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Italy

Italy

Italy to add FIT to improve incentives

ITALY: The Italian government is preparing to revise the incentive model for wind farms, replacing its current green certificate system with a feed-in tariff (FIT).

According to draft legislation approved by the Italian cabinet in November, wind farms and other renewable energy plants up to 5MW that begin operations from 2013 would be rewarded with a fixed incentive price according to project size and the renewable energy source. Larger facilities would have to participate in a competitive bidding process favouring those projects seeking a lower incentive payment.

While trade associations and environmental groups have given the legislation mixed reviews, one element that has been welcomed is the institution of a FIT. "Everyone has been very positive on the introduction of a feed-in tariff," says Anna Spano, a partner with law firm Orrick, Herrington & Sutcliffe. "It's a much more certain and bankable system."

Recognised benefits

Even though wind energy producers are likely to receive lower incentive prices under Italy's planned FIT than those currently enjoyed through the green certificate scheme, project developers note that banks are much more willing to finance projects when the tariff is guaranteed over time. While Italy's green certificate prices are high, they have come down significantly over recent years and banks have difficulties forecasting their likely evolution. Uncertainty on the incentive front made it difficult for wind developers to seal project financing deals last year.

On the downside, many of the details of the planned new incentive system are left to follow-up legislation that must be enacted within 12 months of definitive approval of the law. Renewable energy association Associazione Produttori Energia da Fonti Rinnovabili (Aper) has asked the government to accelerate that process.

Many foreign investors have already been scared away from wind energy investments in Italy, says Spano. The government's announcement last spring that it was abolishing an annual buy-back of excess green certificates - a measure that was subsequently reintroduced in parliament - led to new diffidence on the part of foreign investors. "You just can't do things like that out of the blue," explains Spano.

Under the draft law, green certificates will continue to be issued until 2015 for wind farms online by 2012. These producers will be absorbed into the FIT scheme in 2016. It is expected that state energy management agency Gestore dei Servizi Energetici (GSE) will continue buying back excess certificates until the green certificate mechanism is eliminated. GSE buy-backs have become necessary to support the price of green certificates given a structural oversupply of certificates on the market.

Poor return

Italian wind energy association Associazione Nazionale Energia del Vento (Anev) argues that the formula laid out in the draft legislation for calculating the buy-back price would not provide an adequate return on investments. Unless the price for the certificates bought back rises, or FIT levels for green-certificate recipients moving to the new system are guaranteed - or the law introduces other changes - Anev cautions that new investments could be blocked and some existing ones could default. Independent power producers are seen as being particularly at risk.

Another critical issue would appear to be the competitive bidding process in which larger renewable energy projects must take part in order to attain their incentive payment. No one is quite certain how and if these tenders would work.

The draft legislation indicates that tenders will be held periodically and run by GSE. It also stipulates that there will be maximum and minimum bid prices but does not indicate, for example, if only fully authorised projects will participate in the bidding. "The vagueness of the law is not good," says Tommaso Barbetti, head of Aper's markets and incentives division, "but it is too early to judge."

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