Italy Curtails the GSE’s Sanctioning Powers for Renewable Energy Source Plants

Overview


In Depth


On 23 December 2017, the Italian Senate approved the Household Law for 2018. The law, which is still to be published in the Official Gazette, will enter into force on 1 January 2018.

Among the many other novelties, the 2018 Household Law will amend article 42 of Legislative Decree no. 28/2011 regarding the control and sanctioning powers of the Gestore dei Servizi Energetici (GSE). In particular, in case of asserted violations of the rules governing the entitlement to renewable energy incentives, the GSE will no longer be entitled to fully revoke the incentives awarded to Renewable Energy Source (RES) plants but only to reduce them by between 20 percent and 80 percent, depending on the gravity of violation. Plant owners who voluntarily disclose a violation before a GSE inspection will benefit from a further reduction of the sanctions by one third.

By curtailing the sanctioning powers of the GSE, the legislature finally gives effect to the constitutional principle of proportionality and adequacy between violation and sanction. In February 2017, the Constitutional Court had already declared null and void articles 23, para 3, and 43, para 1, of the same Legislative Decree no. 28/2011, to the extent they provided for an automatic 10-year interdiction from further incentives, in case of false declarations.

To avoid misunderstandings, the new law curtails only the administrative sanctioning powers of the GSE, but it does not limit the powers of a penal court under Legislative Decree 231/2001 to hold a company liable for the criminal conduct of its representatives and to order accessory sanctions, such as the prohibition to contract with the public administration and profit confiscation.

The Ministry of Economic Development will now have to list the violations and the respective percentages of reduction of the incentives in detail. If drafted properly, such catalogue will allow RES plant owners to correctly assess the risks related to certain technical or legal deficiencies of their plants and to adopt the necessary measures, including a self-denunciation with reduced sanctions. Voluntary due diligence activity on plants may be expected to increase as auto-denunciation will entitle to a reduction of sanctions, only if made out of a GSE inspection. Also, the secondary market will benefit from the new rules, as investors will now be able to differentiate between different levels of incentive risks, and certain “defective” assets will become marketable again.

For more information, please contact the author or your regular McDermott Will & Emery lawyer.