Italian “DL Agricoltura”: new measures potentially affecting photovoltaic sector’s international investors

Italy is not extraneous to legislative measures affecting the rights of investors in the renewable energy sector. The so-called “Spalma-incentivi” Decree, adopted in 2014 with the aim of splitting in a longer period of time than initially foreseen the incentives which Italy had already granted to foreign investors in the renewable energy sector, caused more than ten investment arbitrations against Italy, based on the provisions of the Energy Charter Treaty (“ECT”) or of the relevant Bilateral Investment Treaty (“BIT”).

The DL Agricoltura risks to be a new source of international arbitration proceedings (and of domestic administrative proceedings, which are not dealt with in this paper) against the State.

In order to explain this statement, we will firstly provide a brief overview of the Decree and its criticisms, secondly briefly describe the protection ensured by international law to foreign investors in Italy and, thirdly, put the two frameworks in relation between themselves.

The Decree and its criticisms

By introducing an exception to the Italian Law on the promotion of renewable energies (Legislative Decree n. 199 of 8 November 2021), the Decree sets forth a significant limitation to the installation of “ground-mounted” photovoltaic systems, which, starting from the entry into force of the DL Agricoltura and with the exception of plants for which the relevant authorizations have already been requested, cannot be installed in areas devoted to agriculture. As a consequence, “ground-mounted” photovoltaic systems may now be installed only in: (a) quarries and mines; (b) areas under the disposal of the Italian railway or highway authorities; (c) areas closer than 300 metres from highways; (d) areas enclosed within industrial sites or in a perimeter whose extremities are no more than 500 metres away from areas of industrial, craft and commercial use; and (e) airport grounds. Moreover, it will be exceptionally possible to have “ground-mounted” photovoltaic systems in the case of: (1) renewable energy communities (i.e. communities using and sharing renewable energies produced within the community); and (2) plants enjoying incentives pursuant to the National Recovery and Resilience Plan (“PNRR”, as per the Italian acronym), including the so-called “advanced agrivoltaic” plants. The reference applies to those photovoltaic plants which are integrated with the agricultural activity (“agrivoltaic”), being installed at least 2,1 metres over the soil – in order to allow agriculture – and subject to a continuous monitoring system as to their compatibility with the agricultural activity (“advanced”). Such plants enjoy PNRR incentives pursuant to Ministerial Decree n. 436 of 22 December 2023. However, agrivoltaic plants which are “non-advanced” – i.e. those in which agriculture takes place within the photovoltaic modules lines but not under the photovoltaic modules – are excluded from the scope of application of the exception.

In this regard, while the ratio of the DL Agricoltura seems to consist in the avoidance of the occupation of agricultural soil, it shall be pointed out that Italian administrative case law uses to only distinguish between photovoltaic plants and agrivoltaic plants (both “advanced” and not); on this basis, the wording of the Decree seems somehow contradictory or misleading, considering that, on the one hand, it applies to photovoltaic plants and, on the other hand, it only excludes from its scope of application only “advanced” agrivoltaic plants. The sort of “non-advanced” agrivoltaic plants is, thus, shrouded by ambiguity.

In addition to the above, commentators have already raised other criticisms: (i) the Decree does not exclude from its scope of application abandoned or wild soils and it is, in this regard, arbitrary; and (ii) the Decree should apply only after the possible entry into force of the State law which will convert it, otherwise it might be seen as a sudden, ex abrupto, amendment to the legislative framework, to the detriment of who was planning to invest in the photovoltaic

Foreign investment protection in the renewable energy sector in Italy

Foreign investors in the renewable energy sector typically found protection in the Energy Charter Treaty (“ECT”), a multilateral agreement which, in order to encourage investments in this field, grants a valuable substantive protection and the procedural right to start arbitration proceedings against the host State in the case where it takes measures which (allegedly) violate the substantive rights granted by the Treaty. Italy was part of the ECT until the end of 2015 (when it denounced it); so the application of the Treaty in Italy is now residual and regards, for a period of 20 years starting from the denunciation, the sole investments started before the denunciation.

In any case, Italy is bound by a number of bilateral investment treaties (“BITs” - for a list of them and their status see here) that still grant substantive protection – as well as the procedural protection of arbitration – to foreign investors coming from States who concluded these treaties with Italy. While BITs are not specifically drafted with the view of encouraging investments in the energy sector, their more generic terms can nevertheless be used for investments in photovoltaic plants, including those falling under the scope of application of the DL Agricoltura.

In order to enjoy the protection of BITs, investors shall enjoy an “investment” in accordance with the definition of the relevant treaty. In this regard, it shall be pointed out that definitions of investment are usually very broad and also all the activities involving economic efforts related to activities which are preliminary to the material establishment of the business may be considered as an investment, that can be damaged by State measures subsequently precluding the beginning of the business and constituting a loss of opportunities for investors.

For the sake of completeness, it shall be pointed out that, among the standards of protection encapsulated in BITs, the most recurring are the prohibition of expropriation (both direct – i.e. based on a directly expropriatory measure – and indirect – i.e. based on a set of measures which deprive the investment of its economic value and are tantamount to expropriation) and the necessity to ensure a fair and equitable treatment (i.e. a treatment which is not discriminatory, arbitrary, protective of legitimate expectations and based on proportionality and due process).

Investors allegedly damaged by the DL Agricoltura. Which protection?

On the basis of the above, the scope of application of the protection foreseen by BITs (if applicable, i.e. if the foreign investor has the nationality of a State which entered into a BIT with Italy which is currently in force) may regard those investors who: (i) have already carried out an activity which, according to the relevant BIT, may be qualified as an investment in Italy, such as, e.g., analysis of soils and grounds, feasibility studies, due diligence etc.; and (ii) did not require the relevant authorization as of the entry into force of the DL Agricoltura.

Should the wording of the Decree remain as it currently is, such investors might claim that they suffered the consequences of arbitrary and sudden changes of the Italian regulatory framework, something which entitles them to claim for the violation of the standards of protection of foreign investments.

More in detail, individuals or entities enjoying the protection of BITs may, therefore, start evaluating whether the measures set forth in the Decree somehow violate the standards of protection set forth in the relevant BIT, in particular with regard to the prohibition of measures constituting violations of the fair and equitable treatment. In this regard, it will be worth evaluating whether the Decree may be considered as discriminatory, arbitrary, not proportional to the goals pursued by the State or in violation of the legitimate expectations of investors generated by the Italian Law on the promotion of renewable energies (Legislative Decree n. 199 of 8 November 2021) or by any other act which induced the investors to start their business in Italy.

Should this be the case, investors shall consider how the procedural rights granted by the relevant BIT work and, in particular, whether there is the need for a trigger letter to be sent to the State and/or to start a so-called “cooling off” period, in which some amicable attempts of settlement shall be made. Taking prompt action may be essential in order to anticipate the passing of these periods of time.

Next steps

Considering the provisional nature of the DL Agricoltura, it is too early to give any definitive conclusion as to the possible violations of the right of investors by Italian law. Should the text be adopted as it is, it might certainly raise some doubts concerning the arbitrariness of the Italian legislative choices, inter alia in light of the legitimate expectations that some investors - who started establishing a photovoltaic plant in Italy without having filed a request for authorization by the date of the entry into force of the Decree – might have.

Authored by Andrea Atteritano and Giovanni Zarra.