The regulatory framework for solar photovoltaic plants in Italy is constantly evolving. Plant owners, asset managers and investors need to stay informed in order to adapt to developments in this sector and avoid adverse outcomes. The following highlights the key updates in this market in the last 12 months.
Italy is reported to have given formal notice to withdraw from the Energy Charter Treaty (ECT).
Rumours of Italy’s intention to leave the ECT had been circulating since last autumn. IAReporter now revealed that Italy has delivered its official notice of withdrawal in January 2015.
According to the journal, Italy’s decision to withdraw, is to save on costs associated with its membership. This is certainly an unusual justification for a developed country’s withdrawal from a multilateral investment protection treaty.
Pursuant to article 47 of the ECT, Italy’s withdrawal will take effect upon the expiry of one year after the date of notification, thus in January 2016. However, the provisions of the Treaty will continue to apply to investments made in Italy before such date for a period of further 20 years.
As a consequence:
- With respect to past energy investments, investors can continue to bring their claims against Italy until January 2036. In particular, Italy’s withdrawal from the ECT does not prevent PV investors from bringing a claim for last year’s feed-in tariff cuts.
- With respect to future energy investments, investors should (i) either ensure the investment is made before January 2016 or (ii) consider to structure the investment so as to obtain protection under a suitable bi-lateral investment treaty (BIT).
The introduction of retrospective tariff cuts to photovoltaic (PV) plants and the abolition of the Robin Tax by the Italian Constitutional Court, combined with simplified regulation and taxation of new forms of debt financing, have turned the attention of foreign investors from PV assets to other renewable energy sources (RES) assets.
Italian plants producing energy from RES other than PV have been supported by public incentive schemes since 1999, and have not been hit by the tariff cuts introduced by legislative decree 91/2014 (the so-called “spalma incentivi”). It is, however, easy for foreign investors to become confused by the complex set of rules governing the incentives granted to RES plants.
This Special Report provides a complete and updated overview on the Italian regulation of incentives given to RES plants. It will help investors find their way through the jungle of rules and identify and understand the incentives that apply to a potential investment.
Law Decree no. 69 of 21 June 2013 (theDecree), published in the Official Gazette on 21 June 2013 would expand significantly the application of the “Robin Hood Tax” on electricity production companies, including renewable energy companies (solar, wind and biomass) originally exempt from the tax, by lowering the turnover and taxable income thresholds.
The “Robin Hood Tax” was originally introduced by Section 81, Paragraph 16 of Law Decree no. 112 of 2008, converted by Law no. 133 of 2008. It provided for a 6.5 per cent increase of the corporate income tax rate (IRES) payable by electricity production companies other than renewables with annual gross revenues exceeding Euro 25 million.
Earlier, Law Decree no. 138 of 2011, converted by Law no. 148 of 14 September 2011, eliminated the exemption for renewable energy companies and reduced the annual gross revenue threshold to Euro 10 million, provided the electricity production company had a taxable income of Euro 1 million.
The new Decree further reduces the gross revenue and taxable income thresholds so that the “Robin Hood Tax” would apply to any energy production company, including renewable energy companies, with:
- gross revenues in the preceding year of more than Euro 3 million
- taxable income for the same year of more than Euro 300,000
The additional tax only applies to legal entities that are organised as corporations and are therefore taxable pursuant to Article 73 of the Consolidated Income Tax Code, but does not apply to special purpose vehicles (SPVs) that are organised as limited partnerships.
If confirmed by the Italian Parliament, these changes will increase the IRES for a great number of renewable energy production companies that initially had been exempt from the “Robin Hood Tax.” In order to become definite, the Decree—which was enacted by the Italian Government—must be converted into law by the Italian Parliament. The timeline for conversion is 60 days, i.e., 20 August 2013, and the Italian Parliament is entitled to make amendments to the Decree. Provided that the Italian Parliament confirms the current wording of Section 5, Paragraph 1 of the Decree, renewable energy companies that exceed the new turnover and income thresholds in 2014 will have to pay the increased IRES of 34 per cent, instead of 27.5 per cent.
It is worth noting that the compatibility of the “Robin Hood Tax” with the Italian Constitution has been challenged and an action is currently pending before the Constitutional Court. In particular, the “Robin Hood Tax” would seem to be in breach of the principles of equality and contribution pursuant to economic capabilities. The Constitutional Court has not yet scheduled a date for the hearing so that it is impossible to foresee when a decision will be made.
The aim of the European solar energy incentive programs has always been to bring solar technology to the point where photovoltaic (PV)-generated electricity becomes competitive with the retail rate of grid power, a situation known as "grid parity". In most of Europe, grid parity is expected to be reached by 2017, but is already nearly a reality in certain southern European countries with high levels of sunshine and high electricity prices. The recent cuts to incentives in many European markets are both a cause and an effect of this near-parity, and as such are not necessarily bad news. Achieving competitive cost structures for solar power plants is expected to eliminate the market distortion resulting from subsidies, which until now were the driving force of the European PV market.
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