Redefinition of the Guaranteed Minimum Prices for Electricity Production Plants Up To 1 MW Powered By Renewables Sources

Redefinition of the Guaranteed Minimum Prices for Electricity Production Plants Up To 1 MW Powered By Renewables Sources

The Italian Electricity and Gas Authority (AEEG) issued on 31 October 2013 the new consultation document No. 486/2013/R/efr [1] containing guidelines and proposals for the redefinition of the guaranteed minimum prices for electricity production plants up to 1 MW powered by renewables sources.

The guaranteed minimum prices were introduced by AEEG with resolution No. 34/05 with the purpose of ensuring coverage of the production costs of the power plants up to 1 MW powered by renewable sources, within the limits of the first two million kWh annually produced by each plant and injected into the grid. It was deemed essential, in encouraging the production of electricity from renewable sources, to provide an additional incentive for small plants, whose production costs are particularly high, in order to ensure their economic survival even in case the market prices were to fall significantly.

Such guaranteed minimum prices are actually recognized and paid by the GSE (the Italian energy services operator) only to those power plants which have chosen the dedicated withdrawal ("ritiro dedicato"). The dedicated withdrawal is the simplified instrument for the sale of electricity as an alternative to bilateral agreements or direct sale on the market which consists in transferring the electricity to the GSE which remunerates the producers by paying a price for each produced kWh. The GSE values the electricity fed into the grid by the producers in the context of the dedicated withdrawal system at the average hourly market price for the zone in which the plant is connected to the grid. The guaranteed minimum prices are, in the context of the dedicated withdrawal, an additional incentive for the small plants up to 1 MW powered by renewables sources, without prejudice to the possibility of being paid more if the remuneration at hourly local prices is higher.

The AEEG resolution No. 280/07, which replaced resolution No. 34/05 with effect from 1 January 2008, confirmed the guaranteed minimum prices providing also that such minimum prices should be revised and differentiated by source, following an in-depth analysis of the relevant production costs, in order to take into account the peculiarities of the operating costs of each renewable source which could not be considered in the definition of a common guaranteed minimum price for all renewable sources.

The results of such a differentiation are contained in AEEG resolution No. 103/11 (a previous one, the No. 109/08 concerning the differentiation of guaranteed minimum prices for the water source, was cancelled by the State Council). Such resolution, as further amended through subsequent resolutions, provided for a basis guaranteed minimum price equal to Euro 78.3/MWh common to all the categories of small plants fed with renewable energy sources, with the application to certain categories of higher prices for the first small quantities of produced electricity in order to give higher incentives to very small plants.

With reference to the solar energy, the guaranteed minimum prices fixed by AEEG resolution No. 103/11, as further amended through subsequent resolutions, were, for the year 2012, in a range between Euro 102.7/MWh (for the first 3,750 kWh) and Euro 78.3/MWh up to 2,000,000 kWh (the upper limit). From year 2013 the guaranteed minimum prices were defined by applying, on an annual basis, to the values in force in the previous year, the annual rate of change in prices consumption for the families of workers and employees as detected by ISTAT (id est, between Euro 105.8 and Euro 80.6 within the same above mentioned production ranges).

The new consultation document No. 486/2013/R/efr is aimed at a new update of the values of the minimum guaranteed prices which is deemed necessary due to the changes in the average operating costs for the production facilities fed with renewable sources that have occurred in the recent years. AEEG invites all the interested parties to submit to AEEG, in writing, their comments and contributions in this respect by 25 November 2013.

The main AEEG's proposals are the following:

• To fix the new minimum guaranteed prices on a value equal to the average operation costs recently communicated by the associations representing the renewable energy producers (taking into account the techno-economic considerations contained in the Report of the Polytechnic of Milan) increased by 8%.

• To provide, starting from 1 January 2014, lower new guaranteed minimum prices directly linked to the effective production costs, which are decreased in the last years.

With reference to the photovoltaic plants, AEEG's proposal is to lower the guaranteed minimum price to Euro 37.8/MWh (id est an average production cost of Euro 35/MWh increased by said 8%), without any difference based on production ranges, to be increased by applying the 2013 rate of change in prices consumption for the families of workers and employees as detected by ISTAT.

The impact of the proposed reductions affecting all the categories of power plants which benefit of guaranteed minimum prices would imply an overall reduction of about 60% of the impact of such guaranteed minimum prices on the A3 tariff component (id est the component of each electricity bill, paid by the customers, intended to promote the production of energy from renewable and assimilated sources).

• To extend the benefit of the guarantees minimum prices also to the plants which do not benefit of the dedicated withdrawal and allocate their electricity to a trader or trade it directly.

For further information please contact:

Giulio Maroncelli

Fabio Lenzini

[1] "Ridefinizione dei prezzi minimi garantiti per impianti di produzione di energia elettrica fino a 1 mw alimentati da fonti rinnovabili".

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