By Cesare Milani

On December 7, 2016 the Italian Constitutional Court (the “Constitutional Court”) rejected the appeal filed by four solar energy operators against Art. 26, paragraphs 2 and 3 of Italian Law Decree no. 91, dated June 24, 2014, (the “Decree”, so-called “Spalma-Incentivi” Decree), (introduced in 2014 by the Prime Minister Matteo Renzi’s government). The Decree changed the state incentives scheme applicable to the renewable energy sector, with retrospective effect. As a result, the number of years over which the state incentives to solar plants with a capacity of more than 200Kw are spread out, increased.

The Constitutional Court declared the question of constitutional legitimacy concerning the Decree groundless.

Questions concerning the constitutional legitimacy of the Decree were raised by the Administrative Court of the Lazio Region (the “TAR Lazio”) as a result of multiple challenges brought by operators in the renewable energy sector against the administrative acts implementing the Decree (the “Proceedings”). Such questions were based, in particular, on the retroactive effect of the feed-in tariff (FITs) cuts introduced by the Decree, with many commentators noting that the Decree undermined Italy’s credibility in attracting investment in the renewable energy sector.

As a result, the TAR Lazio froze the aforementioned Proceedings in TAR Lazio by the renewable operators pending a decision from the Constitutional Court .

By way of background, the Decree required solar plant operators to choose, by 30 November 2014, between new options to be implemented in relation to FIT allowances. However, all these options were detrimental to the solar operators operations.

The three options were: (i) extending the feed in tariff period from 20 to 24 years on the basis of an annual percentage reduction; (ii) maintaining the original 20-year incentive period and receiving a reduced FIT at an earlier stage and then an increased FIT (by the same amount) at a later stage; or (iii) keeping the 20 year-long period, but with an annual decrease of incentives equal to 6% for solar plants with peak power between 200-500Kw, 7% for solar plants with peak power between 500-900Kw and 8% for solar plants with peak power higher than 900Kw.

The reasons behind the Constitutional Court’s decision will be made public in the next few months. Only following a detailed analysis of this decision will it be possible to understand the judicial reasoning on which the Constitutional Court’s decision is based.

In addition, in the next few months the Italian Courts are expected to rule on a separate appeal brought against the Decree by Assorinnovabili, an association of renewable energy companies.

These developments lead many commentators to believe that further developments on this subject are likely in 2017.

This post was prepared with the assistance of Bianca De Vivo in the Milan office of Latham & Watkins.

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