The hydroelectric concession in Italy

by Frosio Next

February 2023

What is a hydroelectric concession?In this article we will talk about the reference legislation, but also about the updates from the bureaucratic point of view that regulate the use of public water for energy purposes.

What does hydroelectric concession mean?

A concession is a kind of collaboration by which a public administration confers on a single entity (public or private) or on a limited plurality of entities the right to exercise an activity reserved to the public authorities. The ownership of the goods granted for use and exercise remains with the public administration.
The concessions are used in areas that affect the quality of life of citizens, for example:

  • road and rail transport;
  • port and airport services;
  • maintenance and operation of motorways;
  • waste management;
  • energy and heating services;
  • recreational facilities and parking.

The concessions ensure that private capital and expertise complement public resources and allow for new investments in infrastructure and public services without burdening the public debt.

Specifically, therefore, the hydroelectric concession is intended for all those who intend to derive and direct public water for any use (underground water from a well, from a spring or with derivation from a surface watercourse) for the production of energy.

Whoever is involved is required to acquire the necessary administrative concession for the use of a public resource, such as water, and to pay the state fee corresponding to the granted use annually.

They are issued for a temporary duration, which cannot exceed thirty years in the case of large diversion for industrial use and ten years for small diversion.
Furthermore, a hydroelectric concession can be revoked in advance of the expiry date by the competent Authority (without the payment of compensation) if the supervening incompatibility of the concession with the objectives of quality and valorisation of the body of water concerned is ascertained.

Small and large derivations: what are they and how does the competence change?

The term derivation is defined as any withdrawal of water from bodies of water (underground or surface) made by means of works, artefacts or fixed installations. The set of the following elements constitutes the derivation: works of collection, regulation, extraction, derivation, conduct, use, return and drainage of water.

The administrative competence for issuing concessions for the derivation and use of public water lies with the Provincial Administrations and in relation to what are defined as “small derivations”; while the Region is responsible for issuing concessions for “large diversions”.

Small derivations are defined as those which do not exceed the following limit:

  • production of motive power with average nominal power lower than 3000 kW.

Large diversions are defined as those exceeding the following limit:

  • production of motive power with average nominal power exceeding 3000 kW.

In the concessions of large derivations for hydroelectric purposes, the regions can provide by law the obligation for concessionaires to supply annually and free of charge, to the same regions, 220 kWh for each kW of average nominal power granted by the concession, at least 50% destined for public services and categories of users in the provincial territories involved in the derivations.

The regulations on hydroelectric concessions and the use of water

The overall matter of derivations for hydroelectric uses transversally affects state and regional competences. This is a concession to use a state property, such as water, owned by the state. Pursuant to article 117, second paragraph of the Constitution, the State has exclusive legislative power for the “protection of the environment, of the ecosystem”.

The matter of “production, transport and national distribution of energy” belongs to the concurrent legislative power between the State and the regions, pursuant to article 117, third paragraph of the Constitution.

The concessionaires of large hydroelectric derivations are required to pay the regions a fee every six months, determined with the individual regional laws, having consulted the ARERA, divided into:

  • a fixed component, linked to the average nominal power of the concession,
  • a variable component, calculated as a percentage of normalized revenues, based on the ratio between the plant’s production, net of the energy supplied to the region, and the zonal price of electricity.

The unit fee varies proportionally to the variations, not less than 5 per cent, of the ISTAT index relating to the industrial price for the production, transport and distribution of electricity.

This fee is also due in the event that the user does not want, or is unable, to use all or part of the waters covered by the concession.

The new regulation on concessions for large water diversions for hydroelectric use

During the current legislature, the regulation of concessions for large hydroelectric derivations (those pertaining to hydroelectric plants with an average nominal power of at least 3 MW) was considerably reformed, first by law no. 205 (2018 budget law, article 1, paragraph 833), then by the decree-law of 14 December 2018, n. 135 (converted, with amendments, into Law no. 12/2019), and, most recently by the Competition Law 2021, Law no. 118/2022.

The decree, without prejudice to the competences of the autonomous provinces of Trento and Bolzano and of the regions with special statutes pursuant to the respective statutes and related implementing rules, ordered the transfer of the ownership of the hydroelectric works upon their expiry and in cases of forfeiture or renunciation of the concessions themselves.

In particular, transferred to the regions, once the concession has ended:

  • “wet works” (dams, penstocks, drainage channels, etc.) free of charge
  • “dry works” (tangible assets), with payment of a price to be quantified net of depreciated assets, according to given criteria.

Finally, the regulations in force – introduced by decree law no. 135/2018 and most recently amended by the 2021 Competition Law – provides that the regions may, for hydroelectric concessions that have already expired and for those whose expiration is before 31 December 2024, allow the outgoing concessionaire to continue operating the derivation as well as the management of the works and assets for the time strictly necessary to complete the new assignment procedures and in any case no later than three years from the date of entry into force of the competition law, therefore no later than 27 August 2025.

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