In June 2014 the Italian government imposed retrospective cuts to feed-in tariffs already awarded to operational photovoltaic plants above 200 kW, so-called "spalma-incentivi" (Article 26 of Law Decree no. 91/2014, entered in force on 25 June 2014 and subsequently confirmed with amendments by Law no. 116/2014 entered in force on 21 August 2014). As the provisions will apply retrospectively to plant owners that have previously been awarded the feed-in tariffs, and whose entitlement to the feed-in tariffs has been reflected in binding agreements, critics have queried if the new provisions are compatible with the principles of the Italian Constitution, EU law and Italy's obligations under international treaties. The government is likely to face legal actions by operators and investors over the retroactive nature of the regulations.

1. When does the new system become effective?

The new system will be applicable from 1 January 2015.

2. How will retrospective cuts be implemented?

Feed-in tariffs awarded to photovoltaic plants with a nominal capacity above 200 kW will be recalculated pursuant to one of the following three alternative mechanisms, according to the operators' choice.

a. Reduction of feed-in tariffs over 24 years – feed-in tariffs are spread over a period of 24 years (running from the start of operation date) and reduced by a certain percentage (ranging from 17% to 25% depending on the residual incentivisation period), being understood that.

o For feed-in tariffs regulated by the Fourth Conto Energia (Ministerial Decree 5 May 2011) or by the Fifth Conto Energia (Ministerial Decree 5 July 2012), the reduction will apply only to the incentive component calculated pursuant to the criteria set out under Article 5, paragraph 1, second sentence, of the same decree 5 July 2012

o Regions and local entities shall adjust the duration of any authorisations granted for construction and operation of the photovoltaic plants to the new extended incentivisation period

b. Incentivisation period split in two phases each with different feed-in tariffs – The current 20-year-long incentivisation period is preserved, but feed-in tariffs will be reduced by a certain percentage in the first phase and increased by the same ratio in the second phase in such a way that the current costs of feed-in tariffs – should all operators opt for such mechanism – would be decreased by at least 600 million Euro per year in the years 2015-2019.

c. “Sharp” cut to feed-in tariffs – The current 20-year-long incentivisation period is preserved, but feed-in tariffs are reduced by: (i) 6% for photovoltaic plants with a nominal capacity from 200 kW to 500 kW, (ii) 7% for photovoltaic plants with a nominal capacity above 500 kW and up to 900 kW, and (iii) 8% for photovoltaic plants of higher nominal capacity.

3. What is the deadline for choosing one of the three above alternatives?

The option for one of the three above alternatives must be adopted and notified to GSE S.p.A. by 30 November 2014. In case of failure to adopt and notify an express choice, the option under letter c) above will apply.

4. Are there any measures introduced to "support" operators facing cuts to feed-in tariffs?

4.1. Bank loans

Operators will have the chance to obtain bank loans for a maximum amount equal to the difference between the feed-in tariffs awarded as at 31 December 2014 and the feed-in tariffs recalculated according to the above mechanisms. Such loans may benefit from a dedicated funding and/or a guarantee issued by Cassa Depositi e Prestiti (over the funds set out under Article 5, para. 7.a of Law Decree no. 269/2003 converted with amendments by Law no. 326/2003). Financial exposure of Cassa Depositi e Prestiti will be guaranteed by the State.

4.2. Transfer of incentives to a "selected buyer"

Operators benefiting from any kind of pluriannual incentives for renewable (not only photovoltaic) energy production may transfer a quota up to 80% of such incentives to a buyer selected through competitive procedures among European primary financial operators.

The incentives transferred to the selected buyer may be purchased by the Italian Energy Authority – the AEEGSI, the Italian energy regulator – (call option), also through GSE S.p.A. The difference, if any, between the annual cost of incentives purchased by the selected buyer and the annual amount paid by the Italian Energy Authority shall contribute to the reduction of the "A3" component of the electricity price.

The AEEGSI shall define the details for the implementation of such mechanism (buyer's selection, criteria for the competitive procedure, rules for payment of incentives also after the call option is exercised, quota of incentives transferrable by each operator also considering type and localisation of the plants, conditions for the transfer). It is established that:

• For photovoltaic plants, the quota of incentives transferred, starting from the date of assignment, will not be subject to the cuts to feed-in tariffs pursuant to the mechanisms described above

• The Government shall take any action to implement the new provisions, including the execution of agreements with the banks for simplifying the operators' full or partial withdrawal from financing agreements already executed

• In any event, the effectiveness of such provisions is conditioned upon the assessment by the Ministry of Finance that the effects of the presupposed transactions comply with the domestic budget constraints and ultimately with the commitments undertaken within the European Union