A purposive approach: Italian court decides not to revoke renewable incentives following a minor formal infraction

Introduction

A recent ruling issued by the Council of State has clarified the conditions for the award of tariffs to solar photovoltaic (PV) generation, deciding that a failure to communicate construction completion to the relevant authorising authority cannot be considered a material infringement.

Facts

Article 1(7) of Decree-Law No. 105/2010, as amended by Law No. 129/2010, provided that the tariffs granted to incentivise the development of solar PV plants pursuant to Ministerial Decree of 19 February 2007 (known as the Secondo Conto Energia) will be awarded to the applicants that, inter alia, have completed construction by 31 December 2010 and notified: (i) the authority that authorised the construction of the plant, (ii) the grid operator and (iii) GSE S.p.A..

On 23 November 2018, GSE S.p.A. issued an order revoking the Secondo Conto Energia incentives to a company operating a solar PV plant located in the Municipality of Pavia alleging that the company did not communicate to the authorising authority (i.e. the Province) that the construction of the plant had been completed by 31 December 2010.

The company filed an appeal with the competent Regional Administrative Court (Tribunale Amministrativo Regionale) to annul the order issued by GSE S.p.A.. When their appeal was rejected, the company appealed again to the Council of State (Consiglio di Stato).

At the Council of State hearing, the company argued that failure to communicate the completion of construction to the authority that authorised the construction of the plant should be considered a minor infringement which does not result in the revocation of the incentives for the following reasons:

(i) The concept of a “material infringement” in the context of the revocation of the incentive is defined in the Ministerial Decree of 31 January 2014 which, in Annex 1(m), considers failure to communicate the completion of works as material but only with reference to GSE S.p.A.; and

(ii) The rationale behind the provision is to enable GSE S.p.A. to ascertain the requirements for the award of incentives had been met. The provision was therefore satisfied when the grid operator and GSE S.p.A., as in the present case, were notified within the requisite time limit.

Decision

In ruling No. 2695 of 31 March 2021, the Council of State accepted the appeal brought by the company in full and annulled the order issued by GSE S.p.A..

According to the Council of State, failure to communicate the completion of construction to the authorising authority by 31 December 2010 is a minor infringement which should not trigger the revocation of incentives, provided the plant has actually been built by the required deadline and completion has been communicated to the entity providing the incentives (i.e. GSE S.p.A.) as well as to the competent grid operator.

The decision is in line with the Ministerial Decree of 31 January 2014 which envisages a failure to notify GSE S.p.A. alone as a ground for revocation. According to the Council of State, the rationale behind this provision is to ensure that GSE S.p.A. is in a position to be able to perform its function of monitoring eligibility for incentives by ensuring that it is provided with information in a timely and accurate manner. This rationale does not apply to the notice required to be given to the relevant authorising authority.

Commentary

Article 42 of Legislative Decree No. 28/2011, in the version in force at the time and applicable in this case, provided that, in the event of material infringements, GSE S.p.A. is required to order the revocation of the incentives. Ministerial Decree of 31 January 2014, in defining the concept of material infringements resulting in the revocation of the incentive tariffs set out under the Conto Energia decrees does not refer to the failure to communicate completion of construction to the Municipality, Province, Region, or the competent grid operator, but only to the failure to communicate completion of construction works to GSE S.p.A..

The ruling of the Council of State is particularly important given that previous case law had consistently held that the revocation of incentives could be based on any of the circumstances where the applicant had failed to notify the competent authorities that construction had completed and GSE S.p.A. did not have any other adequate evidence to ascertain that the works were actually completed by the required deadline.

In this case the Council of State deemed that Article 1(7) of Decree-Law No.105/2010 had been implicitly superseded by Article 42 of Legislative Decree No. 28/2011 as implemented by the Ministerial Decree of 31 January 2014. As a result, failure to communicate the completion of works to the Province could not be considered a material infringement, resulting in the revocation of the incentives.

The industry is now waiting for the new Ministerial Decree implementing Article 42 of Legislative Decree No. 28/2011 by the Ministry for the Economic Development, as subsequently amended by Law 205/2017, Law Decree 101/2019 and Law Decree 76/2020, which will detail the cases when the GSE shall reduce the incentives in an amount ranging from 10 per cent and 50 per cent depending upon the seriousness of the infringement. As it does so, it is comforting that the Council of State has finally deviated from established case law with a view to safeguarding energy investments in Italy, and to allow institutions and operators to concentrate on achieving the objectives of the PNIEC and the European Green Deal.

This article was originally edited by, and first published on, www.internationallawoffice.com.