Projects with a likely start date after 2012 are still frozen as market players continue to await a government decree detailing the new market framework. Incentive uncertainty, worsened by the negative environment for financing projects in Italy in general, has not helped to inspire optimism.
Given a generally difficult environment for investing in Italy's wind sector, a market shakeout is likely to be one feature of the year ahead. "This year will be the year of mergers and acquisitions," says Giuseppe Mastropieri, head of renewable-energy sources at Nomisma Energia. "A number of small, independent power producers (IPPs) are likely to sell plants and to restructure."
According to figures from Italian wind-energy association Anev, installed wind capacity in Italy rose 949MW to 6,747MW in 2011, as Italy continued the trend seen since 2009 of adding roughly 1GW a year. Growth was led by the southern Italian regions of Calabria, Sicily and Campania and the island region of Sardinia. Sicily retained the position acquired in 2010 as Italy's leading region for wind power, adding 227MW to reach 1,676MW in cumulative capacity.
This year looks to be a strange one, says Alessandro Totaro, responsible for wind energy at renewable-energy association Aper: "There could be a strong impulse to get plants operating before the new auction-based incentive system goes into effect and one could imagine a new capacity figure in line with previous years." Yet he also points to risk from a new regulation which came into effect in late December requiring significant guaranteed payments for grid connections in what are considered to be critical areas of the grid.
Project financing is largely on hold, as banks and project sponsors alike await details of the incentive scheme. Approval of the final version of the decree laying out the new market framework is seen as imminent, although at time of going to press, market players were still examining the latest draft version of the law. Amid difficult economic times and belt-tightening in Italy, however, the government clearly looks set to put a brake on incentive expenditures. A boom in photovoltaic power, which the government expects to allow it to reach its 2020 target for electricity production from renewable-energy sources as early as this year, has also given the government some breathing room.
The latest version of the draft law indicates that a controversial auction system will remain in place and be used to assign the incentivised tariff for all wind farms exceeding 6MW. It also indicates incentives for 650MW in onshore capacity could be assigned each year in 2013 and 2014 through the auction process. Incentivised capacity would drop to 550MW in 2015.
Incentives for a total of 680MW of offshore wind projects - Italy's 2020 objective for offshore wind - could potentially be assigned as early as 2013. However, there is currently well below 680MW of offshore projects at a mature enough stage to participate in an auction, so much of that capacity available is likely to be rolled over to subsequent years. The draft decree also optimistically indicates that the first auction to assign incentives will be held this June.
Renewable-energy associations have continued up to the last minute to lobby for adjustment of the decree. One critical element of the decree is the formula for calculating the floor price for auctions. "In some cases, it wouldn't make any sense to take part in the auction," notes Totaro of Aper, "because you would earn less money than you would have with the simple sale of energy."
Changes to the incentive scheme come on top of the government's decision in September to tax renewables firms with annual revenues exceeding EUR10 million an additional 10.5% corporate tax for three years. Renewable-energy firms were previously exempted from this so-called Robin Hood tax, which was also initially set at 6.5% and applied to firms with revenues over EUR25 million.
While grid upgrades by transmission system operator Terna have helped to reduce the amount of forced power cutbacks for grid security reasons, they nonetheless continue to be a feature of the market in some parts of wind-intensive southern Italy, affecting the economics of investments.