"Wind energy investment should slow down until the details of the incentive scheme are defined," says Lorenzo Fidato, head of project finance at Italian corporate and investment bank Centrobanca. In the meantime, the market for project financing hasn't closed down completely. Fidato notes that Centrobanca closed five wind project financing deals last year and has other mandates at the moment.
Fidato says that his bank manages regulatory risk by lending only to top-quality project sponsors. But uncertainty about future revenues from wind projects makes business assumptions "very conservative". In this environment, Fidato sees little space for new players to enter the market. "It will be a market increasingly sustained by entities that manage to provide guarantees against certain risks," he says.
Normative risk has become a central theme for project finance bankers since the Italian government in May 2010 unveiled a measure cancelling an annual buyback of surplus green certificates by the state energy agency. The buyback, which had become necessary to support the price of green certificates due to structural oversupply, was later reinstated by parliament but uncertainty about the future of the incentive system has persisted.
According to draft legislation approved by the Italian cabinet in November, wind farms and other renewable energy plants up to 5MW that begin operations on or after January 1, 2013 would be rewarded with a fixed incentive price. Larger facilities would have to take part in a competitive bidding process favouring those projects seeking a lower incentive payment.
Under the draft law, green certificates would continue to be issued through 2015 for wind farms online by 2012, after which these producers would be absorbed into the feed-in tariff scheme. Details of how the new incentive system would work are lacking. Industry associations have expressed a number of concerns, including that the proposed law does not sufficiently safeguard existing investments. The law is likely to be amended.
Despite uncertainty on the incentive front, 2010 ended up being a decent year for new installations as a number of projects were already near completion and financed when the project financing backdrop worsened. In 2010, Sicily added 334MW of new capacity, bringing its total to 1.45GW and shooting ahead of Apulia to become Italy's leading region for installed wind capacity. Prospects for further development in the region are less clear, as the current regional government is opposed to large-scale projects.
Apulia, the only other Italian region with more than 1GW of wind capacity, added about 128MW to reach nearly 1.3GW. Growth was sustained in Calabria, which added 189MW to reach cumulative capacity of 589MW. Campania, traditionally one of Italy's leading regions for wind, saw its total capacity rise by only 5MW to 814MW. Campania should do better this year, as turbine manufactures have revealed orders for at least 132MW of projects set to come online in 2011. Molise had a good year in 2010, with total capacity rising about 130MW to 370MW.
Developers planning projects in Sardinia, which saw its capacity rise by about 88MW to 673MW last year, received some good news in December when Sardinia's administrative court annulled a regional law blocking almost all new wind energy projects both onshore and offshore.
Enel Green Power, the renewable energy unit of Italian utility Enel, in January 2011 received authorisation for one project Sardinia's regional government did not oppose, a 90MW facility in Portoscuso. Another project, which is set to become Italy's biggest wind farm at 138MW, is sponsored by Falck Renewables in Buddosò and Alà dei Sardi and should come online this year.
While financing is a major issue facing wind energy projects in Italy this year, it is not the only one. Another problem is the grid. Forced power curtailments at wind farms for grid security reasons, which began in 2008, are unlikely to cease anytime soon. When the wind is blowing strongest in the areas of Italy with the highest concentration of wind farms, the power is turned down to avoid the risk of blackouts. Transmission system operator Terna has been making investments in the grid but not fast enough to satisfy many market players.