In response to Russia’s invasion of Ukraine, in May 2022 the European Commission presented the REPowerEU plan, which provides for financing new measures to diversify energy supplies and reduce the EU’s dependence on Russian fossil fuels. The legislative proposal seeks to make the Recovery and Resilience Facility the strategic framework for the initiatives to be introduced under REPowerEU. In order to access the resources available under this plan, Member States must add to their existing Recovery and Resilience Plans a dedicated chapter setting out the reforms and new investments they will pursue to hasten the reduction in dependence on fossil fuels, while at the same mitigating their costs and socio-economic impact during the transition.
The Commission estimates the investment needed by 2030 to achieve the REPowerEU objectives and gradually eliminate imports of fossil fuels from Russia at around €300 billion (€210 billion by 2027). About 95% of this will be dedicated to accelerating the energy transition (with an increase in the renewables capacity, energy efficiency and heat pumps in the residential sector, energy efficiency and decarbonization in the industrial sector, development of transmission networks, distribution and storage, increase in the production of sustainable biomethane and biomass).
The legislative process, which began in May, was concluded in December with the provisional agreement reached by the Council and the European Parliament on the proposed REPowerEU regulation, which in addition to confirming the main elements proposed by the Commission also sets out how the plan will be financed, including the use of:
As regards the Recovery and Resilience Facility, in 2022, the Commission and the European Council continued work on reviewing the National Recovery and Resilience Plans, approving those of the final two countries, Hungary and the Netherlands, in the 2nd Half of the year.
During the year, the European Union continued to disburse financing to those Member States that had requested pre-financing of their activities or that had reached the milestones and targets indicated in their Recovery and Resilience Plans. At the end of 2022, the total amount of funds disbursed by the EU amounted to around €139 billion (€94 billion in grants and €45 billion in loans).
The European Commission’s “Fit for 55” package, presented in July 2021, proposed raising the EU’s 2030 targets in support of a more ambitious climate goal of reducing greenhouse gas emissions by 55% by 2030 and achieving climate neutrality by 2050.
Due to the energy crisis that began in 2021 and that was exacerbated by the Ukraine crisis in 2022, it has become necessary to find additional short and medium-term measures to strengthen economic growth, ensure secure energy supplies and hold to the commitment on Europe’s climate targets.
The REPower EU strategy is the response of the European Commission, which proposes to:
In 2022, the European institutions engaged in discussions over the various dossier contained within the “Fit for 55” package and adapted it to the changes introduced by REPowerEU. Some of the most significant of these are the revisions of the Renewable Energy Directive (RED III), the Energy Efficiency Directive (EED), the Energy Performance of Buildings Directive (EPBD), the EU Emissions Trading System Directive (EU ETS), and the Regulation setting CO2 emissions restrictions for motor vehicles.
On March 10, 2020, the new Industrial Strategy was presented, with the goals of: helping European industry remain competitive globally, making Europe climate neutral by 2050 and shaping Europe’s digital future. The strategy proposes a series of legislative and non-legislative initiatives to support all of Europe’s industrial actors, ranging from large to small enterprises, research centers and startups. These include comprehensive measures to modernize and decarbonize energy intensive industries, to support the sustainable and smart mobility industries, to promote energy efficiency and ensure a secure and sufficient supply of low-carbon energy at competitive prices. The Industrial Strategy also proposes entering into a series of new alliances like the European alliance on clean hydrogen in order to speed up the decarbonization of industry and to maintain a position of industrial leadership, followed by alliances on low-carbon industries, on industrial clouds and platforms and raw materials. In addition to a full range of actions – both horizontal and intended to promote specific technologies – the European Commission will systematically analyze the risks and needs of the various industrial ecosystems. In carrying out its analysis, the Commission will work closely with an inclusive and open industrial forum that was to be set up by September 2020.
On June 3, 2022, the European Data Governance Act (Regulation (EU) 2022/868) was adopted. It seeks to organize and encourage data sharing within the EU to build a more competitive European data economy. In addition, negotiations with the United States on a new data privacy shield concluded with the publication on December 13, 2022 of a process to adopt an adequacy decision for the EU-US Data Privacy Framework, which, once formally adopted, acknowledges that the United States will guarantee an adequate level of protection for the personal data transferred from the EU.
Furthermore, two regulations were adopted in 2022, the Digital Markets Act (DMA) and the Digital Services Act (DSA), which introduce rules applicable to all digital services, including online markets and other online platforms that operate in the European Union. The DMA establishes a series of strictly defined objective criteria for qualifying a large online platform as a so-called “gatekeeper”. The DSA sets a new standard for the liability of online platforms for illegal and harmful content. It will provide better protection for internet users and their fundamental rights, as well as define a single set of rules for the internal market, helping smaller platforms to grow. Also relating to data use, the European Commission published on February 23, 2022 its proposed Data Act, a regulation touching on delicate issues, such as obligations for sharing data, monetizing data and data access, which is currently being debated at European level.
Prompted by growing concerns regarding cyber risk, discussions about the revision of the Network and Information Security Directive (NIS2), intended to improve the management of risks and incidents and cooperation for essential businesses, were concluded quickly and the new Directive (EU) 2022/2555 was published in the Official Journal on December 27, 2022. The new directive was aligned with sector legislation, in particular the Digital Operational Resilience Act (DORA), which was also published on the same day as the Directive (EU) 2022/2555, to provide legal clarity and to ensure consistency between it and NIS2. On September 28, 2022, the Commission published two new proposals in relation to the EU’s digital strategy and artificial intelligence, the main objectives of which are to adapt liability rules to the digital age, circular economy and the impact of global value chains:
Both directives are currently being examined at European level, which is expected to continue throughout 2023.
In July 2021, following the “European Green Deal” and the “Smart and Sustainable Mobility Strategy” published in 2019 and 2020 respectively, the European Commission issued the “Fit for 55” package of legislative proposals. The package includes numerous proposals concerning transport and reducing CO2 emissions in the transport sector and accelerating the transition to zero-emission mobility. During the second half of 2022 the European Parliament and Council made progress in analyzing numerous aspects of the “Fit for 55” legislation:
On November 10, 2022, the Commission presented the proposal on new Euro 7 standards to reduce air pollution from light and heavy vehicles and to improve air quality.
On December 15, 2021, the European Commission published the package for the decarbonization of the gas market and the definition of a framework enabling the penetration of renewable and low-carbon gases into the system, including hydrogen, and rules governing the market and organization of the sector, including infrastructure aspects. The package includes low-carbon gas certification standards that ensure a 70% reduction in greenhouse gas emissions.
In addition, it promotes access and rate discounts for renewable and low-carbon gases. Among the salient points are the rules on vertical and horizontal unbundling and on access to networks in the hydrogen sector, with less stringent provisions until 2030 and exemptions for existing and new geographically confined hydrogen networks. The Commission proposal also provides for separate Regulatory Assets Base (RABs) between gas and electricity and hydrogen infrastructures, but allows, subject to authorization by regulators, financial transfers between them to finance the hydrogen network (charges on final gas and electricity consumers). Finally, the package envisages that gas Transmission System Operators (TSOs) must accept gas-hydrogen mixtures (so-called blending) at borders up to a percentage of 5%, with a cost allocation procedure that provides for the intervention of the authorities in the event of no agreement between network operators.
The final position to be negotiated in Trilogue by the Parliament and the Council is still being defined. It appears that position will be to propose a less stringent regulatory framework for hydrogen, at least in the initial stage.
As required by the Renewables Directive of 2018, the European Commission is responsible for issuing a delegated act to define the criteria by which hydrogen produced from electricity can be considered renewable. The Commission has opened a formal stakeholder consultation and the act is now under review prior to adoption. The criteria concern the principles of additionality for renewable plants that power the electrolyzers and the spatial and temporal correlation between electrolyzers and renewable plants. The European Parliament expressed its disagreement with the rules it deemed too strict in setting out its position on the revised Renewable Energy Directive.
Alongside its hydrogen strategy, on July 8, 2020, the Commission presented the EU strategy on energy system integration. The scope of the strategy is to transform the present energy system in which each sector (transport, industry, gas, buildings) is an isolated compartment, creating new cross-sectoral links, leveraging technological progress so as to achieve climate neutrality by 2050 at the least possible cost. The strategy sets out 38 actions to implement this more integrated system and is based on three main pillars: a more circular energy system, hinging on energy efficiency; greater direct electrification of enduse sectors; and the promotion of clean fuels, including renewable hydrogen and sustainable biofuels and biogas for sectors where electrification is difficult.
The Just Transition Fund (JTF) is a funding instrument under the Just Transition Mechanism (JTM) which aims to provide support to Member States by reducing the socio-economic impact of the transition towards climate neutrality. The total resources (2021-2027) allocated at Community level to the JTF amount to €17.5 billion (at 2018 prices), of which €7.5 billion under the 2021-2027 EU multiannual financial framework and €10 billion under Next Generation EU.
The JTF will support workers, businesses and regional authorities in the green transition and will finance a specific number of activities, including the regeneration and decontamination of brownfield sites, investments in renewable energy and energy efficiency, upskilling and reskilling, and sustainable mobility.
The National Transition Plans for Italy and Spain were approved in December 2022, with allocated funding of €1.2 billion and €869 million (current prices), respectively.
As regards Italy, its plan focuses on investment in the areas of Sulcis Iglesiente and the Province of Taranto in projects to counter the effects of the transition by: increasing the share of energy generated from renewable sources for businesses and persons, diversifying the local production system, and mitigating the social effects and those on employment.
The Spanish plan targets the region of Asturias, the provinces of A Coruña, Teruel, León, Palencia, Almería, Cadiz and Córdoba, and a group of municipalities around Alcúdia on the island of Mallorca. The plan will invest in energy efficiency, the circular economy, renewable energy sources (solar, offshore wind, renewable hydrogen), and the “green transformation” of the nation’s industry
With regard to the European taxonomy, the first delegated act, which establishes the technical screening criteria for determining whether a specific economic activity makes a substantial contribution to the fight against climate change (adaptation and mitigation), entered into force on January 1, 2022. Furthermore, in February 2022, the European Commission presented the Complementary Delegated Act, which sets out the criteria for gas and nuclear energy activities, which was approved by the European Parliament and the Council, entering into force on January 1, 2023.
In the 2nd Half of 2022, the European Parliament and the Council were also engaged in inter-institutional negotiations (Trilogue) to agree on the final text of the Green Bond Standard Regulation. However, the co-legislators were unable to reach an agreement, mainly on the European Parliament’s proposal to extend the disclosure obligations to other sustainable bonds, including sustainability-linked bonds.
In 2022, the European Parliament and the Council also reached an agreement on the corporate sustainability reporting directive, which entered into force in January 2023.
Also in the 2nd Half of 2022, the Council adopted its position on the corporate sustainability due diligence directive targeted at large companies, the proposal for which was presented by the European Commission in February 2022. Instead, the European Parliament has not completed its work and the inter-institutional negotiations have been postponed to 2023.
Finally, in September 2022 the European Commission presented its proposed regulation to ban products made with forced labor, both “domestic” goods made in Europe and those imported from outside the EU. The European Parliament and the Council are expected to define their positions in 2023.
On January 27, 2022, the new 2022 regulations on State aid for climate, environment and energy, namely Climate, Energy and Environmental Aid Guidelines (CEEAG), came into force. They will guide investment support for decarbonization in the coming years, and for that they are of considerable importance for the energy sector and for the Enel Group. The new regulations include a section dedicated to aid for the reduction of greenhouse gas emissions including aid for the production of renewable and low-carbon energy, aid for energy efficiency, including high-efficiency cogeneration, aid for hydrogen, aid for storage and batteries and aid for the reduction or prevention of emissions from industrial processes. An entire chapter has been dedicated to sustainable mobility, which governs aid for electric mobility and charging infrastructure, including the maritime sector. Energy efficiency measures for buildings are also regulated, including batteries and charging of electric vehicles. The proposed rules also officially recognize that financing for natural or legal monopoly power grids does not represent State aid. Finally, aid to nuclear technologies and fossil fuels are excluded from the scope of the guidelines, while all types of storage, including stand-alone systems, are included among the technologies allowed in the section dedicated to aid for the reduction of greenhouse gas emissions.
In 2022 work continued on the draft revision of the General Block Exemption Regulation (GBER) with important changes to the sections relating to climate, environmental protection and energy, including an update of the notification thresholds, in response to the energy crisis. The GBER defines specific categories of State aid that, under certain conditions, are compatible with the Treaty on the Functioning of the European Union (TFEU) and exempts these categories from the obligation of prior notification to the Commission and its approval. The draft regulation proposes to expand the scope for Member States to finance different types of green projects, such as those to reduce CO2 emissions, sustainable mobility and charging infrastructure. It also introduces new green conditions that large energy-intensive businesses must meet to receive aid in the form of reduced tax rates or exemptions from payment of system charges; storage, including batteries; sustainable hydrogen and renewable energy communities. The new regulation will be published in the early months of 2023 and will permit greater flexibility in these key sectors in the long term.
The revised rules on State aid in favor of major important projects of common European interest (IPCEI) entered force on January 1, 2022. The legislation sets out the criteria for the Commission’s evaluation of the aid that Member States grant to cross-border IPCEIs that remedy market failures and enable cutting-edge innovations in key sectors and investments in technologies and infrastructures, with positive spillovers for the entire EU economy.
The European Commission approved the map for granting regional aid from January 1, 2022 to December 31, 2027 for Italy and Romania in December 2021, for Greece in January 2022 and for Spain in March 2022, within the framework of the revised regional aid guidelines.
On May 12, 2022, the European Commission decided to phase out the State aid COVID Temporary Framework (TF COVID), adopted on May 19, 2020 and last amended on November 18, 2021, which covered the funds and projects of the NRRP. Most of the instruments provided under the Temporary Framework expired on June 30, 2022. The possibility of investment and solvency support measures for Member States expired on December 31, 2022. However, a flexible transition for the conversion of debt instruments into other forms of aid is guaranteed until June 30, 2023. We have worked, within the TF COVID, to disburse aid for national measures intended to boost employment even in disadvantaged areas.
On March 23, 2022, the European Commission approved the Temporary Crisis Framework (TCF), which was intended to tackle rising electricity and gas prices as a consequence of the current geopolitical crisis sparked by the situation in Ukraine. The TCF was amended on July 20, 2022 to include new measures in line with the REPowerEU plan regarding the acceleration of the rollout of renewable energy and the facilitation of the decarbonization of industrial processes. An additional amendment was approved in October 2022 to further simplify the development of renewables and to align the TCF with the emergency measures taken in response to the energy crisis (for example, demand reduction measures) and to include government guarantees among liquid collateral on power trading markets. Some €672 billion has been disbursed under the TCF since when it was approved to the end of 2022. More specifically, 53% of the State aid approved was notified by Germany, 24% by France and 7% by Italy.
On October 19, 2022, the European Commission published the revised State aid Framework for research, development and innovation.
As part of the IPCEI Hydrogen Technology (Carlentini) project, we contributed to the resolution of the request for information from the Competition DG (market failure aid) and to the positive evaluation of the project so that it would be selected for the final notification phase in Brussels. The IPCEI Hydrogen Technology project was approved on July 15, 2022. Alongside this, work was begun on selecting the projects to be carried out under IPCEI Hydrogen Industry or IPCEI Hy2Use, approved on September 21, 2022.
In 2022, we continued to monitor the funds authorized by the European Commission for the countries of importance to the Group in relation to TF COVID and TF Crisis.
On June 8, 2022, the Commission approved the €8.4 billion in State aid from Spain and Portugal to reduce wholesale electricity prices on the Iberian market, lowering the production costs of fossil fuel power plants.
On July 26, 2022, the European Commission approved a €700 million Italian scheme to support SMEs and Midcaps affected by the crisis in Ukraine through direct grants. Alongside this, it approved a €10 billion loan guarantee scheme proposed by Italy to support companies across sectors in the context of the Ukraine crisis.
On September 5, 2022, the Commission approved the Greek scheme of €341 million to provide grants for investment and operational support for electricity storage facilities, partly funded by the Recovery and Resilience Facility (Case SA.64736).
On September 30, 2022, the Commission approved the €2 billion Italian scheme for the reinsurance of natural gas and electricity trade credit risk (SACE) in the context of the crisis.
On October 5, 2022, the Commission approved a €21.1 million Italian measure to support Poste Italiane in building charging infrastructure.
On November 15, 2022, the Commission approved the €500 million Italian scheme that provides direct grants for the acquisition of new vessels and the retrofitting of existing ones in order to replace low environmental performance vessels with clean, zero-emission ones.
On December 20, 2022, the Commission approved the amendments to an existing Italian guarantee scheme, including an up to €23 billion budget increase, to support companies in the context of the Ukraine crisis. The overall budget of the measure does not exceed €33 billion.
We continued to provide support in 2022 to the assessment of the State aid aspects of priority projects for the Group under the NRRP.
In October 2022, the Council approved the regulation on emergency measures to reduce energy prices. The regulation includes a cap on market revenue for inframarginal producers (e.g., renewable energy, nuclear power) of €180/ MWh. Revenue above this threshold will be subject to a clawback tax at a rate of 90-100% from December 2022 to June 2023 and redistributed to customers to help them bear energy costs. The threshold imposed by the EU is higher than the average prices recorded in many Member States for inframarginal generation. Many Member States have adopted even stricter measures.
The surplus revenue generated by European Union companies and permanent establishments with activities in the crude oil, natural gas, coal and refinery sectors is subject to a mandatory temporary solidarity contribution, unless the Member States have enacted equivalent national measures. Member States must ensure that enacted equivalent national measures share similar objectives and are subject to rules similar to those for the temporary solidarity contribution under the Regulation and generate comparable or higher proceeds than those estimated for the solidarity contribution. The temporary solidarity contribution for EU companies and permanent establishments with activities in the crude oil, natural gas, coal and refinery sectors, including those that are part of a consolidated group merely for tax purposes, shall be calculated on the taxable profits, as determined under national tax rules, in the fiscal year 2022 and/or the fiscal year 2023 and for their full duration, which are above a 20% increase in the average taxable profits, as determined under national tax rules, in the four fiscal years starting on or after 1 January 2018. If the average of the taxable profits in those four fiscal years is negative, the average taxable profits shall be zero for the purpose of calculating the temporary solidarity contribution.
Generation and the wholesale market
For 2022 and 2023 the Sulcis, Portoferraio and Assemini plants were declared eligible for the cost reimbursement scheme. The Porto Empedocle plant is eligible for longterm cost reimbursement until 2025, while plants located on the smaller islands are automatically eligible for cost reimbursement for all years in which they are declared essential, including 2022 and 2023. Admission to the cost reimbursement scheme guarantees coverage of the operating costs of the aforementioned plants, including a return on capital invested. Generation cost reimbursement, net of plant revenue, is granted by the Regulatory Authority for Energy, Networks and the Environment (ARERA) with measures authorizing payments on account and a final balance payment based on applications submitted by operators.
For 2022 and 2023 the remainder of essential capacity was contracted under alternative contracts which provide for the obligation, on the Ancillary Services Market (ASM), to offer to go up/down to prices no higher/lower than the values identified using methods established by ARERA for a fixed premium.
In 2022, ARERA revised the valuation criteria for cost components relating to the cost of natural gas and the charges connected with the Emission Trading System (ETS) obligations pertaining to essential plants eligible for the cost reimbursement scheme and under alternative contracts, in order to more accurately reflect the spot price of the commodities underlying those charges in an environment of rising volatility in the benchmark prices.
More specifically, with its Resolution no. 452/2022/R/eel, ARERA revised the valuation criteria for natural gas costs, introducing, as from October 1, 2022, weekly indexing of the prices recorded in the national balancing market, which replaces the previous quarterly indexing mechanism and the related prices recorded on the Dutch Title Transfer Facility (TTF) platform.
These rules were confirmed for 2023 by Resolution no. 532/2022/R/eel, with which ARERA also established that there would be a shift for 2023 from monthly to weekly indexing to calculate the cost component for ETS obligations.
In order to tackle the gas supply problems for the 2022/2023 thermal year, Decree Law 14/2022 (the socalled “Ukraine Decree”) allowed the Ministry of Ecological Transition (MiTE) to require Terna to maximize thermal generation by plants with a capacity of over 300 MW powered by non-gas alternative fuels, as well as generation by bioliquid plants. The decree law also contains measures for the competent institutions to cooperate on issuing environmental waivers that may be necessary for the operation of plants whose output is to be maximized and ask ARERA to establish the supply rules for those plants and the reimbursement of costs incurred following the activation of the measure.
With its Guidelines of September 1, 2022, MiTE asked Terna to draw up and implement a gas-alternative production maximization plan for the September 19, 2022 - March 31, 2023 period to enable a savings of 1.8 billion cubic meters of gas, minimizing recourse to environmental waivers. Terna has identified the plants that will take part and, on September 19, launched the production maximization plan. Enel’s Sulcis, Fusina, Torrevaldaliga Nord, and Brindisi plants are included.
With its Resolution no. 430/2022/R/eel, ARERA established that:
ARERA, with Resolution no. 433/2021/R/eel, set the invested capital remuneration rate for essential plants eligible for reimbursement of costs for 2022, leaving it at 7%, the same as decided for 2021.
Starting in 2023, ARERA, with Resolution no. 532/2022/R/ eel, modified the methodology for determining the nominal remuneration rate on capital invested in plants essential to the security of the electricity system eligible for the cost reimbursement scheme. The new methodology involves calculating the real WACC based on the rules in effect for the remuneration of infrastructure services pursuant to Resolution no. 614/2021/R/com (TIWACC) and the conversion into nominal WACC based on the ECB’s inflation expectations for the relevant year. More specifically, WACC is obtained by applying the benchmarks for electricity transmission, with the exception of the specific risk (beta asset) set equal to the electricity distribution value (0.4). It also includes an add-on of 0.2% to take account of any further charges and risk associated with essential generation eligible for the cost reimbursement scheme. Using the new methodology, the resolution sets nominal WACC for 2023 at 11.9% and this figure will be adjusted annually based on changes in the financial benchmarks used in the calculation.
On June 28, 2019, the Minister for Economic Development issued a decree approving the definitive rules governing the capacity remuneration mechanism (the capacity market). On November 6 and November 28, 2019 two auctions were held with delivery in 2022 and 2023 respectively: Enel was awarded capacity for both years. A number of operators and a sectoral trade association contested the decree and the results of the two auctions before the Lombardy Regional Administrative Court.
Two operators also challenged the European Commission decision approving the Italian mechanism before the EU Court. In two decisions dated 7 September 2022, the European General Court dismissed the actions and the two applicant companies decided to not appeal the decisions before the Court of Justice of the European Union, thereby concluding the disputes. The disputes are still under way before the Lombardy Regional Administrative Court, which had suspended proceedings in April 2021 pending the rulings of the EU Court, having found a preliminary issue with respect to these proceedings.
With the Decree of the Minister for the Ecological Transition (MiTE) of October 28, 2021, the new capacity market regulation was approved. It will apply to auctions with delivery from 2024. In execution of the decree, Terna launched the auction procedures for 2024, which took place on February 21, 2022. Enel was awarded annual contracts for approximately 10.4 GW of existing capacity with delivery in 2024, and contracts for approximately 1.5 GW of new capacity with a duration of 15 years from 2024 to 2038. Pursuant to the decree, the results of the 2024 auction will be used as the basis for assessing whether to hold an auction for the 2025 delivery year.
In December 2021, two operators filed two appeals with the Lombardy Regional Administrative Court against the MiTE Ministerial Decree of 28 October 2021, Terna’s 2021 Capacity Market Regulations and the ARERA resolutions which define the framework for the execution of the capacity auction for 2024 (and possibly for 2025). In May 2022, the same companies also challenged the detailed report of the results of the main auction for 2024, published by Terna.
In March 2022, ARERA issued Resolution no. 83/2022/R/ eel with urgent measures to change the methods of calculating the strike price of the capacity market. The resolution was adopted to cope with the extreme volatility of the markets in recent months, introducing a mechanism for indexing on a daily basis the components relating to the cost of gas and the issue charges included in the calculation of the strike price. The new methodology replaces the current formulas, which provide for an indexation of the strike price on a monthly basis. The changes are effective from March 5, 2022 and shall apply until a subsequent ARERA measures is issued.
With Resolution no. 523/2021/R/eel, from April 1, 2022, in implementation of the EU regulatory framework, an amendment was introduced to the rules governing imbalances, with the extension of the “single pricing” mechanism for assigning a value to imbalances of all units, including those authorized for the Ancillary Services Market (ASD). The reform eliminates the dual price mechanism, which had applied to units authorized for the ASD and was more costly. At the same time, in order to discourage imbalances that could lead to an increase in system costs, the new regulation extends the macro-zone non-arbitrage fee to units authorized for the ASD and revises the structure of the fees for non-compliance with dispatching orders.
At the end of November 2021, Legislative Decree 199/2021 implementing Directive 2018/2001 on the promotion of the use of energy from renewable sources was published in the Gazzetta Ufficiale. The decree also contains provisions on the configuration of self-consumption and renewable energy communities, which are already governed in Italy by the experimental regulations introduced with Law 8/2020 (ratifying Decree Law 162/2019, the “Milleproroghe” omnibus extension act) and subsequent implementation measures (ARERA Resolution no. 318/2020/R/eel and Ministerial Decree of September 16, 2020 of the Ministry for Economic Development). On December 27, 2022, in implementation of Legislative Decree 199/2021, ARERA approved the Consolidated Distributed Self-Consumption Code (TIAD), which sets out the new regulatory framework for energy communities and distributed self-consumption configurations. The Ministry of the Environment and Energetic Safety (MASE) will have to update the incentive mechanisms for renewable energy plants inserted in collective self-consumption configurations or renewable energy communities set out in the experimental rules. Until MASE adopts the implementing measures, the transitional rules will apply.
Decree Law 4 of January 27, 2022, ratified with Law 25 of March 28, 2022 introduced a refund mechanism for plants powered by renewable sources receiving incentives through the energy account and for all plants powered by renewable sources that are not receiving incentives and that entered service by January 2010. Producers must return the difference between the market price, or the contracted price for forward sales, and a reference price identified in the same decree for each market zone (an average of €60/MWh). The implementation procedures of this mechanism have been specified by ARERA with Resolution no. 266/2022/R/eel. Decree Law 115 of August 9, 2022, ratified with Law 142 of September 21, 2022, introduced some modifications to the January measure by extending the application period, initially from February to December 2022, until June 2023, and specifying that, for vertically integrated groups, only contracts signed by group companies (including non-generators) with other natural or legal persons outside the group are eligible. On December 1, 2022, the Lombardy Administrative Regional Court granted the appeals filed by several operators, voiding Resolution no. 266/2022/R/ eel and the technical standards. On January 18, 2023, the Council of State granted the precautionary request presented by ARERA and published an order restoring Resolution no. 266/2022.
Finally, the 2023 Budget Act (Law 197 of December 29, 2022), transposing Regulation (EU) 1854/2022, extends the reimbursement scheme to plants not covered by Decree Law 4 of January 27, 2022, establishing a cap of €180/MWh.
Article 21 of Decree Law 17 of March 1, 2022, calls for optimizing the gas injection cycle in order to fill the national stocks to at least 90% of available capacity, including through special storage conditions and methods of allocation of modulated storage space and the corresponding injection obligations.
In issuing the implementing regulations, ARERA, through Resolution no. 110/2022/R/gas, sought to promote filling gas stores by setting reserve prices at zero for all procedures for allocating modulated storage capacity. It also provides that costs in connection with the technical consumption of gas compression and treatment plants will not be charged to storage users.
In addition, ARERA introduced, with Resolution no. 165/2022/R/gas, a mechanism (the so-called “stock bonus”) to further encourage the filling of gas stores. More specifically, the mechanism calls for paying users a storage premium based on the volume of gas in storage at the end of the injection phase.
Royal Decree Law 6/2022 of March 29 adopting urgent measures as part of the Plan for the National Response to the economic and social consequences of the war in Ukraine, Royal Decree Law 11/2022 of June 25 adopting and extending certain measures to respond to the economic and social consequences of the war in Ukraine, address situations of social and economic vulnerability and the economic and social recovery of the island of La Palma
On March 30, 2022, Royal Decree Law 6/2022 of March 29 was published in Spain’s Official Journal, approving certain measures as part of the Plan for the National Response to the consequences of the war in Ukraine. The legislation contains various measures for the energy sector, some of which were extended until December 31, 2022 with Royal Decree Law 11/2022 of June 25 and until December 31, 2023 with Royal Decree Law 18/2022 of October 18 and Royal Decree Law 20/2012 of December 27. Some of the most significant measures were the following:
Royal Decree Law 10/2022 of May 13 establishing a temporary generation cost adjustment mechanism to reduce wholesale electricity prices
On May 14, 2022, Royal Decree Law 10/2022 of May 13 was published in Spain’s Official Journal. It establishes a temporary mechanism for adjusting generation costs to reduce the wholesale price of electricity. The measure establishes a mechanism for adjusting the generation costs of marginal fossil fuel technologies, with the aim of obtaining an equivalent reduction in the clearing price of the wholesale market until May 31, 2023.
Under this mechanism, the adjustment is based on the difference between a benchmark price for the gas consumed by thermal generation plants (€40/MWh for six months, subsequently increasing by €5/MWh per month, up to €70/ MWh) and the spot price of gas on the Spanish organized gas market (MIBGAS). This mechanism will be applicable to combined-cycle, coal and cogeneration plants not covered by any regulated remuneration framework. The amount of the adjustment will be distributed among the portion of Iberian demand that directly benefits, either because it buys energy at a price directly related to the wholesale market value or because it has signed or renewed a contract that already takes account of the beneficial effect of the wholesale pricing mechanism. With regard to the latter aspect, the storage units, whether batteries or pumping systems, as well as supply units for auxiliary generation services, are exempt from payment of the cost of the mechanism.
The entry into force of the mechanism was subject to the authorization of the European Commission, which was granted on June 8, 2022, following which the Ministry for the Ecological Transition and the Demographic Challenge approved Order TED/517/2022 of June 8, which established June 14, 2022 as the start date for application of the mechanism (for the June 15 market day). In addition, this Royal Decree Law includes the following:
Royal Decree Law 17/2022 of September 20 adopting urgent measures in the field of energy, in application of the remuneration system for cogeneration plants and temporarily reducing the Value Added Tax (VAT) rate applicable to intra-EU delivery, import and acquisition of certain fuels
On September 21, 2022, Royal Decree Law 17/2022 of September 20 was published, containing several urgent measures in the energy field, some of which were subsequently extended by Royal Decree Law 20/2022 of December 27.
The measures adopted were as follows:
Royal Decree Law 18/2022 of October 18 which approves measures to reinforce the protection of energy consumers and to contribute to reducing natural gas consumption in application of “Plan +Security for your energy (+SE)”, as well as measures on the remuneration of public sector workers and to protect seasonal agricultural workers affected by the drought
The Royal Decree Law 18/2022 was published on October 19, 2022, and implements some of the measures contained in the “Plan +Security for your energy”. The most significant features are as follows:
Law 38/2022 of December 27 on the establishment of temporary energy levies and taxes on credit institutions and financial credit establishments by creating the temporary solidarity tax on large fortunes, and amending certain tax rules
On August 30, 2022, socialist parliamentary groups and the parties constituting the government presented a draft law imposing temporary levies on the energy and banking sectors.
The law was published in Spain’s Official Journal on December 28, 2022, after being approved by the Spanish Parliament.
The main features of the energy levy under this law are as follows:
Royal Decree Law 20/2022 of December 27 on measures to respond to the economic and social consequences of the war in Ukraine and to support the reconstruction of the island of La Palma and other situations of vulnerability
On December 28, 2022, Royal Decree Law 20/2022 of December 27 was published, with the following most significant aspects:
Renewable energy auctions
Based on the provisions of Order TED/1161/2020 of December 4, which sets out the rules for the first auction held under the economic regime for renewable energy and sets the indicative timetable for 2020-2025, the Resolution of July 18, 2022, published on July 28, 2022, announced the third auction under the economic regime for renewable energy. A total of 380 MW was allocated for the auction, which was held on October 25, 2022. In the same way, the Resolution of August 2, 2022, published on August 5, 2022, announced a fourth auction, with 3,300 MW allocated to be awarded, which was held on November 22, 2022. Furthermore, in 2022 various ministerial orders where approved, updating the remuneration of some of the compensation parameters of the structures, and work has begun on updating the parameters for the 6-month regulatory period beginning in 2023.
Tenders for access capacity at certain nodes of the transmission grid
On June 10, 2022, the Ministry for the Ecological Transition and the Demographic Challenge began preparation of a proposal for an ordinance for calling a tender for the access capacity at certain nodes of the transmission network, in compliance with the provisions of Royal Decree 1183/2020 of December 29 concerning access and connection to the electricity transmission and distribution networks, for a total capacity of 5,844 MW.
In addition, on August 9, 2022, the Resolution of the Secretary of State for Energy of August 3, 2022 was published, containing the decision to hold another tender for access capacity at certain nodes of the transmission grid.
Fuel Order in the non-peninsular territories
On December 30, 2022, Order TED/1315/2022 was published, which implements Decision 1337/2021 of November 16, 2021 of the Spanish Supreme Court, relating to the need to regulate auctions for the supply of fuel in the non-peninsular territories and other technical aspects. The order sets out the procedure for conducting fuel auctions, which will be held every two years and will be for the product introduced into the plant (or the raw material in the case of gas from the Balearic Islands). The auctions will be reverse auctions based on starting prices obtained by increasing the benchmark prices by 10% (3% in the case of natural gas), which will be those applied until the auctions are held or the auctions do not take place or are canceled. As from January 27, 2022, the benchmark price for natural gas will be the price on the Iberian Gas Market (MIBGAS), while for other fuels it is determined based on a series of international indices, to which a premium is added, where appropriate. The order also recognizes the logistics costs of delivering the product to the plant, which may be revised every three years.
In addition, the order also provides for the use of natural gas in the Canary Islands and in Melilla, as well as LPG in the Canary Islands, together with other less polluting fuels.
Enel Green Power Romania
The company’s financial position was impacted by the energy transition solidarity fund that has been imposed since November 2021. Some 80% of revenue in excess of €90/ MWh for the period January-August 2022, and 100% of the revenue above €90/MWh for the period September-December 2022 were collected. Balancing costs and financial transaction costs had to be covered by the amount up to €90/MWh, which had negative effects on the profitability of electricity producers, which had to purchase balancing energy to meet their contractual or hedging//coverage requirements through various transactions. Producers must withhold the contributions payable to the Energy Transition Fund on electricity traded with traders through physical or financial products.
Enel Trade Energy
Traders, suppliers that engage in trading and aggregators that sell electricity and/or gas are required to pay a new contribution to the Energy Transition Fund, in effect from September 1, 2022 to August 2023. They are allowed a profit margin of 2% on trading activities, with the difference on the profit paid into the fund.
Electricity and capacity markets
Government Decree 238 of April 13, 2022 provided for an indexation rate of 7.4% for regulated capacity rates for generators that begin selling capacity through long-term capacity auctions (KOM) from January 1, 2022 after the termination of the long-term capacity supply contract period (DPM).
Rate revision – Introduction of temporary electricity price stabilization mechanisms
On November 2, 2019, Law 21.185 of the Ministry of Energy was published, introducing a temporary electricity price stabilization mechanism for customers subject to rate regulation. Consequently, the prices to be applied to regulated customers in the 2nd Half of 2019 were lowered to those applied in the 1st Half of 2019 (Decree 20T/2018) and were defined as “stabilized prices for regulated customers” (PEC).
Between January 1, 2021 and the expiry of this mechanism, the prices to be applied will be those set every six months on the basis of Article 158 of the Electricity Law and may not exceed the level of the PECs noted above adjusted for consumer price inflation.
Any differences between the amount invoiced by applying the stabilization mechanism and the theoretical amount that could be invoiced considering the price that would have been applied in accordance with the contractual terms and conditions agreed with the various electricity distribution companies will be accounted for as receivables for invoices to be issued to generation companies up to a maximum of $1,350 million until 2023. These differences will be recognized in US dollars and will not accrue interest until the end of 2025. Any imbalances in favor of the generation companies must be recovered no later than December 31, 2027. It should be noted that the fund limit was reached in January 2022.
On August 2, 2022, the Ministry of Energy published Law 21.472, which establishes a rate stabilization fund and a new mechanism for the temporary stabilization of electricity prices for customers subject to rate regulation. This law establishes a Transitional Customer Protection Mechanism (TCPM) which will stabilize energy prices, complementing that provided for by Law 21.185, for customers subject to regulation of prices supplied by concession holders of the public distribution service governed by the General Law of Electricity Services. The purpose of the TCPM will be to pay the differences that occur between the invoicing of distribution companies to end customers for the energy and power component, and the amount that corresponds to the payment of the supply of electricity to generation companies. The resources appropriated for the operation of the TCPM cannot exceed $1,800 million and their availability will be extended until the balances originating from the application of the law are extinguished. Starting from 2023, the National Energy Commission must project the total payment of the residual final account every six months for a date that cannot be later than December 31, 2032.
Rate revision – New resolutions
The Argentine generation sector is made up of companies that own power generation plants. The electricity generation companies sell the energy produced and their capacity on the market at a price established by the market regulator, CAMMESA, as is done for any subsequent rate adjustment or discounting. With Resolution SE no. 826/2022, the Energy Secretariat approved two rate increases for generation companies for 2023, for a total rise of 60%, in line with the inflation projections envisaged in the 2023 national budget. The main points addressed by the aforementioned Resolution are summarized below:
Ordinary revision of the physical guarantee of hydroelectric plants
On November 30, the Ministry of Mines and Energy published Ordinance 709/2022 with the ordinary revision of the physical guarantee of centrally dispatching hydroelectric plants in the National Interconnection System (SIN), which takes place every five years. The hydroelectric plants of Cachoeira Dourada and Volta Grande had a 5% reduction in the current physical guarantee, respectively of 374.6 and 219.1 MWmed. The revision for these plants was a measure already envisaged by the Group.
The Ministerial Decree of July 4, 2019 provided for competitive procedures based on Dutch auctions and registers, depending on the installed capacity and by technology groups, including photovoltaic systems. In particular, up to October 2021, seven procedures will be held with:
At March 31, 2022 the indicative annual cumulative cost was around €731 million, compared with a ceiling of €5.8 billion for termination of the incentive mechanism.
On November 30, 2021, Legislative Decree 199 of November 8, 2021 transposing Directive (EU) 2018/2001 on the promotion of the use of energy from renewable sources (the RED II Decree) was published in the Gazzetta Ufficiale. The decree provides that capacity not assigned in the auction procedures referred to in the Ministerial Decree of July 4, 2019 shall be put up for auction in subsequent procedures in 2022, until the publication of the new auction schedule for the next five years. Pending the new scheduling, two additional auction procedures were published during 2022.
In addition, the measure confirmed the same Dutch auction mechanisms for plants with a capacity greater than 1 MW, providing for an exception for plants with a capacity greater than 10 MW, which will be able to use the mechanism even though they have not completed the authorization process.
Plants with a capacity of less than 1 MW, on the other hand, will have direct access to incentives, with the exception of innovative technology plants, which will be able to access the subsidies through specific tenders.
Renewable energy
Royal Decree Law 6/2022 of March 29, 2022 includes several measures in the sector of renewable energy. These include:
On May 13, 2022, the Council of Ministers approved the “Iberian mechanism to limit the price of gas and reduce electricity prices”. The mechanism has a duration of one year and is designed to reduce prices to customers in PVPC.
Royal Decree Law 11/2022, published on June 25, 2022, reduces the VAT on electricity, maintains the reduction of the special tax on electricity, and suspends the tax on the production value of electricity generation.
Royal Decree Law 18/2022, published on October 18, 2022, extends the measures set out in Royal Decree Law 17/2021 until December 31, 2023.
Royal Decree Law of December 27, 2022 extends to December 31, 2023 the reduction in VAT on electricity (set at 5%) and the suspension of the tax of 7% on the production value of electricity generation.
Furthermore, these royal decree laws include measures to make drawing up renewable energy generation projects quicker and easier.
The Greek Parliament approved Law 4936/2022, published on May 27, 2022. Article 37 of the law introduced an extraordinary retroactive tax on the windfall earnings on the gross revenue of generators participating in the wholesale market (excluding RES under the FiT and FiP mechanisms). The measure aims to mitigate the impact of rising energy prices on consumers, financing discount in their electricity bills, and applies from October 1, 2021 to June 30, 2022 at a level of 90%. The exact method of calculation was introduced in October 2022 via ministerial decision. The regulatory authority estimates the impact on FEG to be €1.8 billion.
Ministerial decision 70248/2434/2022, published on July 7, 2022, introduced a temporary energy market mechanism in response to the energy crisis. The new mechanism imposes a cap on generators’ earnings, which varies by technology. The wholesale market is normally regulated to avoid disruptions in cross-border trading prices. The difference between the wholesale market price and the cap is paid into the Energy Transition Fund, which is used to subsidize consumers electricity bills. The cap for renewable energy generators operating in the wholesale market is set at €85/MWh (€112/MWh for hydroelectric power). The caps for companies generating electricity from lignite and natural gas will be calculated and announced monthly. The formula used to calculate the caps for these producers takes into account various parameters for covering electricity generation costs and enabling producers to earn a reasonable profit. The mechanism entered into force in July 2022 and should be operational by July 2023.
Ministerial decision 66576/5877/2022, published on July 7, 2022, determined the installed capacity from RES power plants that will be auctioned via a competitive procedure, the number of auctions to be held per year, the calendar for holding the auctions and other related matters. The auction support regime will remain in effect until the end of 2024.
Ministerial decision 84014/7123/2022, published on August 13, 2022, established the priority framework for granting binding grid connection terms for RES plants and storage provided by the grid manager and the system manager, including grid saturation areas. The priority clusters also include BESS+RES projects of FEGGH. This development is important because Enel Green Power Hellas has around 1.42 GW RES + 2.46 GW BESS (54 projects) in its pipeline (under joint development agreements).
The application of Emergency Ordinance no. 27/2022, containing measures applicable between April 1, 2022 and March 31, 2023 to end customers in the electricity and natural gas market, had an impact on Enel Green Power Romania’s activities in 2022. GEG requires all electricity producers to pay a contribution to the Energy Transition Fund: the additional revenue generated by electricity producers as the difference between the average monthly net price on the sale of electricity and the benchmark price of RON 450/MWh (about €91/MWh) is taxed at 100% (for some months 80%). Only 5% of the cost of imbalances is taken into account, and for some months, the costs associated with financing contracts are not even included. Moreover, since December 2022 producers that trade electricity on the wholesale market are required to withhold and pay taxes to the Energy Transition Fund on revenue generated from residents/non-residents relating to long-term contracts for hedging market risk.
The German government introduced a 90% tax on the revenue of producers of renewable energy, nuclear energy, and production from oil, waste and lignite above a certain price (which varies based on technology), which began on December 1, 2022 and is expected to last until the end of June 2023, although it may be extended until April 30, 2024. The revenue raised from the tax will be used to finance the price brakes on electricity, gas and heating prices that are at the heart of a €200 billion package that Germany has adopted in response to high natural gas wholesale prices. RES plants receiving government support will be taxed on revenue above the strike price plus a margin of €30/MWh and 10% of market revenue (in Germany, contracts for differences are one way). Other RES plants will be taxed on revenue above €100/MWh plus a margin of €30/MWh and 10% of market revenue.
Forced labor in the solar supply chain
In June 2021, US customs authorities responded to reports by issuing a “Withhold Release Order” (WRO) on silicon-based products manufactured by the company Hoshine Silicon Industry Co. Ltd (Hoshine) and its subsidiaries, since they have been accused of exploiting their workforce. The WRO restricts the import into the United States of polysilicon products made by Hoshine Silicon Industry Co. Ltd.
The effect on the US solar industry was the halt of shipments of photovoltaic modules by US customs, resulting in a delay in the delivery of solar equipment to end users, including Enel.
All photovoltaic equipment manufacturers had to produce clear documentation of their supply chain to meet US customs requirements. The documentation had to prove the specific origin of metallurgical grade silicon in imported photovoltaic products and demonstrate the absence of any Hoshine product in any part of the mining or manufacturing process.
Enel’s Code of Ethics and corporate procedures do not permit the exploitation of workers by any Group supplier or subcontractor. Nevertheless, Enel is strengthening its controls, reviewing its supply chain and monitoring the implementation of the WRO by customs officials.
In a separate but connected development, in December 2021, President Biden signed the Uyghur Forced Labor Prevention Act (UFLPA). UFLPA requires US customs authorities to apply a presumption that goods “mined, produced, or manufactured in whole or in part” in the Xinjiang Uyghur Autonomous Region are made with forced labor and, therefore, are prohibited from being imported into United States.
Goods covered by this presumption shall not be allowed to enter unless the importer proves that:
Polysilicon is one of the three industries on which application of the WRO is focused, and this focus extends to photovoltaic equipment that could contain raw materials mined in the Xinjiang Uyghur Autonomous Region. Implementation of the law will be guided by an administrative regulation process under way since February 2022, which is expected to be completed by June 2022.A key element of the UFLPA came into force on June 21, 2022: rebuttable presumption. From now on, any import of goods mined, produced or manufactured in whole or in part in the Xinjiang Uygur Autonomous Region (XUAR), or from entities identified in a new UFLPA entity list, will be assumed to have been made with forced labor and will be barred from entering the United States. To prevent US customs from blocking the delivery of goods, importers will need to demonstrate whether the goods to be imported (or their components) were extracted, produced or manufactured in the XUAR and/or whether the goods to be imported were purchased from a supplier identified in the UFLPA entity list.
UFLPA compliance by importers should ensure compliance with the current Withhold Release Order (WRO), which blocks the import of any solar equipment containing metallurgical grade silicon manufactured by Hoshine.
The private nature of the blocked imposed by US customs makes it difficult to monitor the application of the UFLPA. According to media reports, in June 2022 US customs blocked certain imports of solar equipment into the United States under the UFLPA and required documentary evidence proving the origin of the quartzite in the equipment supply chain.
US duties on imported solar equipment
In February 2022, the Biden administration announced its decision to extend the duties applicable to imported solar panels. The decision extends the collection of duties for another four years, while adopting a very marginal annual tariff reduction: the duty on imported solar panels will decline by 0.25% each year. It is important to note that the Biden administration’s decision also confirms the tariff exemption for bifacial solar modules, which are the main type of solar panels used by Enel for its utility-scale projects in the United States.
US duties on imported Chinese products
In 2018, the United States Trade Representative (USTR) conducted a Section 301 investigation and found that China’s acts, policies and practices related to technology transfer, intellectual property and innovation were unreasonable and discriminatory.
As a result, it published five lists (List 1, 2, 3, 4A and 4B), each of which identifies different Chinese products subject to different duties. To Enel, the list of greatest interest is that including Chinese components used for wind and solar projects and batteries.
In September 2022, the USTR announced that it was seeking public comments regarding the effectiveness of the Section 301 duties in order to understand the effects of these on the economy and on US consumers in order to identify any other actions that could be taken.
It is not clear whether the USTR will use the comments to consider starting a new exclusion process.
Federal loans and incentives for clean energy in the United States
In November 2021, President Biden signed the $1 trillion Infrastructure Investment and Jobs Act (IIJA), also known as the bipartisan infrastructure law, unlocking funds for new spending on roads, bridges, aqueducts, broadband. The new law also contains provisions to boost the expansion of the country’s electricity grid and support existing and new clean energy technologies. It also contains provisions to support existing nuclear power plants and hydroelectric plants, clean up orphaned wells and abandoned mining lands and facilitate access to critical minerals needed for clean energy production. Of potential interest to Enel, the following programs were announced in the 1st Half of 2022:
Inflation Reduction Act of 2022
On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA), which sets aside $415 billion over the next 10 years in the form of grants, tax credits and investments to support new clean energy technologies projects, renewable energy generation, the electrification of transport systems and climate-smart agriculture. It is expected that the measures will reduce carbon emissions by almost 40% in the United States by 2030 and will raise US GDP by 0.2% in 2031. The funding will be distributed as follows:
The US Department of Treasury is currently working on the guidance needed for a new set of tax credits. The various tax credits will be phased down starting the latter of:
Depending on that status of the infrastructure to be built, tax credits may be available beyond 2032. The following are the IRA provisions that are of greatest interest to Enel.
Extension and expansion of federal tax credits for clean energy: the IRA extends the production tax credit (PTC) ($26.5/MWh for projects that begin construction after December 31, 2021) and introduces a new technology-neutral clean electricity tax credit commencing in 2025. It also extends the investment tax credit (ITC) (30% for projects the begin construction after December 31, 2021) and launches a new technology-neutral clean electricity ITC beginning in 2025. Solar power developers may now request PTC instead of ITC. However, to be eligible for the full credit, projects must meet the prevailing wage and apprenticeship requirements for the entire period of construction (and perhaps also for some of the maintenance activities); project owners that fail to comply will have to pay a penalty or see their tax credit reduced to 20% ($5/MWh PTC or 6% ITC). The IRA also adds standalone energy storage projects, in line with the conditions for solar power, and microgrid controllers, specifically for systems of between 4 kW and 20 MW, to the technology eligible for ITC.
The IRA creates a bonus tax credit if domestic content requirements or energy community requirements are met. Another new bonus tax credit is available for solar and wind facilities (and connected storage systems) located in low-income communities.
A new 10-year clean hydrogen PTC of $3 per kilogram is available for hydrogen produced after December 31, 2022. For a project to be eligible, construction must begin before January 1, 2033.
Extension and expansion of federal tax credits and loans for electric vehicles: in order to encourage the electrification of the transportation sector, the IRA extends various tax credits for new and previously owned electric vehicles and commercial electric vehicles, including buses, and expands the tax credit to cover the purchase of EV charging equipment.
The IRA allocates $1 billion for replacing heavy-duty Class 6 and 7 commercial vehicles with zero-emission vehicles (for example, school buses, public transportation bus, garbage trucks) and $3 billion for the US Postal Service to purchase new electric delivery vehicles and charging stations.
New advanced manufacturing production tax credits: the IRA creates a new PTC for the production of components for wind, solar and battery projects, such as solar PV cells, PV wafers, PV modules, wind turbines, nacelles, inverters, battery cells and modules, and many others. Tax credit amounts vary by component, production cost and certain capacity factors. To be eligible, the component must be produced by the taxpayer in the United States. Credits are available on an annual basis for components sold beginning in 2023 until 2032 (gradually reduced starting from 2030).
New direct payment of applicable tax credits and the transferability of some tax credits: the IRA creates the option for some sector operators to choose between direct pay or transferability of the tax credit, which means that we will see changes in the ways projects are developed and an expansion in the number of industries that develop projects. Enel is particularly interested in the direct pay option for new advanced PTC and for new clean hydrogen PTC.
Development of renewable energy on federal/public lands
The Biden administration set the goal of authorizing 25 GW of renewable energy on public lands by 2025. In order to reach this goal, the administration has ordered federal agencies to accelerate reviews of clean energy projects for production on public lands by establishing five new renewable energy coordination offices and has cuts rents and fees for solar and wind projects on public lands by more than 50%.
Domestic production of clean energy technologies
On June 2, 2022, President Biden issued presidential determinations giving the United States Department of Energy (DOE) the authority to use the Defense Production Act (DPA) to accelerate domestic production of five key energy technologies:
The DPA actions are part of the Biden administration’s plan to reduce energy costs for households, strengthen national security and achieve lasting American energy independence that reduces demand for fossil fuels and supports the development of renewable energy generation.
Climate information
The US Securities and Exchange Commission is finalizing the rules on what climate-related information registrants need to disclose in their filings and annual reports. Such information will include data on greenhouse gas emissions, certain climate-related financial metrics, and material climate risk. The rules had been scheduled to be issued by the end of 2022, but the release date has been postponed.
Individual state policy actions
California appropriates significant funds for clean energy initiatives: at the end of 2022, California had an almost $100 billion budget surplus and so allocated significant funding for various programs, including clean energy. Among these, it allocated a $550 million lump sum to support distributed backup electricity assets for zero or low-emission resources to support the grid when necessary, and a one-time $200 million appropriation for demand-side grid support to reduce the load on the grid during periods of extreme stress.
The governor also allotted $10 billion over six years to accelerate the electrification of the transportation system.
Maryland approves an important climate act: the Climate Solutions Now Act came into force in June 2022. The measure increases the State’s target for reducing greenhouse gas emissions to 60% compared with 2006 levels by 2031, compared with the previous target of 40% by 2030. It also sets a deadline of 2045 for the achievement of net zero greenhouse gas emissions across the economy. The law creates a new standard of energy performance for buildings, which will have to report their emissions starting from 2025. By 2030 buildings will have to reduce emissions by 20% compared with 2025 levels. The law allows the use of energy storage and upgrading of grid infrastructure as emission reduction measures, but only if it can be demonstrated that “verifiable carbon reductions” will be achieved.
Massachusetts introduces zero-emission vehicle standards and energy storage initiative: Governor Charlie Baker signed a climate bill that requires that all new vehicles sold in the commonwealth be zero-emission vehicles as from 2035. The law also provides that the Department of Public Utilities institute an incentives program for energy storage in order to achieve a 1,000 MWh energy storage target by December 31, 2025.
New York governor reaches budget agreement on electric buses: New York Governor Kathy Hochul announced a deal that includes a historic plan to fully electrify the state’s school bus fleet. The plan calls for all new school bus purchases to be electric starting in 2027 and for the state fleet to be electric by 2035. The state will provide aid to schools for the purchase or rental of electric buses, including charging infrastructure.
Clean Fuel Standards
Canada has released its standards for low-carbon fuels, the “Clean Fuel Standards”, after a significant delay prompted by the COVID crisis. This policy was announced a number of years ago and its rules have been finalized for implementation in 2023. The Clean Fuel Standard (CFS) is central to the Canadian Government’s commitment to reduce greenhouse gas emissions by 30% compared with 2005 levels by 2030. The proposed regulation is also a key part of Prime Minister Justin Trudeau’s commitment to achieve net zero emissions by 2050.
CFS requires suppliers of liquid fuels, such as gasoline, diesel and kerosene, to gradually reduce the amount of carbon in their products. Carbon intensity reduction targets will be set for each fuel, starting in 2022 and increasing annually until 2030. Following entry into force in 2023, the regulation will require gasoline and diesel suppliers to meet increasingly stringent requirements to reduce the carbon intensity in the life cycle of their products. They will be able to do this both by reducing emissions from their production and refining processes, and by buying credits from producers of lower-emission fuel sources – which means that legislation should help support emerging sectors such as biofuels and electric vehicle charging.
Recapitalization of funds for the reduction of carbon emissions
During 2022, most of the funds earmarked for actions to reduce carbon emissions were appropriated. These include:
Launch of clean electricity standards
In March 2022, the government launched consultations to develop a Canadian standard for clean electricity, the Clean Electricity Standard (CES), and drive progress towards a zero-emission electricity grid by 2035. Expanding clean electricity will also be key to achieving the ambitious and achievable Canadian emissions reduction target of 40-45% compared with 2005 levels by 2030 and net-zero emissions by 2050. Canada already has one of the cleanest electricity grids in the world, with 82% of the electricity used coming from non-emitting sources.
Developing a clean electricity standard is a collaborative process between the federal government, provinces, territories, indigenous groups, power companies, industry and Canadians in general. This inclusive approach supports the competitiveness of the economy by providing a clear basis for provinces and territories to plan and operate their grids, while continuing to provide reliable electricity to Canadians and keeping costs for households and businesses affordable.
Alberta Act on energy supply and storage
The Electricity Statutes Amendment Act, 2022, contains a package of aid for Alberta’s electricity system to enable it to optimize and to implement public-scale energy storage systems.
The act integrates new technologies and innovations into Alberta’s electricity system enabling energy storage, unlimited self-supply with export and help for the distribution system plan for electric vehicles, renewable power sources and other distributed energy resources. More specifically, this legislation:
On December 5, 2022, the Deviation Settlement Mechanism and Related Matters Regulation (2022 DSM Regulation) entered into force. It was published by the Central Electricity Regulatory Commission (CERC) and will replace the 2014 DSM Regulation. The new regulation has a negative impact on Independent Power Producers (IPPs) with wind and solar plants. Basically, over-injection (i.e., injection into the grid in excess of the declared generation) will be compensated at the contractual rate for up to a 5% deviation and at 90% of the contractual rate for an over-injection of between 5% and 10%. No payment will be made for an over-injection of above 10%. The 2014 DSM Regulation instead provided that over-injection be remunerated based on a declining percentage of the contractual rate, ensuring higher revenue for producers. Over-injection up to 15% was remunerated at 100% of the contractual rate, between 15% and 25% at 90%, and so forth. The terms are also worse for under-injection (generation below that scheduled). A smaller range of deviation from the scheduled generation is tolerated and the penalties are greater than those in the 2014 version. In the case of under-injection up to 10%, the IPP must reimburse the purchaser according to the contractual rate without further penalty. If the under-injection exceeds 10%, the IPP must pay 10% of the average price on the day-ahead market, i.e., the clearing price, in addition to the costs associated with the deviation.
The new DSM Regulation has an impact on revenue owing to (i) no payment for over-injection above a 10% deviation, and (ii) higher deviation charges for under-injection.
Rates for the fifth regulatory period (2016-2023) are governed by the Regulatory Authority for Energy, Networks and the Environment (ARERA) Resolution no. 654/2015/R/ eel. This period lasts eight years and is divided into two sub-periods of four years each (NPR1 for 2016-2019 and NPR2 for 2020-2023).
With regard to the NPR2 period, ARERA published Resolution no. 568/2019/R/eel, with which it updated rates for transmission, distribution and metering services in force in the 2020-2023 period, publishing the new integrated texts.
The method for determining the WACC for the period 2022-2027 was updated with Resolution no. 614/2021/R/ com, establishing a value of 5.2% for electricity distribution and metering. The regulation provides for an update of the value for 2025-2027, as well as the possibility of a further annual updating (in 2023 and 2024) should certain financial indicators lead to a change in the WACC of at least 50 bps.
As for distribution and metering rates, ARERA approved the definitive reference rates for 2021, calculated by taking into account the updated balance sheet data for 2020 (Resolution no.153/2022/R/eel) and the provisional reference rates for 2022 on the basis of the preliminary balance sheet data for 2021 (Resolution no.193/2022/R/eel). The definitive reference rates for 2022 are expected to be published in 2023.
With Resolution no. 271/2021/R/com, ARERA initiated a procedure to introduce, from 2024, new methods for recognizing the costs of infrastructure services, called “ROSS” (Adjustment for Expenditure and Service Objectives). In 2022, the corresponding consultation documents no. 317/2022/R/com and no. 655/2022/R/com were published. ARERA, with its Resolution no. 527/2022/R/com, also initiated a procedure to introduce, from 2026, the “full ROSS” version (based on analysis of the business plans drawn up by the companies and validated by ARERA).
Throughout 2022, when making the quarterly updates, ARERA took the extraordinary step of canceling the general system charges for all types of customers and reinforcing the Social Bonus. The measures were made possible thanks to the resources allocated by the government to contain the effects of price increases in the electricity sector. As part of these measures, the government also raised the ISEE (indicator of the equivalized economic) threshold for eligibility for Social Bonuses (for 2022 to €12 thousand; for 2023 to €15 thousand). As a result, ARERA implemented the regulatory provisions scheduled for 2022 and is preparing the ones for 2023.
In 2022, ARERA completed the rate regulation for reactive energy, providing for the entry into force by April 1, 2023 of charges for reactive energy injected and an update of the charges for reactive energy withdrawn for distributors as well.
As regards service quality, ARERA, with Resolution no. 646/2015/R/eel as amended, established output-based regulation for electricity distribution and metering services, including the principles for regulation for 2016-2023 (TIQE 2016-2023). With Resolution no. 566/2019/R/eel, ARERA completed the update of the TIQE for the 2020-2023 semi-period, proposing tools to bridge gaps in quality of service still existing between the various areas of the country, taking account of the time needed to implement interventions on the grid as well as the effects of climate change. With Resolution no. 622/2022/R/eel, ARERA specified the bonuses and penalties connected with the output-based regulations for the electricity distribution service and innovative functions for 2021.
With Resolution no. 722/2022/R/eel, ARERA specified the bonuses for resilience interventions completed by e-distribuzione in 2021 eligible for the bonus-penalty mechanism envisaged under the provisions of Resolution no. 668/2019/R/eel, which introduced an incentive mechanism for investments to increase the resilience of distribution grids in terms of resistance to loads deriving from extreme weather events.
With regard to relations between distributors and traders, on January 1, 2021 the new version of the Electricity Transport Grid Code came into force with Resolution no. 261/2020/R/eel, which, due to the reduction in the time required to terminate transport contracts due to the default of sellers, reduced the credit exposure of distributors. Consequently, the value of guarantees that all sellers must give to distributors to cover the transport service provided was reduced (passing from a level of coverage ranging from 3 to 5 months of the trader’s turnover to a new range between 2 and 4 months).
With Resolution no. 119/2022/R/EEL, ARERA introduced a single mechanism for distribution companies for the reimbursement of system general charges and network charges not collected by defaulting sellers in order to unify and streamline the pre-existing mechanisms.
More specifically, the resolution confirms the application of two deductibles for the recognition of credits relating to network charges. On the one hand, this is to serve as an incentive for an efficient management of the credit by the distributor and, on the other, to remove what has already been compensated by the rate system. The resolution provides for requests for reimbursement to be made on an annual basis and liquidated in the same year.
Energy efficiency - White certificates
The decree of the Ministry for the Ecological Transition of May 21, 2021 amended the ministerial decree of January 11, 2017 as already amended by the decree of the Ministry for Economic Development of May 10, 2018. The measure set the national quantitative targets for electricity and gas distribution companies for the years 2021-2024. The decree also updated the methods for distribution companies to meet the obligation and for reimbursing the related costs.
2022 electricity rates
On December 22, 2021, Resolution TED/1484/2021 of December 16, 2021 of the Spanish National Markets and Competition Commission (CNMC) was published in Spain’s Official Journal. It establishes access rates for electricity transmission and distribution networks to be applied starting from January 1, 2022, providing for an average reduction of 5.4% compared with June 1, 2021.
On December 30, 2021, Order TED/1484/2021 of December 28, 2021 was published in Spain’s Official Journal. It establishes electricity system charges applicable from January 1, 2022 and sets the various regulated costs of the electricity system for 2022. The new rates for 2022 represent an average reduction of about 31% compared with the charges approved on June 1, 2021.
Furthermore, Royal Decree Law 6/2022 of March 29, 2022 approved a 36% reduction in charges compared with the values in force on January 1, 2022.
2023 electricity rates
On December 22, 2022, the National Commission for Markets and Competition (CNMC) Resolution of December 15, 2022 was published in Spain’s Official Journal, establishing the access charges for electricity transmission and distribution networks to be applied starting from January 1, 2023, providing for an average reduction of 1.0% compared with January 1, 2022.
On December 29, 2022, Order TED/1312/2022 of December 23, 2022 was published in Spain’s Official Journal. It establishes electricity system charges applicable from January 1, 2023 and sets the various regulated costs of the electricity system for 2023. The new rates for 2023 represent an average reduction of about 40.0% compared with the charges approved on January 1, 2022.
Natural gas rates for 2022 On December 25, 2021, the Resolution of December 22, 2021 of the Directorate General for Energy Policy and Mines (DGEPM) was published. It establishes the rate of last resort (TUR) for natural gas to be applied in the 1st Quarter of 2022, which, taking account of the provisions of Royal Decree Law 17/2021 of September 14, provides for approximate increases of 5.4%, 6.8% and 7.5% respectively for the Last Resort Rate 1 (TUR 1), the Last Resort Rate 2 (TUR 2) and the Last Resort Rate 3 (TUR 3).
On March 31, 2022, the Resolution of March 28, 2022 of the DGEPM was published. It establishes the rate of last resort for natural gas to be applied starting from April 1, 2022, providing for approximate increases of 5.9%, 7.2% and 7.9%, respectively for TUR 1, TUR 2 and TUR 3.
On June 29, 2022, the Resolution of June 27, 2022 of the DGEPM was published. It establishes the rate of last resort for natural gas to be applied starting from July 1, 2022, providing for approximate increases of 6.4%, 7.8% and 8.4%, respectively for TUR 1, TUR 2 and TUR 3.
On September 29, 2022, the Resolution of September 28, 2022 of the DGEPM was published, establishing the rate of last resort for natural gas to be applied starting from October 1, 2022, providing for approximate increases of 5.9%, 7.2% and 7.9%, respectively for TUR 1, TUR 2 and TUR 3.
Similarly, on May 25, 2022, the National Commission for Markets and Competition (CNMC) published in Spain’s Official Journal a resolution of May 19, 2022 establishing access rates for transport networks, local networks and regasification for the 2023 gas year (from October 1, 2022 to September 30, 2023), providing for an average reduction of approximately 13.2%.
On October 19, 2022, Royal Decree Law 18/2022 of October 18 was published, which approves measures to reinforce the protection of energy consumers and to contribute to reducing natural gas consumption in application of the “Plan +Security for your energy (+SE)”, as well as measures on the remuneration of public sector workers and to protect seasonal agricultural workers affected by the drought, which, in the natural gas sector, extends the quarterly limit of 15% on increases in the cost of raw materials until December 31, 2023. It also establishes a new TUR, in effect until December 31, 2023, for homeowners’ associations (or groups of homeowners) that consume more than 50,000 kWh/year and for energy services companies, to reduce costs. The cost of these measures regarding gas will be covered by the General State Budget (GSB).
Finally, on September 29, 2022, Order TED/929/2022 of September 27, which establishes that the gas system charges and the remuneration and fees for basic underground storage facilities for 2023 (from October 1, 2022 to September 30, 2023), was published.
Natural gas rates for 2023
On December 28, 2022, the Resolution of December 22, 2022 of the Directorate General for Energy Policy and Mines was published. It establishes the TUR for natural gas to be applied as of January 1, 2023, and, taking account of the provisions of Royal Decree Law 17/2021 of September 14, provides for approximate increases of 7.7%, 9.0% and 9.5% respectively for TUR 1, TUR 2, and TUR 3. Apart from these, the TURs applicable to homeowners’ associations, introduced by Royal Decree Law 18/2022 of October 18, were reduced by around 2.0%.
Remuneration for distribution activities
On August 3, 2022, Order TED/749/2022 of July 27 was published, approving the incentive or penalty for achieving a reduction in losses within the electricity distribution network for 2016, modifying the base remuneration for 2016 for several distribution companies, and approving the remuneration of electricity distribution companies for 2017, 2018 and 2019. This ministerial order sets the value of the remuneration for the years 2017 to 2019, taking into account the previous reports of the National Commission for Markets and Competition (CNMC).
Furthermore, on December 16, 2022, CNMC began preparing its proposed resolution setting the remuneration for 2020.
In Romania, Distribution System Operators (DSOs) are required to purchase the power needed to cover grid losses from the wholesale market. ANRE will pay in advance a quota of the cost of such purchase, to be covered through the distribution tariffs collected during the year. Within the context of the energy crisis, the costs of procuring energy have risen many times higher than amounts paid in advance, with serious consequences for the DSOs’ financial position.
In 2022, the distribution rates were set by primary legislation through April 2023, independent of energy price developments on the wholesale market.
In September 2022, the authorities introduced, via primary legislation (followed by the corresponding secondary legislation), a capitalization mechanism for the additional costs paid by the DSOs over the advance costs paid. The assets arising from this capitalization should be recovered over five years and compensation is equal to half the regulated rate of return applicable for the years analyzed.
In addition, the authorities introduced a centralized acquisition mechanism, managed by the market operator (OPCOM), based on which producers sell electricity beyond that contracted to DSOs to cover grid losses, at a fixed price of RON 450/MWh (about €91/MWh), thereby reducing the financial pressure on the DSOs.
Determination of 2020-2024 distribution rates
On December 23, 2022, with Resolución Exenta no. 908, the National Energy Commission approved the technical report for the calculation of the components of the aggregate distribution value for the period 2020-2024.
However, the process of determining rates for the period 2020-2024 is still ongoing. For the moment, rates continue to be applied in accordance with the methodology in force for the 2016-2020 period.
Rate revisions
Until the approval of a revision of the definitive integral rate is reached, the regulator ENRE is empowered to set temporary rate adjustments in order to guarantee stability in the provision of services.
In this context, during 2021, three changes to the rate framework were approved, of which two relating to the price of electricity to be applied to customers and one relating to the aggregate value of distribution. The latter resulted in a rate adjustment of 21.8% on April 30, 2021, which translated into a rate increase for final customers of approximately 9%. During 2022, another rate change was approved which led to a rate increase of 8% starting from March 1, 2022, again pending the launch of a complete rate renegotiation process.
Rate revision for Enel Distribuição Ceará
The latest complete rate revisions approved for each Brazilian distribution company belonging to the Enel Group date back to 2018 (for Enel Distribuição Rio de Janeiro) and 2019 (for Enel Distribuição Ceará and Enel Distribuição São Paulo). The next rate revisions are scheduled for 2023.
The latest rate adjustments are summarized below:
With regard to regulatory updates in the field of electricity distribution in Brazil, on January 7, 2022, Law 14300/2022 was published, defining the reference legal framework for distributed generation (DG) in the country. The law provides for gradual changes to the net metering system for new DG systems and ensures the application of current rules until 2045 for plants already in operation or which come into operation within the following 12 months.
Additionally, the law creates a transition period for new DG plants that connect to the grid between January 7, 2023 and July 7, 2023. After the transition period, consumers with DG will have to pay 100% of the network’s transport costs (rate applied for the use of the distribution grid), net of the system benefits produced by the DG which must be calculated by the regulator in the 18 months following the publication of the law.
CIEN concession assigned to another operator
In December 2022, the concession for the CIEN Brazil-Argentina interconnection (Garabi I and Garabi II) was put out for tender following the expiry of the concession previously assigned to Enel.
The new operator TAESA will take over from March 31, 2023.
The new operator will therefore sign a new contract on March 31, 2023 and Enel will receive compensation relating to the values of the assets not yet depreciated equal to €163.2 million (figure updated to August 2022). The amount will in any case be updated at the effective date of the compensation payment.
The Energy and Gas Regulatory Commission (CREG) defines the method of remuneration of the distribution grid. The distribution rates are determined every five years and are updated monthly on the basis of the Producer Price Index (IPP).
Rate revisions
With Resolution no. 122 of 2020, CREG set the distribution rates for Codensa for the period 2018-2023.
In September 2022, following a national debate on high energy prices, CREG issued Resolutions nos. CREG 101- 027, 101-028, 101-029 and 101-031, which contain measures aimed at: (i) mitigating the high impact that inflation indices exert on the transmission and distribution components of the electricity deriving from the rate; (ii) establish an optimization of the startup and shutdown costs of thermal plants, in order to reduce the cost of the constraints; (iii) open a voluntary mechanism for sellers serving end users, sellers and producers to conduct negotiations to renegotiate the prices, durations and ratios of bilateral electricity contracts; and (iv) establish a mechanism that enables sales companies to defer payments to be made on the wholesale market to transmitters and grid operators.
In December 2022, the Communications Regulation Commission (CRC) published the Regulatory Agenda for the period 2023-2024, which contains 26 initiatives (comprising regulatory projects, activities and studies), structured around five strategic pillars: (i) welfare and consumer and public rights; (ii) markets and competition; (iii) innovation and regulatory improvement; (iv) value group management; and (v) institutional strengthening.
In Peru, the process for determining distribution rates takes place every four years and is referred to as the “Distribution Value Added Fixing” (ADVD). Exceptionally, the last tariff cycle set a duration of five years. Therefore, in 2018 the process of determining the ADVD for the period 2018- 2022 was completed. The procedure for the period 2022- 2026 is currently underway.
It should be noted that Peruvian legislation follows the regulatory scheme of the Model Company, whereby in each rate process the investment and operating and maintenance costs necessary to meet demand in the concession area are established, which will be recognized by each distribution company in accordance with the parameters and criteria defined by Osinergmin. The ADVD is determined individually for each distributor with more than 50,000 customers.
The current regulatory framework governing the process of eliminating regulated prices in the electricity sector (Law 124/2017 – the Competition Act – as most recently amended by Decree Law 152/2021 implementing the NRRP, ratified with Law 233/2021) provides for a staggered postponement of the removal of price protection: to January 1, 2021 for small businesses, to January 1, 2023 for micro-enterprises and to January 2024 for domestic customers.
Due to the postponement, for technical reasons, of the start date for the last resort service for micro-enterprises and non-residential customers with an installed capacity of less than 15 kW, in November 2022 the Regulatory Authority for Energy, Networks and the Environment (ARERA) established that the financial terms and conditions of the enhanced protection service will continue to apply until March 31, 2023 for customers already served.
As regards the gas sector, the elimination of price protections is scheduled to occur in January 2024 for residential customers and condominiums
With regard to the end of price safeguards for small firms in the electricity sector (January 1, 2021), the Ministry for Economic Development issued a decree implementing the Competition Act on December 31, 2020, delegating ARERA to define the measures governing the transition to the free market based on certain criteria and guidelines. With Resolution no. 491/2020/R/eel, ARERA established a last resort service (“gradual safeguards service”) for small businesses without a supplier, to be assigned by auction on a territorial basis for a period of three years. A ceiling of 35% was set for the market share that can be assigned to each supplier.
In March 2021, Enel Energia and Servizio Elettrico Nazionale (together with Enel Italia) appealed the ministerial decree before the Lazio Regional Administrative Court, contesting the imposition of the antitrust cap at 35% and the lack of provisions (e.g., a social clause) for the reimbursement of the residual costs of Servizio Elettrico Nazionale following the loss of customers. With regard to the latter point, in March 2021, Servizio Elettrico Nazionale and Enel Italia also challenged Resolution no. 491/2020/R/eel with an appeal before the Lombardy Regional Administrative Court. At the moment, no hearing has yet been set for these appeals.
With Resolution no. 208/2022/R/eel (as amended) ARERA established another last resort service (“gradual safeguards service”) for supplying micro-enterprises and non-residential customers with installed capacity of less than 15kW that did not opt for a free-market contract, starting as of April 1, 2023 (due to the technical extension under Resolution no. 586/2022/R/eel). The gradual safeguards service for micro-enterprises is to be provided for a period of four years by operators that serve their local areas and that are chosen through a tender held by the Single Buyer open to all operators that meet certain technical and financial requirements. At the end of the four years, the customer will continue to be served by the same operator under free market terms and conditions, unless the customer enters into a contract with another operator.
As with the measures governing the elimination of price protections for small business, Enel Energia and Servizio Elettrico Nazionale appealed Resolution no. 208/2022/R/eel, applicable for micro-enterprises, before the Lombardy Regional Administrative Court in July 2022, challenging the imposition of the antitrust cap at 35% and the lack of provisions (e.g., a social clause) for the reimbursement of the residual costs of Servizio Elettrico Nazionale following the loss of customers as a result of the effects of the resolution. In October 2022, the companies also appealed before the Lazio Regional Administrative Court the MiTE decree setting out how the gradual safeguards service for micro-enterprises is to be implemented, basing their challenges on the same grounds.
With ruling no. 18/2021, the Lombardy Regional Administrative Court granted the appeals filed by Servizio Elettrico Nazionale and Enel Energia, voiding Resolution no. 279/2017/R/com. The resolution had established an incentive mechanism to increase the use of electronic invoices with customers on the regulated markets and made the compensation for the seller of the differential between the discount granted to customers and the avoided cost conditional upon reaching certain thresholds. With Resolution no. 477/2021/R/com, ARERA consequently also amended, with effect from 2022, the rules governing the recovery of amounts relating to previous years.
Electricity
With Resolution no. 402/2021/R/eel, the update for 2022 of the rate component covering the marketing costs of the operators of the enhanced protection service (RCV) and the levels of the fee for covering electricity marketing costs (PCV) was postponed to March 2022 (the RCV and PCV fees set by Resolution no. 604/2020/R/eel remained in effect for the 1st Quarter).
With Resolution no. 146/2022/R/eel ARERA updated, with effect from April 1, 2022 to March 31, 2023, the RCV component, at the same time adjusting the values in order to take account of the effects of the delay in the update from January 2022. The same measure also updated the level of the PCV fee, which represents the reference price for sellers on the free market.
In order to soften the impact of rising electricity prices on final customers, with Resolution no. 463/2022/R/eel ARERA updated the RCV rates for the 4th Quarter of 2022, leaving unchanged from the previous quarter the rate of recovery of the positive difference between the actual wholesale market prices for the 3rd Quarter of 2022 and the estimates used in the updates for that period. At the same time, ARERA also announced that, by the end of 2022, the Energy and Environmental Services Fund would disburse to RCV operators an amount equal to the best estimate of the recovery amount calculated at the end of the 3rd Quarter and would collect it from final customers in the form of revenue from the fee for covering procurement costs (PED) in the 4th Quarter. Resolutions no. 558/2022/R/eel and no. 743/2022/R/eel contain the necessary implementing measures.
Likewise, ARERA issued Resolution no. 473/2022/R/eel, calling for an extraordinary session to be moved forward to the end of December 2022 to equalize the load profiling for the 1st Half of 2022, because RCV operators were facing a financing gap as a result of the significant switch over in recent years from non-time-based metering to timeof-use metering. Free-market operators were also given the opportunity, under the measures, to settle their corresponding debt position by January 2023 so as to not to have an impact on their cash positions at the end of 2022.
With regard to reimbursement mechanisms for end users in arrears in the electricity sector, in Article 18 of the TIV (Integrated Sales Code) ARERA governs the compensation mechanism for the amounts not collected by operators of the enhanced protection service in respect of fraudulent withdrawals of power
With Resolution no. 32/2021/R/eel, ARERA established a mechanism to reimburse arrears relating to the general system charges paid by the sales companies on the free and safeguard markets to distribution companies but not collected from end users (for the safeguard market, this only applies to customers that can be disconnected). For customers who cannot be disconnected on the safeguard market, the mechanism for reimbursing non-recoverable charges is governed by Article 44 of the Integrated Sales Code (TIV).
Gas
With Resolution no. 603/2020/R/gas, the levels of the QVD component were updated for 2021, and subsequently delayed, with Resolution no. 401/2021/R/gas and notwithstanding the provisions of Article 7.2 of the 7.2 del TIVG (Integrated Gas Sales Code), until March 31, 2022.
The QVD component was updated, starting from April 1, 2022, with Resolution no. 147/2022/R/gas. Its specification took account of the effects of the delay in the update from January 1, 2022. ARERA has also established that any updates that become necessary shall be made by March 2023.
With regard to reimbursement mechanisms for end users in arrears in the gas sector, in Articles 31-quinquies and 37.1 letter b) of the Integrated Gas Sales Code (TIVG), ARERA regulates specific mechanisms for the reimbursement of arrears for providers of the last resort service and the default service on distribution grids.
Antitrust proceeding PS12461 – Modification of price conditions
On December 13, 2022, the Competition Authority notified Enel Energia SpA and six other companies (Hera, A2A, Acea, Eni Plenitude, Engie, Edison) that it had initiated a proceeding for unfair commercial practices, contesting the violation of certain provisions of the Consumer Code and Article 3 of Decree Law 115 of August 9, 2022 (the so-called “second Aid Decree”) of August 10, 2022, ratified with Law 142 of September 21, 2022. The decree law suspends, from August 10, 2022 to April 30, 2023 (subsequently extended to June 30, 2023 by the Milleproroghe Decree Law 198/2022), the effectiveness of both contractual clauses that allow distribution companies to change the supply price and related notifications, unless the price changes had already been made before the decree entered into force (August 10, 2022). With the notice of the start of the proceeding, the Competition Authority also prohibited the sending of new notices of price changes and ordered the correction of those already sent.
With an order of December 22, 2022, issued as part of the appeal filed by Iren, the Council of State distinguished contractual renewals (of expiring offers) from those covered by ius variandi and excluded the applicability of Article 3 of the decree law. This principle was also recognized by the government, which, with the Milleproroghe Decree of December 29, 2022, established that Article 3 of the second Aid Decree shall not apply to the contractual clauses that allow an electricity and natural gas supply company to update the contractual financial conditions upon expiry of the same, in compliance with the contractual terms of notice and without prejudice to the right of withdrawal of the counterparty. On December 30, 2022, following the pronouncement of the Council of State and the aforementioned clarifying legislative intervention, the Competition Authority notified Enel Energia of a precautionary measure partial upholding that issued at the start of the proceeding, calling upon it – for contracts for which the expiry of the financial conditions was not specified or was otherwise not determinable – to suspend renewals of the financial conditions, to be carried out and already carried out, confirming the supply conditions previously in force and to contact customers who had made the withdrawal following the renewal communication, informing them of the possibility of returning to the previous conditions.
On January 16, 2023, Enel Energia produced a compliance report in response to the precautionary injunction, communicating to the Competition Authority that its actions had been limited, during the period in which Article 3 was in effect, to merely updating the price terms upon the expiry of those previously applied. Enel Energia appealed the Competition Authority’s injunctions before the Lazio Regional Administrative Court, before which a ruling is pending. The deadline for the completion of the proceedings is May 11, 2023, unless extended.
Energy efficiency
Law 18/2014 of October 15 containing urgent measures for growth, competitiveness and efficiency created the National Energy Efficiency Fund to achieve energy efficiency objectives.On March 23, 2022, the Order TED/220/2022 of March 16, which establishes the contribution to the National Energy Efficiency Fund for 2022, amounting to €26 million for Endesa, was published in the Spain’s Official Journal.
It provides that Endesa contribute €49 million to the National Energy Efficiency Fund in 2023, of which it must contribute at least €30 million (40.0%) of that amount. It can satisfy the rest of its obligation by submitting energy efficiency certificates (EEC).
Consumer protection measures: Social Bonus
On March 30, 2022, Royal Decree Law 6/2022 of 29 March, adopting urgent measures within the framework of the National Response Plan for the economic and social consequences of the war in Ukraine, was published in Spain’s Official Journal. Specifically, in the energy sector, this royal decree law includes several measures, some of which were extended until December 31, 2022 by Royal Decree Law 11/2022 of 25 June, and until December 31, 2023 by Royal Decree Law 18/2022 of October 18 and by Royal Decree Law 20/2022 of December 17. The primary measures regarding the Social Bonus are as follows:
On 19 October 2022, Royal Decree Law 18/2022 of October 18 was published, approving measures to reinforce the protection of energy consumers and to contribute to reducing natural gas consumption in application of the “Plan +Security for your energy (+SE)”, as well as measures on the remuneration of public sector workers and to protect seasonal agricultural workers affected by the drought, which establishes the following measures relating to the Social Bonus:
Consumer protection measures: guarantee of electricity services
Royal Decree Law 20/2022 of December 27 on measures to respond to the economic and social consequences of the war in Ukraine and to support the reconstruction of the island of La Palma and other situations of vulnerability, as regards vulnerable customers and the Social Bonus, extended until December 31, 2023 the ban on suspending electricity, water and gas services to customers that are vulnerable, severely vulnerable or at risk of social exclusion.
Consumer protection measures: tax measures Royal Decree Law 6/2022 of March 29, adopting certain measures as part of the Plan for the National Response to the economic and social consequences of the war in Ukraine, along with Royal Decree Law 11/2022 of June 25, adopting and extending certain measures to respond to the economic and social consequences of the war in Ukraine, to address situations of social and economic distress and to foster the economic and social recovery of the island of La Palma, reduced VAT for consumers with contract capacity equal to or less than 10 kW or recipients of the Social Bonus. The reduction was from 21% to 10% until June 30, 2022 and to 5% until December 31, 2022.Likewise, the reduction in the special tax on electricity to 0.5% and the temporary suspension of the tax on the value of electricity production were also extended.
Extraordinary bonuses of €0.20/kg (€0.20/l) have been introduced until December 31, 2022 for selected energy products, such as petrol, diesel, liquefied petroleum gas (LPG), liquefied natural gas (LNG), compressed natural gas (CNG), biomethane and biodiesel.
Royal Decree Law 17/2022 of September 20 adopting urgent measures in the field of energy, in application of the remuneration system for cogeneration plants and temporarily reducing the Value Added Tax (VAT) rate applicable to intra-EU delivery, import and acquisition of certain fuels, reduces the VAT from 21% to 5% on supplies of natural gas, pellets, briquettes, and firewood until December 31, 2023.
Royal Decree Law 18/2022 of October 18, which approves measures to reinforce the protection of energy consumers and to contribute to reducing natural gas consumption in application of the “Plan +Security for your energy (+SE)”, as well as measures on the remuneration of public sector workers and to protect seasonal agricultural workers affected by the drought, introduces or extends incentives for improving energy efficiency and investing in renewable energy.
Royal Decree Law 20/2022 of December 27 on measures to respond to the economic and social consequences of the war in Ukraine and to support the reconstruction of the island of La Palma and other situations of vulnerability, extends until December 31, 2023 the reductions in VAT on gas and electricity to 5%, the reduction in the special tax on electricity to 0.5% and the temporary suspension of the tax on the value of electricity production (as regards the last of these, the electricity system will be compensated with an equivalent amount to ensure that the revenue and costs associated with the charges are balanced).
The authorities have imposed fixed retail prices on suppliers of electricity based on the quantity of energy consumed monthly. The primary legislation allows suppliers to obtain a fixed margin per MWh by recouping, from the State, the difference between the real supply cost and the cost obtained by deducting from the fixed prices for end users the supply margin and the regulated transmission and distribution costs. This recovery is incomplete and delayed:
In all South American countries, distribution companies can supply electricity to their customers on a regulated basis, but may also do so under free market conditions if customers exceed particular limits.
The limits of the free market by country are as follows:
