1 Introduction

(a) A new ministerial decree aimed at promoting biomethane production for use in transport, heating, industry and residences, as well as in the service and agriculture sectors, recently entered into force with €1.7 billion in incentives earmarked from the National Recovery and Resilience Plan.

(b) On 15 September 2022 the Ministry for the Ecological Transition (MITE) issued the decree (New Biomethane Decree), which lays out the plan for promoting biomethane production from 2022 until 2026. It entered into force on 27 October 2022 (i.e., the day after its publication in the Italian Official Gazette No. 251).

(c) Implementation rules should be issued within 30 days from the New Biomethane Decree’s entry into force (i.e., by 26 November 2022) by the country’s state-owned energy services firm, the GSE. The implementation rules should address all practical and operational aspects for awarding the incentives, including (i) an application template to participate in the tender procedure for the incentives, (ii) the necessary documentation to accompany the application, (iii) the dates and types of competitive tenders, (iv) a standard contract to be entered into between the GSE and the producer, (v) the timing and modalities for the recognition of incentives as well as the producers’ obligations, (vi) how guarantees of origin will be used, and (vii) the consequences of breaches found by the GSE when it carries out inspections.

2 Eligible projects

2.1 General requirements

(a) Newly built plants fueled by agricultural matrices and organic waste as well as plants for the production of electricity from agricultural biogas undergoing reconversion are eligible for the incentives under the New Biomethane Decree with the following provisos:

1. The relevant works have not been “started” before the publication of the ranking list (graduatoria) of the respective competitive procedure; and
2. The plants will enter into operation by 30 June 2026.

(b) By “started works,” the New Biomethane Decree specifies this as the moment of the first firm commitment (for example, to order equipment or to commence construction) that makes an investment irreversible. The buying of land and preparatory works, such as obtaining permits and conducting preliminary feasibility studies, are not considered the start of works.

(c) The following entities are not allowed to apply for the incentives:

1. Undertakings in difficulty, as defined in point 20 of European Commission Communication 2014/C 249/01 (e.g. companies that, without state intervention, are destined to go out of business in the short or medium term).
2. Producers excluded under one of the causes of exclusion referred to in Article 80 of the Italian Procurement Code applies (i.e., general requirements of integrity and reliability of competitors in public tender procedures).
3. Subjects already benefiting from the scheme referred to in the previous incentive regime set out under the ministerial decree dated 2 March 2018¹.

2.2 Specific requirements

In addition to the general requirements mentioned above, only plants satisfying the following specific requirements will be eligible to apply for the incentives set out under the New Biomethane Decree:

(a) Construction and operation of the relevant plant must be fully authorized.

(b) If the plant will be connected to the gas transportation and distribution network, the producer must have accepted the connection estimate issued by the relevant grid operator.

(c) The biomethane produced is obliged to comply with the following:

1. The criteria set out under Directive 2018/2001/EU for the purpose of compliance with the principle of “no significant harm to environmental objectives,”
2. The requirements set out in Annex VI, footnote 8, of Regulation 2021/241/EU, as well as
3. At least one of the following sustainability conditions:

(A) for the transport sector, the plant must produce feedstock-derived biomethane that can be used for the production of advanced biofuels referred to in Annex VIII to Legislative Decree No. 199/2021 and must achieve at least a 65 percent reduction in greenhouse gas emissions through the use of biomass;

(B) for other uses, the plant must achieve at least an 80 percent reduction in greenhouse gas emissions through the use of biomass.

(d) For reconversions, the works must be realized on existing biogas plants fueled by materials from agricultural, forest, farming, and food activities (not waste).

(e) For plants located in areas already in infringement proceedings by the European Commission for violations related to air quality, the production of biomethane must abide by the thresholds of emissions provided under application laws.

(f) For producers whose industrial activities fall within the categories set out in Annex 1 to Directive 2010/75/EU (Industrial Emissions Directive), depending also on the capacity value, if the biomethane is produced on an industrial scale through processes of chemical or biological transformation of substances or groups of substances resulting from the manufacture of organic chemicals and in particular, simple hydrocarbons, compliance with the Industrial Emissions Directive, as found in the authorization documents in Part II of Legislative Decree No. 152 of 2006 and, for industrial activities, in Title I, Part V, of the same decree, must be ensured.

(g) For plants to be located in nitrate-vulnerable areas that will have livestock-derived nitrogen loads greater than 120 kg/ha, at least 40 percent by weight of livestock manure must be used in the overall feeding plan.

(h) The project must provide for plant-digestate storage tanks, with a volume equal to a 30-day production at minimum, which must be covered, gas-tight and equipped with systems for capturing and recovering gas to be reused for the production of electricity, heat or biomethane. This requirement is not required in cases where the digestate is not stored, but sent directly to the composting process.

3 Competitive tender procedures

3.1 Budget caps

(a) The New Biomethane Decree stipulates that access to the incentives will take place upon the awarding of a competitive tender procedure. Specific production capacity quotas (contingenti di capacità produttiva) will be applicable for each procedure and the incentives will be available within the limits of such quotas (which can be regarded as budget caps).

(b) The annual production capacity quotas made available in the competitive tender procedures for the allocation of incentives are expressed in standard cubic meters/hour (Sm3/h) of biomethane. For 2022, 2023 and 2024 these amount in total to 257,000 Sm3/h. According to Article 5(1) of the New Biomethane Decree, the production capacity quotas made annually available are allocated as follows: (i) for 2022, 67,000 Sm3/h; (ii) for 2023, 95,000 Sm3/h; and (iii) for 2024, 95,000 Sm3/h.

3.2 Timing of the tender procedures

(a) The competitive tender procedures will take place beginning in the end of 2022 until the earlier of the end of 2024, and the date when the funds are made available by the National Recovery and Resilience Plan are exhausted. According to Article 5(2) of the New Biomethane Decree, only one competitive tender procedure will be launched in 2022; from 2023, at least two competitive tender procedures will be launched per year.

(b) Each call for tender will have a 60-day opening period, during which producers will be entitled to submit their applications. The GSE will publish a tender ranking list within 90 days from the closing date of each competitive tender procedure. The ranking list will highlight those projects ranked within the budget cap for access to the incentives under the New Biomethane Decree.

(c) Producers must file documentation with the GSE evidencing their compliance with the requirements listed in section 2 above or, and must indicate in the application the percentage of reduction offered on the reference tariff, which must be no less than 1 percent.

(d) The GSE will check the completeness of the application within five business days from the date of its receipt - and in any case no later than the 60-day opening period of the tender procedure - review the documentation submitted and conclude its review within the 90-day period before the closing date.

3.3 Priority criteria for the ranking lists

(a) The GSE shall rank producers according to the limits of the available production capacity quotas and based on the following priority criteria:

1. The percentage of reduction offered with respect to the relevant reference tariff,
2. If there are more applications to participate in the competitive procedure than what was set out in the quota for the relevant procedure and the percentage reduction offered by the producers is the same, the GSE will apply the following:

(A) First, compliance with the requirements set out in Article 4(1)(c) of the New Biomethane Decree (i.e. compliance of the biomethane object of production with the requirements established by EU regulations - see the specific requirements set out in 2.2(c) above), and

(B) Second, the earliest date of completion of the application for participation in the competitive tender procedure.

(b) Once included in the ranking list, the producer will be entitled to receive the capital contribution and the incentive tariff set out under the New Biomethane Decree.

3.4 Deadlines for launching operations of a biomethane plant

(a) Agricultural plants for biomethane production ranked in the ranking list within the budget cap must enter into operation no later than 18 months from the date of publication of the ranking list.

(b) Biomethane production plants fueled by organic waste ranked within the budget cap must enter into operation no later than 24 months from the date of publication of the ranking list.

(c) Failure to comply with the above-mentioned deadlines would trigger a reduction of the incentive tariff referred to in Article 3(1)(b) of the New Biomethane Decree by 0.5 percent for each month of delay, up to a maximum of nine months of delay. If there is any downtime in the construction of the plant and related works resulting from force majeure or calamitous events ascertained by the competent authorities, these deadlines will be prolonged by the time of the stop in the construction works.

(d) The producer must notify the date of the plant’s launch of operations within 30 days thereafter. The producer must include with the notification documentary evidence of the costs incurred to realize the works. Article 3(1)(b) of the New Biomethane Decree stipulates that a failure to notify the GSE of a plant’s start of operations within the abovementioned 30-day term triggers a loss of the incentive tariff for the period between the start date for operations and the first day of the month following the date of notification.

(e) Ownership of a plant that was awarded a competitive tender procedure may not be transferred to third parties before it enters into operation and executes an agreement with the GSE (reference is made to asset deals like mergers and transfers of going concern involving a company owning a plant that was awarded a competitive tender procedure).

4 Characteristics and payment of the incentive

4.1 Incentive: capital contribution + incentive tariff

Under Article 3(1) of the New Biomethane Decree, the incentive comprises the following:

(a) A capital contribution for eligible expenses of the investment incurred, within the limits of the maximum eligible investment cost and according to the percentages indicated in Annex 1 to the New Biomethane Decree, as set out in Table A below; and

(b) An incentive tariff applied to the net production of biomethane for 15 years and paid from the date of commercial entry into operation of the plant, calculated according to the modalities set forth in Article 7 and Annex 2 to the New Biomethane Decree, as set out in Table B below.

Table A - Maximum eligible specific investment cost and percentage of recognized capital contribution

Table B - Reference tariffs for newly built plants and converted agricultural plants

4.2 Costs eligible to be financed with the capital contribution

(a) Article 8(2) of the New Biomethane Decree lists the eligible expenses that can be paid by the capital contribution as follows:

1. Costs for realization and energy efficiency of the plant (i.e. the infrastructure and machinery necessary for management of the biomass and the anaerobic digestion process, the storage of digestate, the implementation of the biogas purification plant, the transformation, compression and storage of biomethane and CO2, the implementation of the facilities and equipment for the company’s own consumption of biomethane);
2. Costs for monitoring and oxidation equipment for biomethane, exhaust gas and fugitive emissions monitoring;
3. Costs to connect to the natural gas grid;
4. Costs for the purchase or acquisition of computer programs necessary for the management of the plant;
5. Expenses for the design, work supervision, testing, consultancy, feasibility studies, patents and licenses purchase, provided they are connected to the implementation of the abovementioned expenditures, up to a maximum of 12 percent of the total eligible investment cost;
6. Costs for the digestate composting phase.

(b) Such expenses must be documented, paid transparently and be invoiced in the following ways:

1. Receipts, along with detailed documentation as set out in the implementation rules, must be included with the notification to the GSE of the start of operations;
2. Payments must be evidenced by traceable payment instruments;
3. Expenses to be covered by the capital contribution must be invoiced by 30 June 2026.

(c) Should the producer fail to complete the works eligible for financing and enter into operation by 30 June 2026, the entitlement to receive the capital contribution would be forfeit.

4.3 Calculation of the incentive tariff

The incentive tariff is calculated according to the modalities set forth in Article 7 and Annex 2 to the New Biomethane Decree. In particular, the incentive tariff may be paid in the following ways:

(a) An all-inclusive tariff (tariffa omnicomprensiva), applicable to plants whose production capacity is equal to or lower than 250 Sm3/h that are connected to gas grids with third-party connection obligations;

(b) A feed-in premium (tariffa premio), applicable to plants whose production capacity is more than 250 Sm3/h, as well as to all production plants feeding biomethane into gas grids with no third-party connection obligation.

4.4 All-inclusive tariff

(a) The all-inclusive tariff is equal to the reference tariff (reported in Table B above) reduced by the percentage discount offered and accepted during the competitive tender procedures, including the economic value resulting from the sale of the natural gas as well as the value of the guarantees of origin. In such case:

1. The guarantees of origin are issued and simultaneously transferred free of charge to the GSE, which then allocates them through competitive procedures.
2. The GSE guarantees the collection of the biomethane at the respective delivery points and the sale of the biomethane on the market. Such sale may be carried out through the identification of one or more qualified natural gas sales companies selected through competitive procedures, or, in the event of non-participation or partial participation in such procedures, the GSE may directly provide for the sale of the biomethane in accordance with the modalities to be defined in the implementation rules.

(b) Alternatively, the producer may opt for the feed-in premium.

4.5 Feed-in premium

(a) The feed-in premium is determined through a two-way mechanism (contract for difference) resulting from the difference between: (i) the reference tariff (reported in Table B above), reduced by the percentage discount offered and accepted during the competitive tender procedures; and (ii) the average monthly price of natural gas and the average monthly price of the guarantees of origins.

(b) If this difference is positive, the GSE will pay the relevant amount. If this difference is negative, the GSE will set off or request the producer to return or pay the respective amount.

(c) If the plant benefits from the feed-in tariff, the guarantees of origin will be assigned to the producer.

4.6 Payment of the incentives

(a) The GSE will pay the incentive tariffs on a monthly basis after execution of the agreement with the producer. The incentive tariffs are paid based on measurement data of the biomethane fed into the natural gas network, as actually recorded and communicated to the GSE by the grid operators to which the plant is connected, or in other cases directly by the producer, in accordance with the modalities established under the implementation rules.

(b) After the plant begins operations, the producer will have the faculty to conduct a start-up and testing phase of the plant in compliance with the terms and conditions that will be provided under the implementation rules; upon completion of such start-up and testing phase, the producer must inform the GSE of the date of commercial entry into operation of the plant.

(c) The GSE will pay the incentive tariff by the last day of the third month following the notification of the date of the plant’s commercial entry into operation (for 15 years from that date).

(d) The incentives set out under the New Biomethane Decree cannot be applied simultaneously with other public incentives or support schemes to be allocated to the same works. Nevertheless, in the case of electricity production, this prohibition does not prejudice the possibility to access the dedicated energy withdrawal mechanism (meccanismo del ritiro dedicato dell’energia) referred to in Article 14 (3) and (4) of Legislative Decree No. 387/2003.

5 Inspections

5.1 The GSE and the Biofuels Technical Advisory Committee may carry out inspections, independently or jointly, on biomethane plants and their capacity to feed into the natural gas grid. Such inspections may be carried out through both documentary and site inspections as well as before the plant launches operations.

5.2 These inspections are carried out without prejudice to the controls and verifications that state and regional public administrations, local authorities, grid operators and certification bodies may conduct within their competences and powers.

5.3 The first monitoring inspections (visita di sorveglianza) under Article 7(3)(b) of the Ministerial Decree of 14 November 2019 is carried out within 30 days from issuance of the first sustainability certificate (certificato di sostenibilità) of the biomethane fed into the grid.

6 Plants located outside Italy

6.1 Plants located in member states of the European Union and in other third countries bordering Italy that have concluded a free trade agreement with the European Union and physically export their biomethane production to Italy may benefit from the incentive governed by the New Biomethane Decree on a reciprocity basis.

6.2 For plants located in countries other than Italy the production capacity quotas (contingenti di capacità produttiva) annually available in the competitive procedures are identified on the basis of a formula set under Article 13(3) of the New Biomethane Decree.

1. The previous incentive regime set out under Ministerial Decree dated 2 March 2018, originally applicable to plants entering in operation by 31 December 2022, has been recently extended to plants that will enter in operation by 31 December 2023, provided that they (i) have submitted to the GSE an application to obtain a qualification application by 19 September 2022, (ii) obtain from the GSE the so-called “project qualification” (qualifica a progetto) by 31 December 2022; and (iii) have obtained the relevant construction and operation authorization for the plant by 19 August 2022.