La Corte Costituzionale salva lo “Spalma Incentivi”

The Italian Constitutional Court saves the “Spalma incentivi” Decree

On 24 January 2016, decision n. 16/2017 of the Constitutional Court was filed, revealing the grounds for the decision confirming the validity of law decree dated 24 June 2014, better known as the Decreto “spalma incentivi” [Incentive Spread Decree]

In essence, from 1 January 2015, the Decree had provided for a retroactive reduction in the feed-in tariffs previously granted to PV plants with nominal power exceeding 200 KW.

The Court’s decision, after having rejected all the objections raised, considered as without grounds the issue of constitutional legitimacy of the Decree, in the multiple forms outlined by the referring judge.

Above all the Constitutional court considered that the amendments contained in the Decree were neither “sudden”, nor “unforeseeable” in the light of the laws and regulations (in particular the previous so called Conti Energia) and also “given the continued technological developments in the sector”. In addition the amendments were not “unreasonable” as the law acts in the public interest of restabilising the equilibrium between the various operators in the sector.

In addition, in parallel to the reduction of the feed-in tariff, the rule on compensation measures as well as on access to bank finance and/or guarantees issued by the Cassa deposito e prestiti on the basis of specific agreements, should mitigate the negative effect of the economic reduction of the tariffs.

Analysis of the Court’s decision.

In order to justify the retroactive effect of the Decree, the Court states that the new rule was foreseeable and not sudden.In reality, this is a novelty compared with the rules under the previous Conti Energia and was not in fact foreseeable. In fact the previous Conti Energia had consolidated a mechanism that, on the one hand saved the incentives previously granted under prior regulations; on the other hand they had included transitory provisions to protect existing investments in plants that had not yet entered into operation.

According to the Court, the reduction in the feed-in tariffs was justified by “the continued technological developments in the sector”. In reality, it was mainly the feed-in tariff mechanism as provided under the various Conti Energia that allowed the operators in the sector to make significant investments in the development of PV technology which, in turn, is making possible the meeting of the targets set at European level on the production of electricity from renewable energy sources. On the contrary, following the Court’s interpretation, said technological development penalises precisely those sector operators who contributed to it, with the effect of acting as a disincentive for any further progress.

To date we are not aware of the use of means of compensation (such as access to bank finance and/or guarantees issued by the Cassa deposito e prestiti under specific conventions) as provided by the Decree.It is therefore hoped that the accent placed on the function of said measures by the Court renders effective and concrete the use of said compensatory measures, so as to allow sector operators to rebalance the economic losses resulting from the reduction in the feed-in tariffs.

Possible future scenarios

The decision of the Constitutional Court deals with a question that is currently also under consideration by international organs.

Some foreign investors have in fact started arbitration proceedings as provided by the International Energy Charter, complaining of the violation of article 10 of the Charter, that contains the principle of fair and equal treatment and the protection of all the investors from unexpected changes in the conditions on the basis of which the investments were made, and of article 13, that aims to protect investors from an expropriation by one of the contracting States .

Additionally, a group of both Italian and foreign operators has presented the European Commission with a request to open an infraction procedure against the Italian State for the violation of the EU Directive on renewables and on the reduction of greenhouse emissions.

If the decisions arising from said proceedings are incompatible with that of the Constitutional Court, it will be necessary to verify their impact on the mechanism provided under the Decree and confirmed by the Court.