Italian government bows to pressure on green certificate removal

ITALY: The Italian government is reconsidering its decision to cancel the buy-back of excess green certificates at the heart of the Italian incentive scheme.

Green certificates. Proposals could affect future development
Green certificates. Proposals could affect future development

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Measures to require state renewable energy promotion body Gestore dei Servizi Energetici (GSE) to continue buying outstanding green certificates from renewable energy producers were due to be discussed by the upper house as Windpower Monthly went to press.

Italian environmental and renewable energy groups have been pushing hard for legislators to re-install the buy-back system after the cabinet decided to cancel it in emergency budget legislation in May.

In the past few years, Italy's market has been characterised by an excess supply of green certificates. To help support green certificate prices, in 2008 the government authorised GSE to temporarily buy back the green certificates in March each year. The final annual buy-back was to be held in March 2011 for green certificates issued for the years 2008-2010.

After this date, the GSE was due to continue withdrawing excess green certificates, but only three years after they were issued.

Certificates are valid for three years, and in a perfectly balanced market, would all be bought by electricity producers subject to a renewable energy quota. Green certificates are issued for renewable energy plants including commercial wind, geothermal and biomass facilities, while there is a feed-in tariff for photovoltaic installations.

Essential revenue

For an onshore wind farm, one green certificate is issued for every MWh of electricity produced. Certificates are an essential source of revenue for wind energy producers, who also receive revenues from the sale of electricity. Electricity prices are now averaging about EUR0.061/kWh while green certificates are quoted at about EUR0.085/kWh, making for total revenues of about EUR0.146/kWh.

Mario Cirillo, an economist with the economic research and consultancy group Ricerche per l'Economia e la Finanza (REF) in Milan, expects that the removal of the green certificate buy-back obligation should result in a sharp drop in certificate prices.

"Theoretically, green certificate prices could go to zero," he notes. However, this worst-case scenario is unlikely to take place, he adds, given that green certificates are valid for three years and demand is likely to increase over that period.

Loss of millions

The most optimistic forecast is that provided by listed Italian renewable energy group Actelios, which foresees that without the buy-back, prices would nonetheless stabilise around EUR0.06-0.07/kWh. But others in the industry are clearly worried. "The idea of abrogating a mechanism that costs families not more than EUR6.7 a year in exchange for the loss of hundreds of millions of investments, employment and innovation makes absolutely no sense," says Italian wind energy association Associazione Nazionale Energia del Vento (ANEV).

The root of the problem lies with a structural oversupply of green certificates. This, explains Cirillo, is mainly the result of the large number of exemptions to the country's renewable energy quota. While electricity producers are required to source a growing portion of their production to renewable energy - 6.05% in 2010, growing to 7.55% in 2012 - exemptions have meant that demand remains relatively subdued.

Owners of old renewables plants, such as the large-scale hydroelectric facilities, are among those who are not required to purchase green certificates. High-yielding cogeneration plants also enjoy exemptions.

Better balance

At the end of April, the Italian government had already scrapped a planned reform to shift the burden of meeting the renewable energy requirement from producers and importers to electricity wholesalers. Some market participants had expected that this reform, if enacted, would have resulted in a better balance between the demand and supply of green certificates. Others, including ANEV, thought that the government should not interfere with a mechanism that basically worked.

This time, however, the industry has been unified in opposing the government's changes to the incentive scheme. The timing of government intervention is crucial as it comes just as European Union member states present their national renewable energy action plans to Brussels. Italy had already indicated that it would need to resort to imports to meet its target of 17% of renewable energy use in 2020.

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