Italy’s New FER X Green Scheme: A Comprehensive Overview

Italy plans to become carbon neutral by 2050 and has set ambitious climate targets to support it. To help achieve those targets, the Italian government has launched a new green auction scheme to promote renewable energy projects and reduce greenhouse gas emissions. This article provides a detailed overview of Italy’s green auction scheme, including its characteristics, potential impact on the Power Purchase Agreement (PPA) market and wider implications for the country’s green transition.

FER X, the Green Auction Scheme

What is FER X?

Italy’s FER X decree is new legislation designed to promote renewable energy development and speed up the transition to a low-carbon economy. In addition, the Italian government also launched the FER 2 scheme for innovative renewable technologies.

Timeline: The decree details have not yet been published officially, however the government has indicated that the first auctions could be held by the end of 2024. The proposal is under feedback from regional and local authorities and will then be submitted to the European Commission for a state aid assessment before enforcement.

How FER X Works

• The State will run a competitive bidding process where large-scale renewable energy developers submit project proposals with the strike price needed for each project. The government will select cost-effective proposals to award long-term Contracts for Difference (CfDs).
• When the electricity reference price is below the strike price, beneficiaries will receive payments equal to the difference. When the reference price is above strike price, beneficiaries will pay the difference to the Italian authorities.
• These CfDs guarantee stability for revenue, reduce risk for investors by ensuring minimum return, and protect state finances by preventing overcompensation.

Challenges & Impact on the PPA Market

• The corporate PPA market in Italy has grown significantly; the cumulative volume of CPPAs nearly doubled in 2023, driven by large wind deals and small solar PPAs.
• FER X could disrupt PPA market dynamics depending on the auction strike price. An earlier draft by MASE suggested a starting strike price of €85/MWh for solar and wind.
• The scheme may reduce curtailment risk for project developers and investors by offering remuneration based on contracted price. The draft also proposes indexing the strike price to inflation. These features may lead developers to prefer CfDs over PPAs.
• The scheme has indicative volumes of more than 62 GW for plants above 1 MW. If realised, the majority of renewable energy volume could be covered by FER X, potentially reducing the pool available for corporate PPAs.
• Uncertainties remain about the timing of decree publication and the first auction date, adding to risks for developers and corporate buyers.

Consequences for Italian Corporate Buyers

These dynamics could lead to fewer corporate PPA deals being signed in Italy, or higher prices for those still available. Government-backed CfDs may be more attractive to developers. Some projects or technologies may receive additional incentives or premiums.

Green Manufacturing & Industrial Benefits

• Italy will invest in green manufacturing through a €1.1 billion fund to support hydrogen electrolysers, batteries, solar panels and related technologies.
• The Decree includes incentive mechanisms for solar PV, wind farms, hydroelectric plants and treatment of residual gas from purification processes.
• These measures aim to build up domestic manufacturing capacity, create jobs and reduce reliance on imported green technology.

How STRIVE by STX Can Help Your Company

Italy’s FER X scheme is a major opportunity, but also includes complexity for companies trying to secure long-term renewable energy. STRIVE by STX with its local expertise can guide you in:

• Understanding and engaging in the CfD bidding process
• Comparing project costs versus PPA alternatives
• Assessing risks related to strike price, timing and supply security
• Aligning renewable procurement with your sustainability commitments

Contact us to explore how FER X fits into your energy strategy.

Interested or have any questions?