, 4 GW for wind farms, 0.63 GW for hydroelectric plants, 0.02 GW for biogas plants).

The categories of works envisaged by the Transitional Fer X Decree include (i) the construction of new plants; (ii) full and partial refurbishment; (iii) upgrading³.

Within 29 May 2025, the operational rules (Regole Operative) for accessing the incentive mechanism will be approved, based on the proposal of the Energy Service Operator (Gestore dei Servizi Energetici or "GSE").

Award of subsidies

Incentives awarded without auctions (direct access)

Plants with a capacity ≤1 MW that started construction after 28 February 2025 can directly access the incentives without going through an auction procedure.

For this category of plants, within 29 May 2025, the Regulatory Authority for Energy Networks and Environment (Autorità di Regolazione per Energia, Reti e Ambiente or "ARERA") will define the amount of the subsidy which must be proportional to the cost of the works. The subsidy may be differentiated by technology and plant size and may be subject to an annual indexation.

Incentives awarded through auctions

Plants with a capacity >1 MW are awarded subsidies on the basis of auctions managed by the GSE, provided that they meet the following requirements⁴:

a) construction has not started before submitting the application for the auction;

b) the permit for the construction and operation of the plant (or just the environmental impact assessment, if applicable) has been issued⁵;

c) acceptance of the connection estimate ("STMG") and registration of the plant on Terna's GAUDI system;

d) compliance with performance requirements and national and European environmental protection standards necessary to comply with the principle of Do No Significant Harm ("DNSH");

e) obligation to participate in the Balancing and Redispatching Market⁶ (Mercato di Bilanciamento e Ridispacciamento);

f) holding of at least one of the following requirements aimed at demonstrating the creditworthiness of the bidder:

I. declaration from a bank confirming the financial and economic capacity of the bidder in relation to the value of the works, considering the expected profitability of the works and the financial and economic capacity of the corporate group to which it belongs, or, alternatively, the commitment of the same bank to finance the works; or

II. capitalization, in terms of fully paid-up share capital and/or capital reserve, equal to:

i. 10% on investments up to €100 million;

ii. 5% on investments exceeding €100 million and up to €200 million;

iii. 2% on investments exceeding €200 million.

Bidders have 60 days before each auction to submit the application. The rankings shall be published by the GSE within 90 days following the auction.

Procedure for accessing the incentives

Applicants must:

(i) indicate in their bid a reduction in percentage terms on the "higher operating price" indicated below, to be indexed by the GSE as detailed below:⁷

(ii) deliver a bid bond (cauzione provvisoria) equal to 50% of the value of the performance bond indicated below;

(iii) undertake to provide a performance bond (cauzione definitiva) within 90 days from the outcome of the auction, equal to 10% of the expected capex, determined on the basis of the table below:

Tariff adjustments

The tariff may be adjusted as follows:

• for photovoltaic plants replacing eternit or asbestos, +€27/MWh,
• for plants built on water surfaces, +€5/MWh,
• for PV plants located in Central Italy, +€4/MWh,
• for PV plants located in Northern Italy, +€10/MWh.

Indexation

At the time of each auction, the GSE updates the "higher operating prices" as well as the "lower operating prices" and the "operating prices" by reference to the CPI index, in order to take into account the average inflation between the date of entry into force of the Decree and the month of publication of the relevant auction.

The tariff is also updated by the GSE in order to take into account the inflation recorded both in the time period between the date of publication of the auction and the expected start-up date of the plant (data di entrata in esercizio attesa) and in the time period starting from the actual start-up date of the plant until the expiry of the incentive.

Priority of ranking in case of same discount

In the event that the bids for an auction should exceed the cap to the incentives made available for that auction and have bid the same discount, the GSE gives priority to the following plants:

a) only for photovoltaic plants: (i) complete removal of the eternit or asbestos from the roof on which the plant is installed; (ii) complete refurbishment and upgrading on an existing plant built in agricultural areas where the work does not require additional space;

b) plants built in areas identified as suitable areas (aree idonee) in implementation of Article 20 of Legislative Decree 199/2021;

c) colocation of an energy storage facility with specific technical requirements;

d) signing of long-term power purchase agreements (PPA) with a tenor of at least 10 years;

e) early submission of the bid.

Deadline to complete construction

The plants that are awarded the incentive shall start operation within 36 months from the date of publication of the rankings. Failure to comply with this deadline shall trigger a reduction of the subsidy equal to 0.2% for each month of delay for the first 9 months and 0.5% for the following 6 months, up to a maximum of 15 months after which the incentive is terminated and the performance bond is enforced. If the plant applies again for the subsidy in a subsequent auction and wins such auction, it is subject to a 5% reduction of the awarded subsidy.

Waiver of the subsidy

If, within 6 months from the date of publication of the rankings, the applicant informs the GSE that it waives the awarded subsidy, the GSE will enforce 30% of the performance bond. If the aforementioned waiver is communicated between 6 and 12 months from the date of publication of the rankings, the GSE will enforce 50% of the performance bond.

Notification of entry into operation of the plants

Plants entitled to the subsidy without having to go through the auctions (i.e., as noted above, plants with a capacity ≤1 MW that started construction after 28 February 2025) must start operation within 36 months after the date of communication of the commencement of the works and must submit to the GSE the incentive application within 90 days after the date of entry into operation recorded on Terna's GAUDI system. Failure to send such notice within such deadline will trigger the loss of the incentive for the period between the date of entry into operation and the date of receipt of the late communication provided that the delay does not exceed 180 days after the date of entry into operation recorded on the GAUDI system, otherwise the subsidy will be terminated.

Plants which were awarded the subsidy following an auction shall submit to the GSE the incentive application within 90 days after the date of entry into operation registered on the GAUDI system, otherwise the subsidy will be terminated and the performance bond will be enforced.

Types of subsidies

The FER X Transitional Decree provides for two types of subsidies:

a) for plants with a capacity <0.2 MW, the subsidy is an all-inclusive tariff paid by the GSE equal to the winning price resulting from the auction and calculated on the net production fed into the grid. The GSE keeps title to the electricity produced and can sell it in the market;

b) for plants with a capacity ≥0.2 MW, the tariff is a contract for difference paid by the GSE whereby the producer keeps title to the electricity produced and can sell it in the market. The GSE calculates the difference between the auction price bid by that plant and the spot price (excluding negative prices, i.e. for this purpose the spot price is floored at zero) identified in the Day-Ahead Market (Mercato del Giorno Prima) determined in the relevant transaction period and in the market area where the plant is located and:

i) where the spot price exceeds the auction price, the producer pays to the GSE an amount equal to this excess on the net production fed into the grid;

ii) where the auction price exceeds the spot price, the GSE pays to the producer an amount equal to such excess on the net production fed into the grid.

The GSE pays the incentive for a period of 20 years.

Other incentives

The incentives referred to in the Decree can only be combined with one of the following incentives but in such cases the subsidy is reduced as set forth in Annex 1.4 of the Decree:

a) only for plants to be built from scratch, capital grants not exceeding 40% of the capex;

b) guarantee funds (fondi di garanzia) and revolving funds (fondi di rotazione);

c) tax breaks in the form of tax credits or de-taxation of business income from investments in machinery and equipment.

Access to the incentive mechanism referred to in the Decree is an alternative to the mechanism of trade-in (scambio sul posto) and dedicated withdrawal (ritiro dedicato) referred to in art. 13, paragraph 3, of Legislative Decree 387/2003.

Other author: Gianluca Di Stefano, Senior Associate