Italy Earmarks EUR 4.7bn for Biofuel Incentives in the Transport Sector

Overview


The Ministerial Decree governing the new support scheme for use of biomethane and other advanced biofuels in the transport sector (Decree) was published in the Official Gazette on March 19, 2018 and entered into force on March 20, 2018.

The Decree provides for EUR 4.7 billion of incentives dedicated to plants starting operations between 2018 and 2022, and it replaces the previous Ministerial Decree dated December 5, 2013.

The Gestore dei Servizi Energetici S.p.A. (GSE), a state-owned company whose sole shareholder is the Ministry of Economy and Finance, will play a key role in the qualification, verification and incentivisation of the plants.

In Depth


Transport fuel retailers are obliged to sell a minimum amount of biofuel annually, calculated as a percentage of the energy content of the transport fuel sold in the relevant year. Such obligation can be met by either (1) selling the prescribed amount of biofuel and receiving a corresponding amount of Consumption Release Certificates (CICs), or (2) purchasing the necessary CICs from producers or from other obliged entities that have a CIC surplus.

Because advanced biofuels and biomethane have higher production costs than traditional fuels, the Decree aims to support biomethane producers with a premium to fill the cost gap.

The incentives under the Decree apply up to a yearly maximum of 1.1 billion cubic meters of biomethane.

Consumers will not bear the cost of the incentives under the Decree, as the scheme is fully financed by transport fuel retailers.

The Decree follows and supersedes the Ministerial Decree dated 5 December 2013, which did not have a significant impact on the construction of new biomethane production plants in Italy.

Scope

The Decree applies to production plants starting operations between 2018 and 2022, and to plants already incentivised under Ministerial Decree 5 December 2013, that opt for a reconversion to biomethane production and for the new Decree in lieu of the previous one.

In order to obtain the incentives, producers must comply with legal and technical regulations governing the quality and certification of the produced biomethane.

Further technical regulations by the GSE and the National Authority for Energy, Grids and Environment are expected to be published in the coming months. On 29 March 2018, the Authority issued Resolution no. 173/2018, aimed at starting a consultation procedure for implementation of the Decree.

Access to Incentives

Plant owners must qualify with the GSE by submitting a specific request containing details of the plants (location, authorisation, technology used, production capacity, etc.). The GSE will evaluate the request and admit (or reject) it within 120 days.

The request for qualification must be sent to the GSE within one year of the start of operations.

The qualification ceases to be effective if the plant owner does not notify the GSE of the start of construction within 18 months of obtaining the qualification.

Incentives

The incentives take the following forms:

  • Guarantees of origin, which can be traded within the EU emission trading scheme (note, however, that the issuance of guarantees of origin is not compatible with any further incentive provided under the Decree)
  • CICs, which can be sold to obliged entities
  • Sale to the GSE of “advanced” biomethane, in addition to the relevant CICs

Moreover, depending on the type of biomethane produced, additional incentives apply:

  • Producers of ordinary biomethane are entitled to receive a corresponding number of CICs. Such producers can then sell both the biomethane and the issued CICs.
  • Producers of advanced biomethane are entitled to sell the fuel directly to the GSE through a simplified sale and to receive EUR 375/CIC (but not the CIC itself).
  • Producers of advanced biofuels receive EUR 375/CIC (but not the CIC itself).

Guarantees of Origin

Plants producing biomethane through certain materials (animal byproducts not intended for human consumption; byproducts derived from food; agro-industrial activities; agricultural, livestock and forest management activities) can receive from the GSE an amount of guarantees of origin corresponding to the number of emissions quotas avoided due to the use of biomethane.

These biomethane producers can then sell the guarantees of origin to an obliged entity through bilateral contracts or through a dedicated platform made available by the Gestore dei Mercati Energetici S.p.A. (GME).

Guarantees of origin are not compatible with any other form of incentives provided under the Decree or under the Ministerial Decree 5 December 2013. The amount of biomethane incentivised with guarantees of origin is not calculated within the yearly maximum amount of 1.1 billion cubic meters.

CICs

Producers of biomethane destined for the transport sector are entitled to receive from the GSE one CIC for every 10 GCal of biomethane released for consumption. Producers’ revenues, therefore, consist of payment for (1) the sale of biomethane and (2) the sale of CICs.

In order to receive the corresponding CICs, the producer must first qualify with the GSE under a procedure that is yet to be implemented and regulated. After a producer is qualified, it must send to the GSE:

  • The supply agreements entered into by the producer and the obliged entities (i.e., transport fuel distributors or sellers)
  • Its biomethane production data on a monthly basis

Upon verification of the actual amounts of biomethane released for consumption, the GSE will issue monthly the corresponding number of CICs to the producer, which can in turn sell such CICs to the obliged entities.

Since there is no obligation to disclose price information for CICs, no public data are available, but current prices likely are approximately EUR 300/CIC.

The incentives are granted for 20 years following the date of the first injection of biomethane into the grid.

Advanced Biomethane

Producers of “advanced” biomethane (which includes residual biomass, selected organic waste and non-food cultivations, as defined in in Ministerial Decree 10 October 2014) are entitled to different incentives:

  • The withdrawal from the GSE of the produced biomethane for a price equal to the average price weighed against the quantities registered in the virtual trading point (PSV) during the month of the sale, reduced by 5 per cent
  • Payment of EUR 375/CIC (advanced biomethane entitles the producer to receive one CIC per 5 GCal)

The GSE does not assign the corresponding CICs to the producer, but it sells them to obliged entities.

Producers are also entitled to ask the GSE to be exempted (also partially) from the simplified withdrawal. In such case, they will sell the advanced biomethane through private contracts, but they will still be entitled to receive the EUR 375/CIC premium.

Incentives for advanced biomethane are granted for 10 years from the start of the incentive period. After 10 years, the producers will only be entitled to receive CICs for the remainder of the incentive period.

Other Advanced Biofuels

Producers of other “advanced” biofuels are entitled to receive from the GSE a premium of EUR 375/CIC (but not the CIC itself), and they can then sell the biofuels through private contracts with obliged entities. Advanced biofuels entitle the producer to receive one CIC per 5 GCal.

Such incentive is provided for 10 years from the start of the incentive period; after 10 years, the producers will be entitled to receive one CIC per 5 GCal of biofuels.

Additional Premiums

Double Counting

Biomethane produced through certain materials (e.g., seaweed cultivated in photobioreactors/ponds, straw, used cooking oil) entitles the producer to receive one CIC per 5 GCal. The authorisation title must indicate that the relevant materials entitling the producer to this premium are exclusively used in the plant.

If these materials are used in co-digestion with other materials (which must not exceed 30 per cent of the overall volume), the premium is granted on only 70 per cent of the biomethane produced.

Gas Distribution Plants Premium

Producers that collaborate on the realisation of new gas distribution plants (pertaining to the production plant) are entitled to receive 20 per cent additional CICs to those to which they would be ordinarily entitled, up to 70 per cent of the investment cost borne for the realisation of the distribution plant, and in any case up to EUR 600,000. If the distribution plant ceases to operate before 10 years, however, the producer shall reimburse the entire premium.

Liquid Biomethane Premium

A producer that uses a new biomethane liquefaction plant is also entitled to receive 20 per cent additional CICs to those to which it would be ordinarily entitled, up to 70 per cent of the investment cost borne for the realisation of the distribution plant, and in any case up to EUR 1.2 million. If the liquefaction plant ceases to operate before 10 years, the producer shall reimburse the entire premium.

Reconversion of Existing Biogas Plants

Existing biogas plants may access the incentives provided under the Decree according to certain conditions.

If an existing biogas plant is already incentivised for the production of electricity, access to the incentives provided under the Decree is possible only if (1) the remaining period of incentives on the electricity is more than three years, and (2) the producer agrees to receive incentives on the electricity calculated on 70 per cent of the electricity produced.

The applicable incentive consists of the issuance of CICs if the plant produces biomethane. If the plant produces advanced biomethane, the relevant double incentive described previously applies.

The period of the incentive is equal to the remaining incentive period for electricity, increased by 10 years (not to exceed 20 years total), in the case of a plant already incentivised for electricity. Otherwise the period is equal to 20 years as of the start of the incentive period.