Comparison of regulatory framework germany italy

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European Geothermal Congress 2013

Comparison of regulatory framework Germany - Italy

Benjamin Richter & Giorgio Castorina | Pisa | 5 June 2013

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Agenda

01 Introduction Rödl & Partner

02 Legal security regarding ownership of geothermal resources

03 Legal security regarding water license

04 Economic feed-in tariffs

05 Priority and guaranteed access to the power grid

06 Legal security regarding district heating prices

07 Drilling and power plant construction licenses

08 Your contact

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Agenda







08 Your contact


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Introduction Rödl & Partner We are a one-of-a-kind success story from Germany

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Introduction Rödl & Partner Our services for the Energy Sector

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Introduction Rödl & Partner Selection of references national and international - Geothermal Energy

General information Services

Monitoring of the realization of the

geothermal project Unterhaching Complete project management

Subsidy procurement

Development of the worlds first geological risk insurance

Creation of price system for district heating

Different municipalities in the field of

geothermal energy

Demonstration and evaluation of possible options of action

Estimation of adoption potential

Economic efficiency control / business plan

Valuation

Consideration of legal form

Forms of participation

Financing institution Project control and economical calculations concerning the market entry in

geothermal energy

UniCredit

Legal, economical and organizational consulting for the creation of a power

plant portfolio and its risk management

Industrial company Site selection concerning economical, operative and geological factors as well

as the preparation of applications for the backup of the approved area

Federal Ministry for the Environment,

Nature Conservation and Nuclear Safety Development of a concept for the realization of a German wide exploration risk

insurance

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Introduction Rödl & Partner Selection of references national and international - Geothermal Energy

General information Services

Federal Ministry for the Environment,

Nature Conservation and Nuclear Safety/

World Bank

Development of a benchmarking-study (Pilot project Hungary)

World Bank Examination of two geothermal projects in Kamchatka, Russia, in economical,

legal and technical terms (Electricity supply and district heating)

GEOFAR Financed by the Intelligent Energy Europe – Program of the EU;

Joint project with 8 partners from 5 EU-countries;

Topic: Financing system geothermal energy

UNEP – United Nations Environmental

Programme

Identification of risks that affect the realization and financing of world wide

renewable energy projects

Industrial companies Advisory service with regard to market entry

Financing institutions Legal and economical due diligence of projects and portfolios

European Commission (Executive

Agency for Competitiveness and

Innovation (EACI))

Development of a risk mitigation instrument

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Agenda







08 Your contact


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Legal security regarding ownership of geothermal resources

Long term security for an exclusive exploration and exploitation

of a specific geothermal reservoir is highly important due to high

investment costs and project related risk management

Different steps:

1. Determination of the exploration field allows preliminary

geological investigations and exploration drillings

2. Based on these results determination of a sufficiently large

exploitation field secures a long-term exclusive right for

exploitation

Legal security

regarding

ownership of

geothermal

resources

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Legal security regarding ownership of geothermal resources Comparison Germany vs. Italy

Subsoil owned by the state

Exploration permit issued for a period of three up to

eight years

Exploitation permit issued for a period of 50 years

Royalty payments of max. 10% can be imposed

• Currently not implemented in the case of geothermal

resources

Germany

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Legal security regarding ownership of geothermal resources Comparison Germany vs. Italy

Land property extends to the subsoil

Resources in the subsoil are owned and kept by the

state or the region

Exploitation permit can be issued for a period of 30

years, preferably to the holder of the exploration

permit

Plants with nominal power higher than 4 MW are due

to pay royalties to the municipalities and region where

the plant is located

Italy

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08 Your contact


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Legal security regarding water license

Exploitation permit according to mining law only allows for the

exploitation of geothermal energy

Further license necessary for the utilization of water or steam

Legal security

regarding water

license

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Legal security regarding water license Comparison Germany vs. Italy

LAW and REALITY: Legally possible to obtain water licenses for

decades

NOT SO LONG: License, generally granted for few years and have

to be prolonged on a regular basis

IMPORTANT DETAILS: Proof of disposal of test water necessary

Germany

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Legal security regarding water license Comparison Germany vs. Italy

License can be granted for up to 30 years

• Same period of validity as for exploitation permit

• Security of the investment, once both licenses are obtained

Granted by the province or region upon payment of a yearly fee

No specific prescriptions concerning geothermal fluids and its

treatment

Legal claims delegated to the court of public water

Italy

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08 Your contact


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Economic feed-in tariffs

In relation to geothermal power plants, the amount and especially

the long-term security of feed-in tariffs play a crucial role due the

long project preparation phase

Feed-in tariffs should allow for an adequate risk-award ratio that

rewards the relatively high risks of the drilling exploration

Reference value for the concrete regulatory of the feed-in tariff (net

vs. gross capacity of the installation) has major influence on the

profitability of a project

Economic feed-in

tariffs

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Economic feed-in tariffs Comparison Germany vs. Italy

Renewable Energy Source Act (EEG) offers in general a

stable and secure investment environment

• GROSS capacity of the renewable energy technology can be fed

into the distribution network

• Feed-in tariff for hydro-geothermal power: 25 Ct/kWh

• Fixed feed-in tariff secured for 20 years

Germany

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Economic feed-in tariffs Comparison Germany vs. Italy

Incentive for the power generated

• Added to the income for the sales to the public entity (GSE)

• Granted for 20 years

• Sliding Feed-in Premium Value of Feed-in tariff MINUS hourly

zonal energy market price

• Current value: 8.5 – 13.5 Ct/kWh, depending on the nominal power

of the plant

• Premium tariffs for innovative technologies provided

Italy

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08 Your contact


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Priority and guaranteed access to the power grid

Has to be ensured by all EU Member States (Directive 2009/28/EC

on the promotion of the use of energy from renewable sources)

Priority and

guaranteed access

to the power grid

ONE RESPONSABLE: Immediate and priority connection to

grid systems shall be granted by grid system operators

(GSOs) to installations generating electricity from renewable

energy sources (RES)

Germany

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Priority and guaranteed access to the power grid Comparison Germany vs. Italy

NOT ALWAYS: GSOs are only then entitled to reduce output of

RE plants to prevent a grid overload

Germany

NOT FOR FREE: Costs for the connection to the grid are to be

borne by the installation operator

• The GSO bears the additional costs in case of assigning a grid

connection point which is not at the shortest linear distance form

the installation

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Priority and guaranteed access to the power grid Comparison Germany vs. Italy

Applications aimed at the connection of RE plants must be given

priority by the grid operator

Italy

The Energy Authority shall prioritize the dispatch of power

generated by RE

Only in cases of high risk for the national grid, the grid operator is

entitled to reduce the input of RE plants

Costs for the connection to the grid shall be borne by the

installation operator

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08 Your contact


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Legal security regarding district heating prices

Determination of prices in a way that allows

• Achievement of a certain rate of return on the investment

• Passing increasing prices to consumers

Legal security

regarding district

heating prices

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Legal security regarding district heating prices Comparison Germany vs. Italy

Any heat supply contract (except for industrial customers) has to

be based on the “regulation on general conditions for the supply

with district heat”

Germany

The price sliding clause should appropriately include:

• Development of production and supply costs

• Respective circumstances of the heat market

Price is not completely free of any regulation but can be

oriented to the present situation of the heat supply costs

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Legal security regarding district heating prices Comparison Germany vs. Italy

Regulatory framework missing. Risks of cartel and monopoly of the

operators

Italy

Investigations have been started up on 2012 by the “Antitrust

Authority”

Due to the expansion of district heating and to the growing attention

of the institutions, regulation of the sector in the next years

predictable

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08 Your contact


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Drilling and power plant construction licenses

Licenses for Drilling and building necessary

Drilling and power

plant construction

licenses

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Drilling and power plant construction licenses Comparison Germany vs. Italy

Drilling regulated by mining legislation

Construction of the power plant subject to building law

Germany

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Drilling and power plant construction licenses Comparison Germany vs. Italy

Issuance of drilling licenses by:

• The respective region

(When geothermal resources of national/local interest)

• Ministry for Economic Development

(For geothermal resources found in territorial waters)

Construction license issued by the region, province or municipality

depending on

• Plant’s nominal power

• Source

• D.lgs. 387/2003 created a specific rapid procedure for renewable energies

plant (so-called Autorizzazione Unica)

Italy

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Agenda







08 Your contact

07 Conclusions

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Conclusions

Regulatory framework offering legally secure and economic conditions is of utmost

importance for the realization of deep-seated geothermal energy projects

This country comparison Italy and Germany illustrates the necessity to gain

extensive knowledge on the regulatory conditions of any specific location before

taking an investment decision.

Disclaimer

This presentation contains a general overview of the regulatory framework. It does not represent any suggestions or invitations

to act or behave on the market under any circumstances. It does not contain any legal or tax information.

Therefore, Rödl & Partner disclaims any liability for correctness, completeness and accurateness of the presentations content.

This does not apply, if accountability is based on purpose or gross negligence by Rödl & Partner, as well as possible damage

occurred through violation of someone’s existence, body or health.

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„Each and every person counts“ – to the Castellers and to us.

Human towers symbolise in a unique way the Rödl & Partner corporate culture. They personify our philosophy of solidarity, balance, courage

and team spirit. They stand for the growth that is based on own resources, the growth which has made Rödl & Partner the company we are

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journey with the representatives of this long-standing tradition of human towers – Castellers de Barcelona – in May 2011. The association

from Barcelona stands, among many other things, for this intangible cultural heritage.

Thank you for your Attention!

Benjamin Richter

Rödl & Partner

Denninger Straße 84

D-81925 Munich

Phone +49 (89) 928780-350

Fax +49 (89) 928780-300

E-Mail [email protected]

Giorgio Castorina

Rödl & Partner

Via Francesco Rismondo 2/E

I- 35131 Padova

Phone +39 (049) 80 46 911

Fax +39 (049) 80 46 920


Svenja Bartels

Rödl & Partner

Via Rismondo 2/E

I- 35131 Padova

Phone +39 (049) 80 46 911

Fax +49 (049) 80 46 920


Germany Italy

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We and the Castellers de Barcelona

The human towers are like us:

“every single individual counts”

– when working together and

when supporting our clients.

European Geothermal Congress 2013 Pisa, Italy, 3-7 June 2013

1

Comparison of regulatory framework Germany / Italy

Svenja Bartels1, Benjamin Richter

2

1 Rödl & Partner, Via Nicolò Tommaseo 68, 35131 Padova, Italy

2 Rödl & Partner, Denninger Straße 84, 81925 Munich, Germany

[email protected]

Keywords: Legal security, regulatory framework,

economy, Italy, Germany.

ABSTRACT

For the realization of deep-seated geothermal energy

projects a regulatory framework that offers legally

secure and economic conditions is of utmost

importance. The differences between Germany and

Italy shown in the report illustrate the necessity to gain

extensive knowledge – besides geological conditions -

on the regulatory conditions concerning any specific

location to be developed before taking an investment

decision.

1. INTRODUCTION

The use of geothermal energy can be divided roughly

into near-surface or deep-seated geothermal energy.

While near-surface utilization of geothermal energy

supplies single buildings (or complexes of buildings)

with heat by earth heat collectors in combination with

heat pumps (depth approx. 15 - 150 m), deep

geothermal energy offers the possibility of larger

dimensioned energy supplying projects, including the

generation of electric power.

Deep hydrothermal energy is a special case, because

water-bearing layers (aquifers) are used in great depth

(2,000 - 5,000 m). For this purpose at least two

boreholes are required (production well, reinjection

well), because the raised thermal water has to be

reinjected into the same layer after being cooled down.

The following paper focuses on the five key criteria

concerning legal security and therefore necessary

regulatory framework conditions that allow for an

economic investment into deep-seated hydrothermal

energy projects. These criteria are described in detail

comparing Germany and Italy in the following. The

investigated key criteria are:

Long-term legal security of the ownership of

geothermal resources and possible impact on

financing of geothermal projects

Legal security that the water licence to exploit the

necessary amount for an economic project

operation can be issued

Legal security that district heating prices can be

determined according to market conditions and are

not regulated by public authorities (only

limitations to prevent abuse of market power)

Feed-in tariffs sufficient for an economic project

operation, which allow for an adequate risk-award

ratio

Obligation of e.g. transmission system operators to

purchase produced energy, as well as priority

access of geothermal power plants to networks

(and possibly obligation for network expansion)

2. LEGAL SECURITY REGARDING

OWNERSHIP OF GEOTHERMAL RESOURCES

From the point of project development and project

related risk management as well as due to high

investment costs the long-term security for an

exclusive exploration and exploitation of a specific

geothermal reservoir is of utmost importance for any

investor. As long as there is no legally binding

definition, other parties could jeopardize realized

investments. Possible impacts are lower reservoir

temperatures due to intensive use or declining flow

rates.

In a first step the exploration field would have to be

determined and legally secured to allow for

preliminary geological investigations or exploration

drillings. Based on these results a sufficiently large

exploitation field would have to be determined to

secure a long-term exclusive right for exploitation

(e.g. 50 years). Finally the ownership of the resource

has to be allocated for a specific area within the

exploitation field.

2.1 Germany

In Germany only the holder of the exploration and

exploitation permit according to §§ 7 and 8 Federal

Mining Act is entitled to apply for the ownership.

Furthermore the economic exploitation has to be

shown credibly by the applicant. The ownership of the

geothermal resource does not comprise the ownership

of the landed property. At the moment of awarding the

ownership of the geothermal resource the exploitation

permit expires concerning the respective area of the

exploitation field. Similar to real estates it is possible

to enter the ownership of the resource into the land

registry and use it to safeguard a credit.

Bartels, Richter

2

2.1 Italy

In Italy, the general legislation provides that the

landed property extends to the relevant subsoil, with

the only exception for its resources. As a matter of

fact, due to their public interest nature, they are owned

by the State (or by the Region in certain cases) that

may grant its exploiting to a private individual by

means of an authorization. In particular, for

geothermal resources, the recent legislation (D.Lgs.

22/2010) provides an exploration permit (permesso di

ricerca) for the research of new geothermal fields,

issued for at most 4 years (plus an additional 2 years);

in addition it provides the growing permit

(concessione di coltivazione) for the exploiting of the

discovered resources. In order to guarantee the

payback of the incurred investments for the

exploration, the exploring private is preferred in the

assignment of the relevant exploitation permit, which

can be issued for a period of 30 years and renewed

after carrying out a competitive tender.

Other than in Germany, in Italy the ownership of the

resource stays with the State or Region and therefore

cannot help to safeguard a credit.

3. LEGAL SECURITY REGARDING WATER

LICENCE

Since an exploitation permit according to mining law

only allows for the exploitation of geothermal energy

but does not include the necessary utilization of water

or steam a further license according to water

legislation is necessary in the context of hydrothermal

projects.

3.1 Germany

Function of water legislation in Germany is to

minimize the utilization of the resource water to

secure the natural sources. In contrast the function of

mining law is to maximize the utilization of the

natural sources.

Furthermore in opposition to mining law no legal

claim exists in water legislation. But in some German

states the mining authority is entitled to override the

interests of water legislation.

It is legally possible to obtain a license which is valid

for decades. But in general the water license will be

determinable to only few years and has to be

prolonged by an application procedure on a regular

basis. Therefore the period of validity of the water

licenses is usually considerably lower than the one of

the exploitation permit according to mining law and

means a further risk in project realization. But in

reality up to know all necessary water licenses have

been issued for hydro-geothermal projects.

3.1 Italy

The water licenses are still regulated by the Regio

Decreto 1775/1933. The license is granted by the

Province or Region upon payment of a yearly fee. The

license is always temporary and it can be granted for a

period of 30 years, the same as for the exploitation

permit. Therefore, although both licenses are

necessary, the equality of their duration guarantees the

security of the investment.

For the geothermal use of the underground water, the

main problem is represented by the lack of a specific

legislation in most Regions, delegated by the State to

the legislation for the water and soil protection. In

such cases, the need of an interpretative application of

the general water provisions is often cause of

bureaucratic delays.

Other than in Germany, the jurisdiction for any legal

claim on the water license is delegated to a special

court (Tribunale delle acque pubbliche), which

competence is extended also to the underground

water.

4. LEGAL SECURITY REGARDING DISTRICT

HEATING PRICES

Any investor needs the security that district heating

and district cooling prices can be determined in a way

that allows the achievement of a certain rate of return

of the investment as well as the possibility of passing

increasing prices to the final customers.

In case the heat market is not yet completely

deregulated and a certain “protection” of the final

customer is political objective since heating energy

can be considered to be substantial for any person, this

leads to certain barriers for investments in this sector.

Regulated districted heating prices by public

authorities would lead to the following consequences:

a maximization of benefit is not possible

the price could not be adapted to the present

supply situation (e.g. required price for

combustible as redundancy and peak load)

the price could not be adapted to any investments

(restoration, extension) undertaken

the price could not be adapted to the capacities

asked by particular costumers

the price would depend on political matters and is

influenced by date of elections etc.

the business planning always lacks security, as the

planned prices could be changed by the municipal

council

a third party, which is not a contracting party in an

heat supply contract, has substantial influence on

the content of the supply contracts and in

succession on sales and benefits of the heat supply

company.

the risk of non coverage of heat generation costs

would lead to a decline in revenues and profits

With reference to a geothermal project, the

consequences would be that, even if the main costs

(e.g. electricity for pumps) increase in the case of

Bartels, Richter

3

feed-in-tariff - subsidies, the heat supply company has

no instrument to equal its losses.

4.1 Germany

Any heat supply contract (with exception of industrial

costumers (§ 1 para. 2 AVBFernwärmeV)) in

Germany has to base on the “regulation on general

conditions for the supply with district heat”.

In this regulation several aspects of the supply are

fixed, e.g.:

type of supply

scope of supply

system of communication if there are unforeseen

difficulties with supply

liabilities in case of supply interruptions

calculation of costs for connection to the heating

network

utilization of real estate

definitions of interfaces

measurement of heat volume

utilization of heat

etc.

The relevant paragraph concerning the price

regulations defines among other aspects the following

(§24 (4), AVBFernwärmeV):

“The price sliding clause has to be defined in that

way, that both, the development of costs of the

production and supply of district heat and the

respective circumstances on the heat market are

included appropriate. It has to disclose the relevant

calculation factors completely and in a generally

comprehensible form. If the price sliding clause is

implemented, the price factor which determines

the contribution (in percent) of the costs for

combustibles has to be shown separately in any

change of price.”

The inclusion of a price sliding clause therefore

enables the above mentioned balancing of interests.

The price cannot be defined completely free of any

regulation, but can be oriented to the present situation

of the heat supply costs (e.g. combustible price). The

price, consequently, not only can be increased by the

heat supply company, but also has to be decreased, if

the price factors, which are defined in the price sliding

clause decline.

In consequence, the following advantages can be

achieved:

the price is not regulated by any third party

the price always includes the actual development

of all influencing factors

the price also has to be decreased if the factors

show such a development

the price and its development is transparent for

clients.

In relation to a geothermal heat supply project, the

price, if such a price sliding clause forms the base of a

heat supply contract, would in consequence not be

effected such strongly by rising price for combustibles

as a “conventional” heat supply network leading to an

advantageous price stability of the heat sales prices.

4.1 Italy

The Italian district heating system, though in a

permanent development, is still missing a regulatory

framework. Consequently, the prices that operators

apply to their customers are not subject to any

regulations by central Authorities.

For this reason, the antitrust Authority has started up

an investigation, in order to avoid that the lack of

regulation could cause monopolies of the local

operators. The findings of the investigation have not

been published yet.

It is therefore predictable, according to the spread of

the district heating system that the regulation of the

sector will be done in the next years.

5. ECONOMIC FEED-IN TARIFFS

Any investment always asks for stabile market

conditions. Besides the amount of feed-in tariffs

especially the long-term security regarding feed-in

tariffs would be even more important in relation to a

geothermal power plant, as the project preparation

phase (time till commissioning) could last several

years.

Due to the relatively high risks concerning the drilling

exploration risks regarding deep-seated geothermal

projects, feed-in tariffs have to allow for an adequate

risk-award ratio since in most cases a certain amount

of venture capital will be necessary in the first phases

of project development.

A further aspect is the reference value for the

calculation of the feed-in tariff. This can either be the

net or the gross capacity of the installation.

Remuneration only regarding net capacity (energy

required for pumps and own consumption of the

power plan deducted) has major influence on the

profitability of any project.

5.1 Germany

For the last years the Renewable Energy Sources Act

(EEG) in Germany offered a very stable and secure

investment environment for geothermal projects. A

statement of course has to be made project specific but

in general the rate of the feed-in tariffs can enable an

economic project realization especially considering

Bartels, Richter

4

that in Germany the gross capacity of the renewable

energy technology can be fed into the distribution

network. The feed-in tariff for hydro-geothermal

projects presently amounts to 25 Ct/kWh. The energy

required for the pumps and for the own consumption

of the power plant is taken from the grid at a lower

price. The security of fixed feed-in tariffs is

furthermore given for a period of 20 years plus year of

commissioning.

Currently the continuance of the EEG is broadly

discussed in Germany.

5.1 Italy

The recent legislation on the incentives for renewable

energies (Decreto Ministeriale 06.07.2012) offered

new investment opportunities to the energy operators.

In conjunction with a cut to the incentives granted to

photovoltaic, the government reserved new funds to

the other sources, among them geothermal.

The feed in tariff, granted for 20 years, consists of an

incentive for the power generated, which may be

added to the incomes for the sale of energy to the

public entity (GSE). The current value of the feed in

tariffs for the geothermal plants vary within a limits of

0.085 €/kWh and 0.135 €/kWh, depending on the

nominal power of the plant. Geothermal plants with

nominal power higher than 20 MW, have to undergo a

public tender.

Altough the tariffs are lower than the ones of the old

regime, the legislation is aimed at supporting

innovative technologies, recognizing premium tariffs

for the reinjection of geothermal fluids, the

construction of plants in consequence of new growing

permit (concessione di coltivazione) and the

realization of plants capable of pulling down the

polluting substances of the fluids.

6. PRIORITY AND GUARANTEED ACCESS TO

THE POWER GRID

According to the Directive 2009/28/EC on the

promotion of the use of energy from renewable

sources, priority access and guaranteed access for

electricity from renewable energy sources are

important for integrating renewable energy sources

into the internal market in electricity. Priority and

guaranteed access to the power grid therefore has to be

secured by all EU Member States.

6.1 Germany

In Germany grid connection is regulated in the

Renewable Energy Sources Act (EEG).

According to section 5 EGG, “grid system operators

shall immediately and as a priority connect

installations generating electricity from renewable

energy sources and from mine gas to that point in their

grid system (grid connection point) which is suitable

in terms of the voltage and which is at the shortest

linear distance from the location of the installation if

no other grid system has a technically and

economically more favourable grid connection point.”

Necessary costs for the connection have to be borne

by the installation operators. In case the grid operator

assigns a different grid connection point, additional

costs have to be borne by the grid operator (section 13

EEG). Furthermore costs for optimising, strengthening

and expanding the grid system have to be borne by the

grid operator (section 14 EEG).

Only to prevent cases of grid overload grid operators

are entitled to reduce output of renewable energy

plants. Grid operators have to “ensure that the largest

possible quantity of electricity from renewable energy

sources and from combined heat and power generation

is being purchased” (section 11 EEG).

6.1 Italy

In Italy, the connection to the power grid and the

relative procedure to carry out with the grid operator is

provided by TICA (Testo Integrato Connessione alla

Rete) issued by the the energy Authority (AEEG-

Autorità per l’Energia Elettrica e il Gas) by means of

the deliberation ARG/elt 99/08.

Art. 28 of TICA provides that the grid operator, in

pursuance of its services, must give priority to the

applications that are aimed to the connection of

renewable energy plants and high efficiency

cogenerator plants.

Furthermore, in Italy, the deregulation of the energy

sector has been launched by the Legislative Decree

79/1999 (Decreto Bersani). Its art. 3 provides that the

Authority shall ensure the priority on dispatching to

the power generated by renewable energies. The same

provision has been kept also in the following sectorial

legislation (Decree 387/2003).

It follows that, when the national grid is endangered

due to the surplus of power generated, the energy

production can only be limited through the power

modulation of the plants fed by fossil sources. Only in

cases of high risk for the national grid, the grid

operator is entitled to reduce the input of the

renewable energy plants.

Technology

Comparison of regulatory framework germany italy