Transposition of the Red 2 Directive closed, work is now under way to implement the measures included in the NRRP
On 30 November 2021, Legislative Decree No. 199 of 8 November 2021 implementing Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (so-called Red 2 Decree) was published in the Official Gazette.
In addition to providing for the measures to transpose the Red 2 Directive, the decree contains a number of provisions implementing certain measures of the National Recovery and Resilience Plan.
One of the new features is the introduction of a minimum target of 30% for the use of renewable energy sources by 2030. This target will, however, have to be updated once the provision to increase the reduction in greenhouse gas emissions to 55% compared to 1990 becomes binding at European level.
The decree then sets out the principles to which the new incentive schemes must comply, including the need to ensure a fair return on investment and operating costs and to guarantee the greatest possible simplification of access procedures.
With regard to electricity production from renewable sources, which has been held back for some time by the ineffectiveness and lack of decrees (so-called RES1 and RES2), the general characteristics of the incentive instruments are defined. In this regard, the regulation also provides for the possibility of introducing measures to integrate the revenues of renewable source plants that continue to produce at the end of the incentive period. The aim is to offset the generation costs associated with the supply of fuel materials. Biogas power plants using agricultural matrices are certainly plants of a size not exceeding 1 MW in power and fall into the category of innovative plants or plants with high generation costs. For this type of plant, the decree provides that within 180 days of its entry into force the modalities for the implementation of the new incentive schemes will be defined, i.e. the publication of the aforementioned RES2 decree.
The new selection procedures, the GSE registers, will have to provide priority criteria based first of all on compliance with environmental and land protection requirements and only then on a reduction in the basic tariff. In this way, the greater importance of impacts in environmental terms over economic ones is correctly recognised.
The legislative decree also introduces new rules on incentives for the production of biomethane, through the recognition of an equal tariff for both transport and other uses, which will be determined and regulated by an implementing decree of the Minister for Ecological Transition, which must also provide for the cumulation of the tariff with the capital contribution of funds allocated by the NRRP and for coordination until 30 June 2026 with the measures relating to biomethane used in transport provided for by the Ministerial Decree of 2 March 2018.
The articles also introduce an important clarification on how to verify the requirements of different incentive schemes in the case of plants that partially convert production to biomethane. In a nutshell, plants that will use biogas for both electricity and biomethane production will have to comply with the requirements relating to the input biomasses based on the results of the authorisation, but on condition that the sustainability of the entire mix of materials used in the anaerobic digestion process is respected.
Legislative Decree 199/2021 contains not only incentive measures, but also a series of measures to simplify authorisation procedures, including those relating to works functional to the production of biomethane, with particular reference to infrastructures for connection to the grid and conversions involving non-substantial changes.
Instead, regarding the obligation to use biofuels, the percentages are increased, up to 16% for the total and 8% for advanced fuels, to be achieved by 2030, and the need to comply with the sustainability criteria as updated by the new legislation is reiterated. To this end, the decree of 14 November 2019 on the national certification system will also have to be amended, but it will continue to be applied pending its update and limited to that which does not expressly conflict with the provisions of the legislative decree.
We hope that this renewed regulatory framework will allow clear and coherent trajectories for the development of anaerobic digestion in agriculture, providing new impetus to our sector.
The decree implementing the biomethane development measures.
Following the approval of Legislative Decree Red 2, the implementation phase began at the same time. In November, the Minister for Ecological Transition notified the European Commission of the ministerial decree implementing the NRRP measures for the development of biomethane production.
This measure provides for a general revision of the incentive mechanism for biomethane production, the main aspects of which are summarised below.
The conditions of access:
- The incentive mechanisms are available to all new or converted plants that complete the works eligible for financing by the mandatory deadline of 30 June 2026.
- For plants that come into operation by 31 December 2022, it will be possible to opt for either the mechanism provided for in the Decree of 2 March 2018 or the new one provided for in the new Decree.
- For access to the incentives, there are two ‘competitive procedures’ per year with allocated power quotas. The quotas are divided between new plants and reconversions and according to whether or not they are located in southern Italy. In order to submit an application, a permit is required, as well as an estimate of the grid connection, where required, and compliance with sustainability requirements.
- It is expressly required that the project foresees the coverage of storages, unless the digestate is directly sent to composting, and the use of at least 40% by weight of livestock manure, but only in the case of plants located in Nitrate Vulnerable Zones (NVZ).
- Plants must also ensure the sustainability of the biomethane produced, with a reduction of at least 80 % of emissions in the case of biomethane intended for uses other than transport, where only a 65 % reduction is required, but with the obligation to use only biomsasses considered suitable for the production of advanced biofuels.
The incentive mechanism and tariffs: The new incentive mechanism for biomethane production is based on two closely related aspects: 40% capital incentive for the construction of the plants, provided through NRRP funds, and an incentive tariff recognised on the quantity produced. A project that is successful in a competitive procedure will be entitled to both subsidies.
As already established by Legislative Decree Red 2, the amount of the tariff does not change if the biomethane is destined for the transport sector or for uses other than transport, but is differentiated between plants fuelled by agricultural matrices or by OFMSW, by plant size and according to whether they are green field built plants or plants that have been totally or partially converted.
Once the Decree sets the level of the “reference tariff”, the beneficiary will receive a “premium tariff”, equal to the difference between the reference tariff and the average price of natural gas, plus the average value of the Guarantees of Origin (GO) that remain at the producer’s disposal. Only plants with a capacity of up to 250 Smc/h will be able to opt for an “all-inclusive tariff”, selling biomethane and GO directly to the GSE.
The tariff will also be paid on the basis of “net production”, defined as the quantity of biomethane injected into the gas greed, reduced by energy consumption of fossil origin for auxiliary plant services, but increased by any self-consumption of biomethane. The deduction for auxiliary services may also be a flat rate on the basis of what will be defined by the application procedures that will be issued once the decree comes into force.
In addition, yearly step-downs are foreseen for the reference tariff in order to stimulate companies to access the new system quickly. In addition, it is foreseen that the mechanism for access to the procedures will give an indication of a percentage reduction with respect to the reference tariff. In case that requests for access are greater than the quotas put out to tender, those who have indicated a higher discount will be admitted. In case of an equal discount, priority will be given to those who use biomethane in the transport sector, and priority will be given to the date of submission of the application. Provision is also made for the reallocation of any unused quotas, which will be defined in the aforementioned procedures.
Circular economy interventions: Alongside the incentive measures for biomethane production, the new decree also regulates the recognition of a capital contribution equal to 40%, again from NRRP funds, for the implementation of a series of interventions “complementary” to biomethane production. Eligible interventions include: the dissemination of agro-ecological practices (minimum tillage, digestate distribution, creation of consortium poles for the management of digestate and effluents), the replacement of obsolete agricultural vehicles with vehicles fuelled exclusively by biomethane and the upgrading of biogas plants for efficiency gains that cannot be converted to biomethane.
The beneficiaries of these measures, which will be delivered on the basis of over-the-counter procedures better defined in the application procedures, will be exclusively agricultural enterprises that submit an application for access to grants before the start of work on the project. As in the case of biomethane plants, all operations must be completed no later than 30 June 2026.
Annual expenditure quotas are also envisaged for these measures, divided according to the different types of intervention, with an allocation of resources reserved for companies located in southern Italy.
The completion of the regulatory process both for the final publication of the implementing decree described above and for the definition of the detailed application procedures that will better explain the path to be taken will make it possible to launch the NRRP measures as soon as possible and to meet the targets and milestones set out in the Plan.