1. Overview

1.1. The long-awaited transitional support for Italy’s production of renewable energy is now in force. Following the European Commission’s approval in December 2024, on 27 February 2025 the Italian Ministry of Environment and Energy Security (MASE) published the decree for the promotion of the development of renewable energy installations with generation costs approaching market competitiveness, such as solar photovoltaic plants, wind farms, hydroelectric plants and treatment plants for residual gases from purification processes (Transitional FER-X Decree).

1.2. Effective from 28 February 2025, it establishes a temporary incentive scheme applicable until 31 December 2025 (or, for plants with capacity lower than 1 MW, 60 days after a power capacity threshold of 3 GW is reached). The Transitional FER-X Decree is designed to bridge the gap until the definitive FER X decree takes effect. The initiative is set to support roughly 17 GW of new renewable power—primarily photovoltaic and onshore wind—with an annual investment of around €490 million. Notably, the scheme covers not only entirely new installations but also full or partial refurbishments and repowering projects. 

1.3. The market has been eagerly awaiting this decree, with operators on hold as construction work remained stalled until the opportunity to apply for incentives became available. Now, with the publication of the Transitional FER-X Decree, stakeholders can finally breathe a sigh of relief and move forward with their projects.

2. Operational guidelines and first auction timeline

By 29 May 2025, MASE is required to adopt comprehensive operational guidelines. These guidelines will define key elements. They include, for example, application models, communication protocols for the start of works, simplified access procedures, the auction calendar and the reallocation process for unassigned capacity, eligibility requirements for plants and beneficiary obligations, procedures for establishing and enforcing guarantees, standard contracts and methods for price adjustments, timelines for data collection and monitoring, as well as parameters for incentive accumulation and management of renunciations. Within 30 days of adopting these operational rules (presumably by June 2025) the Gestore dei Servizi Energetici - GSE S.p.A. (GSE) will launch the first auction.

3. Incentives for installations up to 1 MW – direct access

3.1. For power plants with capacities up to 1 MW, the incentive mechanism offers direct access under an aggregate budget of 3 GW. Key features include:

a) Eligibility criteria: Only installations that have not commenced construction before 28 February 2025 qualify. Furthermore, all plants must be fully authorized (or at least have successfully passed the environmental assessment procedure) and adhere to “do no significant harm” principles.

b) Application deadline: Applications to be admitted to the support scheme must be filed within 90 days from the date of commissioning of the plant. Failure to notify within this 90-day deadline will result in the loss of the right to the tariff due for the period between the plant’s commissioning date and the date the late notification is received. In any event, the notification must be submitted within 180 days from the commissioning date recorded in Terna’s GAUDI system, under penalty of non-recognition of the awarded price.

c) Price determination: By 29 May 2025, ARERA will set the appropriate award price based on plant type and size, with a view to ensure fair remuneration for investment and operating costs.

3.2. For plants with a capacity below 200 kW, the GSE directly manages the procurement and sale of electricity, disbursing the awarded price as an all-inclusive tariff based on the net electricity injected into the grid. Rights holders may alternatively opt for the arrangement described below.

3.3. For plants with a capacity of 200 kW or more, the produced electricity remains under the control of the producer, which markets it independently, with a contract for difference (CfD) being executed by and between the GSE and the producer. A CfD is a financial arrangement that stabilizes revenue by fixing a predetermined reference price (known as the strike price) for electricity. Under the CfD, if the market price deviates from the relevant strike price, the difference is settled in cash between the contracting parties. This mechanism helps mitigate market risks by ensuring that the seller receives a stable revenue regardless of fluctuations in market prices. 

4. Incentives for installations above 1 MW—reverse auction

4.1. For larger projects, the incentive regime is accessed via a reverse auction process, designed to maximize competitive pricing while ensuring robust capacity allocation. Key features include:

a) Eligibility criteria: Only installations that have not commenced construction before applying for the support scheme qualify. Furthermore, all plants must be fully authorized (or at least have successfully passed the environmental assessment procedure) and adhere to “do no significant harm” principles. In addition, they must adhere to ARERA’s dispatch determinations and participate in the balancing and redispatching market. Applicants must demonstrate financial solidity by either providing a bank declaration confirming their financial and economic capacity relative to the project scope, or by securing a bank commitment to finance the project. Alternatively, they may meet the requirement by maintaining minimum capitalization based on the expected investment cost, calculated using the specific cost per nominal power as detailed in Table 2 of Annex 1 of the decree. The capitalization thresholds are as follows: 10 percent for the portion of the investment up to €100 million, 5 percent for the portion exceeding €100 million up to €200 million, and 2 percent for any amount above €200 million. 

b) Budget allocation: A total of 14.65 GW is allocated for installations above 1 MW, divided among: (i) photovoltaic: 10 GW; (ii) onshore wind: 4 GW; (iii) hydroelectric: 630 MW and (iv) sewage gas: 20 MW. 

c) Auction mechanics: Bidders must submit an expression of interest ahead of each auction round. Submission requirements include proof of eligibility, a provisional bank guarantee (5 percent of project cost), and an undertaking to replace it with a final bank guarantee (10 percent of project cost) upon award. Projects’ conventional cost estimates (i.e., €900/kW for photovoltaic, €1,420/kW for onshore wind, €3,160/kW for hydropower and €3,500 for sewage gas) provide the basis for determining the guarantee amounts. The GSE will set aside a budget that does not exceed 90 percent of the total capacity for which expressions of interest are received, ensuring vigorous price competition.

d) Auction pricing and demand-supply mechanism: Bidders must indicate the minimum incentive price they are willing to accept, expressed as a percentage reduction of a predefined upper operating price. The reference operating prices set out under the Transitional FER-X Decree, which are different by technology, are those set out in the table below. For each auction the GSE will adjust the reference operating prices to reflect inflation (based on the ISTAT consumer price index).

e) Bid ranking and quota allocation: The GSE will build a supply curve by ranking bids from lowest to highest. It will then match this curve against a demand curve defined by five key points (from the upper operating price at zero capacity (point A in the diagram below) to zero price at maximum capacity (point E in the diagram below). 

Specifically, the demand curve is formed by the following power/price points: 

i) Point A: y-coordinate equal to the upper operating price and x-coordinate (in terms of capacity to obtain support) equal to zero.

ii) Point B: y-coordinate equal to the upper operating price (same as point A) and x coordinate equal to the minimum quota of capacity to receive support.

iii) Point C: y-coordinate  equal to the central operating price and x-coordinate equal to the target quota of capacity quota to receive support.

iv) Point D: y-coordinate equal to the lower operating price and x-coordinate equal to the maximum capacity quota to receive support power quota.

v) Point E: y-coordinate equal to zero and x-coordinate equal to the maximum capacity quota to receive support power quota (same as point D).

Successful bids are those below or at the intersection of the demand and supply curve. This system guarantees the allocation of a minimum power quota necessary to achieve climate objectives when bids are high, and it adjusts the incentivized capacity quotas upwards when bids are low. As a further stimulus for applicants to submit competitive bids, 5 percent of the overall capacity offered by the bidders will be excluded from the ranking if the offers received at a price below the central operating price are less than 105 percent of the target power quota. In such case, the capacity reduction will result in including the highest bids, with the only exception of bids below the lower operating price.

f) Publication of rankings: The GSE will publish the rankings within 90 days following the conclusion of each 60-day auction. Rankings will be determined almost exclusively on the basis of the strike price (or discount) offered by each bidder. In cases where bids have identical prices and available budget capacity is insufficient, the following priority criteria will be applied in order: (i) only for photovoltaic plants, removal of asbestos, (ii) refurbishment of existing photovoltaic plants in agricultural areas without increasing their footprint, (iii) location in designated suitable areas (aree idonee), (iv) integration with energy storage systems, (v) execution of a power purchase agreement for at least 10 years and (vi) earlier submission of the application.

g) Repeated bidding and waiver of incentives: The GSE will conduct at least two auction rounds throughout 2025. Each applicant may submit up to three expressions of interest for the same project; importantly, expressions of interest made under the Transitional FER‑X Decree will also count toward the future FER‑X decree. However, if a bid placed below the central operating price remains unsuccessful, it will not be counted toward the three-attempt limit. Furthermore, if an applicant is successful but subsequently waives their right to the incentives, the GSE reserves the right to enforce a portion of the final bank guarantee as follows:

i) Waiving within six months from the publication of the ranking permits the enforcement of 30 percent of the final bank guarantee.

ii) Waiving between six and 12 months permits the enforcement of 50 percent of the final bank guarantee.

h) Finalizing the process—from bank guarantees to incentive activation: Once the auction rankings are published—within 90 days of auction closure—the following steps apply:

i) Final bank guarantee: Successful applicants must procure the final bank guarantee (10 percent of project cost) within 90 days of ranking publication.

ii) CfD: Within 90 days from the commencement of operations, power plant beneficiaries must submit a request to the GSE to activate their awarded incentives. Over the following three months, they will sign a two-way CfD with the GSE, securing stable remuneration for a period of 20 years from the start of operations. Note that no extension is provided in cases of curtailments, negative prices or force majeure events.

iii) CfD for 95 percent of electricity: To incentivize efficient market participation and optimal operational performance, the CfD will cover 95 percent of the net electricity output injected into the grid. The remaining 5 percent remains fully exposed to market conditions, encouraging installations to maximize productivity during high-price periods and schedule maintenance during lower-price intervals. Beneficiaries are required to sell all produced electricity on the market, choosing from various trading timeframes such as power purchase agreements, forward markets, day-ahead markets, or intraday markets.

5. Pricing mechanism

5.1. Curtailments and negative market prices

In cases where the distribution or transmission grid operator orders curtailments, support will be provided based on the installation’s potential output calculated by ARERA to reflect normal operating conditions. When zonal prices in the day-ahead market are zero or negative, the payment volume is determined as the lesser of the plant’s production capability and the sum of energy scheduled for the balancing market combined with upward offers at zero or negative price. Additionally, under these conditions the GSE typically disburses the average monthly trading price of the guarantees of origin to producers of plants with capacity above 1 MW.

5.2. CfD strike price and adjustments

a) The CfD strike price is established as follows:

i) For installations above 1 MW, it is derived from the auction, calculated as the upper operating price minus the reduction offered by the successful bidder.

ii) For installations between 200 kW and 1 MW, ARERA sets the strike price.

b) This base CfD Strike Price can be adjusted upward by:

i) Inflation: At the time of CfD signing, the strike price is updated based on the national consumer price index (ISTAT) to reflect 100 percent of inflation from the notice of call to the expected start of operations. Throughout the CfD’s duration, the price is periodically updated in line with the portion of operating and maintenance costs, as determined by the GSE.

ii) Asbestos removal: An increase of +27 €/MWh.

iii) Floating photovoltaics: An increase of +5 €/MWh.

iv) Regional irradiation:

A) Central regions (Lazio, Marche, Toscana, Umbria, Abruzzo): +4 €/MWh

B) Northern regions (Emilia-Romagna, Friuli-Venezia Giulia, Liguria, Lombardia, Piemonte, Trentino-Alto Adige, Valle d’Aosta, Veneto): +10 €/MWh

5.3. CfD mechanism

a) The two-way CfD provides remuneration protection through financial settlement based on the difference between the day-ahead market price in the plant’s zone and the CfD strike price.

i) When market prices fall below the CfD strike price, beneficiaries receive a payment from the GSE equal to the negative difference (calculated as the CfD strike price minus the higher of zero or the market price) on the net electricity injected into the grid.

ii) Conversely, when market prices exceed the CfD strike price, beneficiaries are required to pay the excess revenue to the GSE.

b) Settlement of these reciprocal obligations is executed either through direct payments or via setoff arrangements.

6. Mandatory operational deadlines and consequences of delays

6.1. Start of operations

To secure the awarded incentives, projects must commission (i.e., have started operations) within 36 months from the publication of the auction ranking. For installations up to 1 MW, this deadline is measured from the start of construction.

6.2. Failure to commission within 36 Months

a) First nine months: If a project fails to commission within the initial nine months past the deadline, the CfD strike price is reduced by 0.2 percent per month.

b) Next six months: For delays between 10 and 15 months, the CfD strike price is reduced by 0.5 percent per month.

c) Beyond 15 months: If commissioning is delayed by more than 15 months, the project forfeits its right to the incentive, and the GSE will enforce the final bank guarantee.

d) Impact on future incentives: Additionally, if the project later qualifies for the definitive FER X decree, the previously awarded incentive will be reduced by 5 percent.

7. Conclusion

7.1. The final, in-force Transitional FER‑X Decree represents a pivotal advancement for Italy’s renewable energy sector. The decree introduces a structured and transparent incentive framework designed to unlock significant investments and modernize existing facilities. 

7.2. Although it establishes a 36‑month commissioning window, this term is considerably more generous than earlier drafts—especially for photovoltaic projects, which are typically authorized at the time of auction—and is complemented by an additional 15‑month grace period. 

7.3. That said, the ultimate success of the scheme hinges on its subsequent implementation by ARERA and GSE, as well as on the treatment of potential delays, such as those caused by the relevant grid operator in connecting the plant to the grid—delays which may not qualify as force majeure. 

7.4. In this context, the Energy Release 2.0 program—with its guaranteed fixed price of €65/MWh for 20 years—also offers an attractive alternative for high-energy consumers and renewable energy developers. This may encourage many to consider a hybrid strategy that leverages both incentive schemes.