Green Certificate Mechanism

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The Green Certificate Mechanism introduced a market mechanism in Italy to stimulate electricity production from renewable sources, with the goal of replacing the old CIP 6/92 feed-in tariff system. For some years ahead, we will have a transition phase in which both CIP 6/92 and GC mechanisms will function side by side. Indeed, renewable plant owners had the option of applying to remain in the CIP 6/92 system and have the right to sell electricity for eight years to GRTN [Gestore della Rete di Trasmissione Nazionale], the Italian Transmission System Operator, and also to receive a feed-in tariff for the same period. GRTN is consequently then able to both sell that electricity to the electricity market and GCs to electricity producers, as those plants are eligible for Green Certification.

For those who had not exercised this option, which expired in 2000, there remained only the possibility of being qualified as a renewable plant to get Green Certification. Once the eight-year period is over, the plants under CIP 6/92 will no longer receive the feed-in tariff.

The Green Certificate Mechanism goes through a chain of four links: the obligations of electricity producers, Green Certification, a market, and verification.

Obligations

Starting from the year 2002, all electricity producers from conventional sources or importers must comply with an obligation to inject into the grid an amount of electricity produced with renewable sources equal to 2% of the total electricity produced or imported in the preceding year. In the period 2004-2006, this obligation will be increased by 0.35% each year.

The target can be met either by producing electricity directly from renewable sources or by buying GCs from other producers. By March 31 of each year, starting from 2003, each producer and importer has to deliver an amount of GCs equivalent to its obligation.

Qualification, Certification, and Registry

A renewable plant that entered into operation after April 1, 1999, is eligible for Green Certification. GRTN is responsible for the qualification of renewable plants. Technical features of plants that apply for qualification are examined by a commission; if the conditions are satisfied, the plant is qualified as a renewable plant and is eligible for Green Certification for eight years after the plant entered into operation.

GCs are issued by GRTN on the basis of electricity produced in the preceding year or the expected production of the current year and the following year. Each GC represents 100 MWh of electricity produced with renewable sources, and it is identified by the year in which the production took place. A GC related to one year can be used to comply with the obligation of the same year or the following two years.

GRTN also manages the GCs Registry, organized by accounts. GRTN opens an account for each renewable plant's owner and for each market participant under obligation; the GCs owned by a market participant are deposited in their own account.

Market

To comply with their obligations, producers and importers must deliver the equivalent amount of GCs to GRTN. Because of this obligation, transactions between participants with an amount of GCs higher than requested (long position) and participants with a need of GCs (short position) take place. The offers are represented by producers with long positions and GRTN for GCs related to CIP 6 plants. Producers or importers with short positions are on the demand side.

Even though bilateral contracts are allowed, GME [Gestore del Mercato Elettrico—the Italian electricity market operator] has a mandate to set up an organized market for GC trading. In March 2003, the GME market entered into operation. Since then, several sessions have been organized. They usually take place once a week in the first quarter, when the deadline to comply with obligations is approaching, and are monthly in the remaining part of the year, according to the market rules.

At the end of each market session, the list of the settled transactions is sent to GRTN for a registry update. Operators who have a bilateral contract must independently send a communication to GRTN with the transaction details. GRTN, after verification, updates the registry.

Verification

Every year, by March 31, all producers and importers must communicate to GRTN the number of GCs to be cancelled in order to comply with their obligations. GRTN cancels GCs from the operator's account in the registry. The Authority for Energy and Gas imposes a penalty for those who do not comply.

WHITE CERTIFICATE MECHANISM

Energy efficiency is another way to reduce GHG emissions. Italy has introduced two energy-efficiency decrees to provide an incentive for energy saving. According to these decrees, distributors of electricity and gas must achieve a saving target on the total consumption of their own customers. A yearly national target has been set for the period 2005-2009, measured in tonnes-of-petroleum equivalent (tpe).

Energy saving can be introduced through energy efficiency projects. Each project, after verification of the amount of electricity or gas or primary energy saved, is eligible for Energy Efficiency Certificates—EECs. Those EECs will be used by distributors to comply with their obligations, as they must deliver an amount equivalent to their target to the Authority for Energy and Gas. The introduction of a market mechanism for EECs allows other parties, such as energy service companies, to find participating in the market attractive and profitable. The Energy Efficiency Mechanism is very similar to the Green Certificate mechanism and is composed of obligations, a certification phase, a market, and a verification phase.

Obligations

Distributors of electricity and gas must achieve a saving target on the total consumption of their own customers, starting from 2005. The national target for the period 2005-2009 has been set either for electricity savings or for gas savings, and they are measured in tonnes-of-petroleum equivalent (tpe):

Table 1

Italian National Energy Efficiency Targets

Year

Electricity National target (Mtpe)

National target (Mtpe)

2005

0.1

0.1

2006

0.2

0.2

2007

0.4

0.4

2008

0.8

0.7

2009

1.6

1.3

The national target is shared between distributors according to their relative weight. This weight is obtained by dividing the electricity or gas consumed by their customers with national consumption. To comply with their obligations, every year distributors must deliver to the Authority for Energy and Gas a number of EECs equivalent to their annual target.

Certification

A project that introduces energy efficiency is eligible for certification. The Authority for Energy and Gas has standardized several projects, indicating the amount of electricity, gas, or primary energy (measured in tpe) the project can save. Other nonstandardized projects can be evaluated on a case-by-case basis, and each will receive EECs for tpe saved.

Market

In the Energy Efficiency Mechanism, as in the GC mechanism, there will be obligations to be fulfilled and operators will have long and short positions in EECs. Even though bilateral contracts are allowed, GME has received the mandate to set up a regulated market with the same trading platform used for GCs, and with similar market rules.

Verification

By May 31 of the year following that of their obligations, distributors of electricity and gas must deliver an amount of EECs equivalent to their savings target. The Authority for Energy and Gas is responsible for verifying this compliance. For those who do not comply, a penalty will be applied.

Economics of Energy Efficiency Mechanism

Distributors that undertake an energy efficiency project can have three streams of income (see Figure 1).

The first comes from an agreement between distributors themselves and the end-user who will benefit from the project. As the total cost of the project is paid for by the distributor, it is usual to make an agreement where the end-user for a given period of time will pay back to the distributor part of the money saved as a result of the efficiency project. After that period, the end-users will receive the entire benefit of the project.

The second comes from a partial reimbursement of project costs paid for by the distributor and not covered from other sources. All distributors that undertake a project are eligible for tariff reimbursements for each tonne-of-petroleum equivalent saved with a project, up to the full realization of the target. The amount of reimbursement has been set at 100 euros for each tpe saved, and is obtained either by carrying out projects or delivering EECs bought from other distributors or ESCOs (Energy-Services Companies).

The third comes from the EECs sold in the market, when the distributor undertakes several projects and the total number of EECs obtained is more than that required to comply with their obligations.

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