Contracts for well over 40 TWh of capacity have been signed by infrastructure investors, developers and other power providers in anticipation of the final capacity allocation to build utility scale renewable energy portfolios, to be announced this month by Italian energy agency GSE.

 

JPAM’s Sonnedix, KKR’s Encavis and EQT’s Zelestra are among the platforms that have applied for the scheme, under which they have partnered with major industrial companies to develop utility scale renewable energy portfolios.

These portfolios are backed by EUR 65/MWh government subsidies, pointing to a major new financing opportunity for investors, amounting to some 5 GW of fresh capacity.

Demand for the scheme was extremely high, with investors “lining up” to provide the power to these industrial clients, observers said.

According to Dario Gallanti, an Italy-based partner at European energy advisory firm Our New Energy, contracts representing well over 40 TWh of capacity have already been signed by infrastructure investors, corporates and other power providers, in anticipation of the final allocation, which will be announced by Italian energy agency GSE this month.

Based on observer estimates, almost EUR 4bn of debt is expected to be raised to finance these schemes, which include solar PV, onshore wind and hydropower projects.

Yet doing so will not be straightforward. While most CfDs are relatively simple and well understood by investors, the ER 2.0 scheme relies on a web of contracts and requirements that are harder to grasp. It also incentivises “hybrid” revenue streams that combine government contracts with private power purchase agreements, which comes with various challenges.

How does it work?

ER 2.0 is effectively a quid pro quo arrangement in which energy-intensive companies, such as steel manufacturers or paper mills, agree to fund new renewable capacity over the long term in exchange for being given cheap electricity in the short term.

Under the scheme, GSE effectively enters into two contracts for difference (CfD) with the industrial client. One is a three-year “anticipation” contract enabling the client to purchase power from the grid at EUR 65/MWh, representing a significant discount to today’s prices.

In exchange for this cheap energy, the client must build new renewable energy plants capable of producing twice as much energy as they received, over a period of 20 years.

This means that if the client received 10 GWh of power over three years then they must build new generation capacity capable of producing at least 20 GWh – which would be handled well by a small-scale solar plant.

The project can then sell 10 GWh of power while benefiting from a 20-year EUR 65/MWh CfD backed by GSE – a so-called “reimbursement” contract that is not indexed to inflation.

The industrial company is allowed to commission other renewable energy developers to build out this capacity on their behalf, which means the ER 2.0 scheme effectively gives developers and their investors access to a 20-year CfD.

Zelestra said last month it had been appointed by Italian paper manufacturer Burgo Group and other industrial clients to build out some 1.5 TWh of new projects. The clients working with Encavis and Sonnedix were not named.

All renewable energy projects must be commissioned by the end of May 2029.

Once the 20-year CfD is up then if the energy provided by the state has not been effectively reimbursed, then projects are subject to a “clawback mechanism”, essentially a second CfD under which GSE is entitled to buy power from the client at around EUR 23/MWh – just enough to cover opex.

Market observers differed on how important this would be to infrastructure investors, however, given that most will have focused on achieving their IRRs before this point. Lorenzo Parola, managing partner specialising in energy transition at law firm Parola Associati, said investors did not seem deterred by the clawback mechanism.

But David Armanini, a managing director at energy advisory firm Prothea, said the clawback contract could have an impact on future tradability of assets.

“Dynamic approach” to generating revenue

Importantly, the 20-year CfD only covers half of the power output. This is to ensure that investors are not overcompensated, which would mean ER 2.0 breaches EU procurement regulations.

This means to attract financing, investors will have to find other ways to monetise the other half, including combining it with other subsidies or a bilateral PPA, as well as selling merchant power.

Piero Vigano, a partner at law firm Advant NCTM said that many investors are taking steps to structure this hybrid approach.

ER 2.0 revenues can be combined with revenues backed by Fer-X, which is another renewable energy auction that took place last year under which GSE awarded 8.64 GW of capacity, mostly solar PV, to local and international developers.

Effectively, investors can build a plant and sell half of its capacity under an ER 2.0 CfD, and the rest under a Fer-X CfD.

They can also adopt more complex structures, combining Fer-X projects and ER 2.0 projects in a single portfolio to tinker with their revenue streams, or as Gallanti said, adopt a “dynamic approach to value creation”.

The revenues available from ER 2.0 are, for solar, at least for the time being, more competitive than for Fer-X. The Fer-X auction, which is indexed, saw the strike price for solar average at around EUR 56.82/MWh.

This in some ways is a “safe” option, that offers a high proportion of contracted revenues.

Battling falling PPA prices

Another option to secure the rest of the revenues is to find private offtakers, with Parola describing the ER 2.0 scheme as a “catalyser for PPAs”.

The market for PPAs in Italy has matured over recent years, offering plenty of opportunities to investors to find offtakers. Power price data provider Pexapark said that nearly 1.8 GW of PPAs were announced in 2025 alone, a substantial increase compared with 2024.

However while wholesale spot prices are relatively high today, near EUR 150/MWh, according to data from Trading Economics, market observers pointed out that prices for long-term contracts are falling.

According to Pexapark data, Italian 10-year PPA prices fell from around EUR 60/MWh in January to EUR 50/MWh in March.

Armanini said the decline is being driven by the rapid buildout of solar projects in southern Italy, where many ER 2.0 projects will be located, with southern PPAs trading around EUR 10/MWh below northern equivalents.

Wholesale prices have also been affected by the government’s DL Energia decree, introduced earlier this year to cut consumer electricity costs through grid reforms and lower system charges.

In spite of this, Parola said PPAs are still a good option for investors – as the high price environment won’t last over the long term. “If you look at the forward curves, because of the cannibalisation of the capture price…God knows what you will make in five years,” he said.

To seek higher returns, investors may adopt a more “aggressive” strategy, targeting shorter-term PPAs that better capture today’s higher prices while remaining bankable, Parola said.

Armanini said investors would likely cover only 20-30% of capacity with PPAs, alongside the 50% linked to ER 2.0, leaving the balance exposed to merchant markets.

Maintaining some merchant exposure can support returns, observers noted, because current spot prices remain above subsidy and PPA levels.

Extra cash from GOs

There are additional ways that investors can increase returns on top of the subsidy payments, with arguably the most important being the sale of guarantees of origin (GO), documents that state the quantity of electricity generated from renewable energy.

Investors are free to monetise GOs generated from capacity outside of the reimbursement obligation how they see fit, Armanini said. This could mean selling them back to the industrial client or another counterparty, such as an energy trader.

However, the value of GOs is highly volatile, driven by market trends. Observers differed on how much they currently go for, with one estimating EUR 0.5-1/MWh and another putting the figure higher, at up to EUR 3/MWh.

Thus investors must choose the right time to make these trades, with the most successful able to push revenues above the EUR 65/MWh benchmark.

In addition, on top of the government subsidy the investor can negotiate EUR 3-8 per MWh to be paid by the industrial client for the provision of its services, Parola said.

Gallanti said that the premiums negotiated in such deals depend on scale, with contracts above 1 TWh often agreed at a EUR 1-1.5/MWh discount for the industrial buyer.

Investors signing contracts above that threshold, aside from Sonnedix, Encavis and Zelestra, include Equitix-backed Dolomiti Energia, Intermediate Capital Group-backed Enfinity Global, Nuveen Infrastructure-backed BNZ and Eiffel-backed Greengo.

Added together, these extra income streams could substantially lift returns.

Bullish lenders

An Italian energy lender said hybrid revenue models are not expected to hinder financing, with diversified portfolios viewed on the contrary as lower risk and highly bankable.

Banks are already familiar with many counterparties through Fer-X, in which lenders are expected to take part en masse.

As a result, investors are expected to secure debt covering around 85% of project costs — implying financing needs of roughly EUR 3.8bn based on EUR 900,000/MW capex, observers said.

The lender said there will likely be an “excess” of debt available for high-quality ER 2.0 projects, with their bank alone targeting up to EUR 1bn of lending over the next 18 months.

Debt tenors are unlikely to exceed the 20-year ER 2.0 contract term, with short-term loans expected to be common particularly for sponsors that opt for shorter PPA durations, the lender added.

Lenders will continue monitoring the PPA market closely, said Amleto Monsellato, vice president at renewable energy-focused Green Horse Advisory, as further price deterioration could weaken revenue certainty underpinning their credit assumptions, resulting in less attractive leverage levels.

Ultimately, investors are seeing ER 2.0 as one more piece in the Italian renewables puzzle, alongside more traditional CfDs, private PPAs, and other ways to generate revenues for their projects.

If approached correctly, these could offer investors diversification and engineer long-term value in a rapidly evolving market, particularly at a time when other European countries are facing an increase in negative power prices.

For those able to stomach hybrid revenues, merchant exposure and PPA structuring, ER 2.0 could become Europe’s next big renewable financing opportunity.

Infra funds participating in ER 2.0*
Investor	Platform	Volume agreed (TWh)	Counterparties
JP Morgan Asset Management	Sonnedix	7.9	Undisclosed
Equitix	Dolomiti Energia	4	300 energy-intensive companies
KKR Infrastructure	Encavis	3.7	Undisclosed
ICG Infra	Enfinity Global	1.8	Feralpi, ISAB, De Angeli, Magis Energia
Nuveen Infrastructure	BNZ	1.6	Iron and steel producers
Eiffel Investment Group	GreenGo	1.5	FIMM Group
EQT Infrastructure	Zelestra	1.5	Burgo Group, others
Omnes Capital	Ortus	0.18	Consorzio Toscana Energia
*based on disclosed data Source: Various