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Italy

Italy

Conference Report - Uncertainty and bad press hijack agenda

ITALY: It was anything but a Roman holiday. Italy's wind market continues to offer good long-term opportunities but, at the Eolica Expo trade fair in the Eternal City, many conversations focused on short-term troubles. Business obstacles, starting with an increasingly difficult project-financing front, dominated discussions in Rome.

"Potentially, this market is very strong," said Francesco Paolo Liuzzi, managing director of Nordex Italia. "After a period of time in which we will have to suffer, I am positive that the market will come back." Some 1GW, already financed and under construction, is likely to be installed this year - a rate in line with recent years. But Liuzzi was not alone in predicting that there could be some retrenchment in 2011.

"At the moment, new wind projects have practically been blocked," said Francesco Novelli, a partner with the Italian law firm Grimaldi & Associati. "In the second half of this year, all the interest I have seen is for photovoltaic investments."

A major reason the market is suffering has been continued uncertainty over renewables incentives. This has made banks reluctant to conclude finance deals for wind farms. In July, the Italian parliament reinstated a measure obligating state energy agency Gestore dei Servizi Energetici (GSE) to buy back excess green certificates at the heart of the Italian incentive scheme for wind projects. In May, the Italian cabinet had sought to scrap the buy-back. But a significant oversupply of certificates in the past few years has made the state buy-back essential in supporting their price.

While parliament's reinstatement of the buy-back was generally seen as a step in the right direction, banks financing wind projects continue to wait for greater clarification on the incentive front, according to Carlo Di Primio, general manager of International Power's Italian division.

Indeed, the parliament measure reinstating the buy-back also said that total expenditure for the green certificate buy-back would decline by 30% in 2011. It pledged to achieve this through measures to reduce the surplus of green certificates, but left details to a new law to be approved by the ministry of economic development by the end of 2010. Partly because the government hasn't always respected its deadlines - and with the new minister taking office in early October after the post had been vacant for five months - there were concerns ar Eolica Expo about forecasting future green certificate prices.

"It's very difficult to finance projects when you see uncertainty on prices," said Giulio Dal Magro, head of renewables and strategic infrastructures at Italian state-controlled credit management group SACE.

"At the moment, I see little space for wind energy if not with a sponsor with shoulders that are broad enough to provide reassurances." Some project sponsors note that banks are now seeking corporate guarantees from the parent company before agreeing on financing.

Di Primio, of International Power, observed that uncertainty regarding green certificate prices comes on top of the traditional problems the sector has faced, including a lengthy authorisation process. The process continues to require three, four or even five years, said Simone Togni, the secretary of Associazione Nazionale Energia del Vento (ANEV), the Italian wind energy association. Italian law stipulates the process should take just 180 days.

Market players are waiting to see what impact new national guidelines for the authorisation of wind farms and other renewable energy plants will have. These guidelines were published just a few weeks after the Rome trade fair. Regional governments, which lead the authorisation process, have each been given 90 days to fall in line with the new guidelines.

Government apathy

Given the uncertainty over wind farm incentives and Italy's recently issued national renewable energy action plan - which foresees 12.68GW of wind farms installed by 2020 - the lack of even lower-level government officials at Eolica Expo was particularly glaring. "There's an unacceptable distraction on the part of the government when it comes to renewable energy," said Francesco Ferrante, a member of the Senate environmental commission with the Partito Democratico, the leading opposition party.

Some conference attendees debated whether the Italian government's public commitment to the development of nuclear energy - with a long-term target of sourcing 25% of electricity to nuclear power - could represent a threat to the development of wind and other renewable energy sources. "I see nuclear and renewable energy as strictly antagonist in the next decade," said Edo Ronchi, chairman of Fondazione Sviluppo Sostenibile (Sustainable Development Foundation) and a former environment minister in a centre-left government. "Italy does not have unlimited financial resources," he noted. Not all saw nuclear energy as a major threat, however. Some market players, particularly utilities that have announced planned investments in nuclear energy, argue that it complements wind power. Others believe that Italy's nuclear ambitions will simply founder - in any event, nuclear's proponents do not envisage any plant coming on-stream before 2020.

A new theme that emerged at Eolica Expo was the need to set the record straight about wind energy in Italy. "There is reality and then there is reality in the media," noted ANEV's Togni. More than one speaker suggested that a public campaign should be launched to clear up some of the common misperceptions.

One starting point for discussions was an article, appearing in leading Italian newspaper Corriere della Sera just days before the Rome event, looking at one proposed wind farm project off the coast of Apulia.

The author wrote that this project would result in the certain death of migratory birds but also issued a blanket accusation regarding the negative impact of Italy's growing number of onshore wind facilities on bird life.

Developers at Eolica Expo noted that they are routinely expected to carry out studies about the impact of a project on bird life and other fauna. "Skyscrapers kill more birds than wind farms do," said the Senate environment committee's Ferrante.

Misconceptions

One common but frequently reported misconception is that investors in Italy's wind sector are receiving funding to build wind farms that may not even operate. "If the turbines don't turn, money doesn't change hands either," noted Ferrante. While some of Italy's first wind farms built in the 1990s may have received funds for construction, this has not been possible since the advent of the green certificate system roughly a decade ago. Green certificates are issued for each MWh of electricity produced.

The Italian wind sector has suffered from reports of infiltration by organised crime and other illicit dealings. The perception among most wind industry players is that the extent of criminal phenomena is wildly exaggerated. On the other hand, some companies investing in the sector believe that high prices for fully authorised projects have increased the perception of shady dealings and tempted some to bribe officials to approve lucrative projects. "The media falsely represent the infiltration of (organised crime)," said Novelli of Grimaldi & Associati, "but it's clear that high sales prices for the right to build projects - between EUR300,000 and EUR400,000 per MW for authorised projects - (could encourage) corruption."

Many companies operating in the sector believe Italy is likely to overshoot its 2020 objective of 12.68GW installed wind capacity. And there are still expectations there could be good news on the incentive front. "I am generally pessimistic," explained Catia Tomasetti, a partner with law firm Allen & Overy, "but I don't expect any draconian measures (involving green certificates). The sector has always been supported."

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