On January 27, 2022, an urgency decree (Decree) to support businesses and services suffering from the COVID-19 emergency, as well as to limit the effects of price increases in the electricity sector was published in the Official Gazette of the Republic and it is now effective.

The Government will make available €1.7 billion to support businesses suffering from high electricity costs. The amount comes in addition to the €3.8 billion already allocated earlier to mitigate the increase in energy costs, especially for families.

The support measures will be partially financed by obliging renewable energy production plants to pay the government the increase in profits resulting from the exceptionally high electricity prices generated from February 1 to December 31, 2022. Gestore dei Servizi Energetici (GSE), the publicly owned company established to support renewable energy, has been entrusted with a two-way energy price compensation mechanism that it will apply to electricity produced by (i) photovoltaic plants with a capacity of more than 20 kW benefitting from the Conto Energia fixed tariff-mechanism, as well as by (ii) photovoltaic, hydroelectric, geothermal and wind power plants that do not receive incentives.

Surprisingly, the provision does not apply to older renewable energy plants (different than photovoltaic) that benefit from the “GRIN” incentive system that replaced green certificates in 2015.

How is the extra profit calculated? The Decree sets out that the GSE will calculate the difference between:

(a) the reference average price—this is equal to the average of the hourly zonal prices from the plants’ start of operation or, for older plants, from January 1, 2010, until December 31, 2020 (adjusted according to the inflation index); and

(b) the current hourly zonal market price.

In the event the producer has entered into a private power purchase agreement (PPA), letter (b) will be replaced by the PPA price. An exception is made only—and the profit-skimming mechanism does not apply—if the PPA was concluded before the entry into force of the Decree, and provided that its price is not linked to spot energy market prices and that such price does not exceed by 10 percent or more the value under letter (a) above.

If the difference between the values (b) and (a) is positive, the producer must pay that difference to the GSE. If the difference is negative, the GSE would be obliged to pay the difference to the plant, but this is, of course, a merely hypothetical case.

Although the mechanism is applicable to non-incentivized plants, in practice it is not possible to apply it to market-parity plants that have started operations after 31 December 2021, because one parameter (i.e. letter (a) above) is not applicable.

The Italian Regulatory Authority for Energy, Networks and Environment (ARERA) will issue a regulation implementing more detailed rules for this mechanism, to be enacted within 30 days from entrance into force of the Decree. This will hopefully provide more clarity on the scope of application, calculation criteria and payment and offsetting mechanisms, and should also clarify how to calculate the extra-profits of plants not incentivized and that have started operations after 31 December 2021.

The Government has declared that the Decree is an emergency measure and will last only until December 31, 2022. As an emergency measure, the Decree has been enacted without parliamentary approval. As a consequence, it will expire if it is not converted into law by the Parliament within 60 days from its entry into force. Should the Parliament choose to do so it could also apply modifications and corrections. In the meantime, however, the Decree has full force of law.