Unpacking Article 5-bis of DL Agricoltura: Implications for Italy’s Biomethane Sector

Written by Sofia Ubaldini

Italy’s recent release of Agriculture Law Decree, through its article 5-bis can introduce significant changes to the country’s biomethane sector.

Together with our local team, leading the BPA transaction space in the market, we have explored the implications of these new regulations on various stakeholders of the biomethane supply chain as well as on the overall market dynamics.

Speeding up the decarbonization of difficult sector as the main reason behind the decree

The objective of Article 5-bis is to promote the production of biomethane from agricultural biomass and to increase its use in hard-to-decarbonize sectors. This is facilitated through direct sale and purchase agreements between biomethane producers and industrial consumers within these sectors.

Uncertainties on the definition of “production chains which are difficult to decarbonize”

Article 5-bis aims to promote the use of biomethane in «production chains which are difficult to decarbonize.» However, the term is not clearly defined, and there is no explicit reference with hard-to-abate sectors or EU ETS members. As a result, the specific industries that fall under this category remain unclear.

Such definition is essential as the decree provides that the direct purchase agreements recognize a biomethane GOs price of 0 €/GO, carrying significant economic implications. Industrial buyers within these production chains could claim zero GHG emissions without incurring additional costs compared to the purchase of methane. This is especially advantageous for EU ETS members, who would avoid paying both the biomethane GO and the cost of the EUA, gaining a substantial economic advantage over non-ETS players seeking to decarbonize. How this advantage will be split commercially between the producer and the ETS member will have to be agreed in the direct biomethane purchase agreement.

Direct Contracts, will utilities be cut off?

A significant change introduced by the decree is the requirement for direct contracts between biomethane producers and industrial buyers, a set-up that seems to exclude utilities from their traditional intermediary role. This could reshape the biomethane supply sector, diminishing utilities’ position in the value chain and limiting their role to transport and unbalance management activities. Nevertheless, utilities have always played a central part in the gas supply chain and the mentioned requirement is expected to be questioned by their representatives.

Self-consumption configuration is currently an advantage for producers, but the situation can change

The interpretation of self-consumption rules in Article 5-bis has sparked discussions about its consistency with the current Biomethane Decree’s operative rules. As a matter of fact, under the self-consumption configuration subsidy formula, the tariff received from GSE serves as a price floor rather than a fixed price for producers. Thus, GSE might decide to modify the operative rules in the coming future to prevent this potential distortion in the self-consumption framework.

In synthesis a decree with a large potential impact on the entire supply chain but perceived as hard to be practically implemented

Article 5-bis marks a significant shift in Italy’s approach to biomethane production and consumption. However, its practical implementation remains unclear, leaving market participants facing numerous uncertainties, contradictions, and concerns about its feasibility. The sector is looking forward to the release of the updated operational guidelines, expected withing next couple of months, as biomethane transactions, currently slowed, depend on this clarity to move ahead.