Green Certificates: Italy reinstates buy-back promise

ITALY: The Italian government has reinstated an obligation for the state energy agency Gestore dei Servizi Elettrici (GSE) to buy back excess green certificates at the heart of the Italian incentive scheme, but investors are troubled by frequent political interference in the market.

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A measure contained in an austerity budget approved by the Italian cabinet in late May would have scrapped the GSE buy-back and provoked panic among wind energy producers, amid fears the price of green certificates would collapse.

An amendment to the budget approved by the upper house of parliament in July reinstated the obligation for GSE to purchase excess green certificates. However, it stipulated that GSE's total expenditures for the buy-back would be 30% lower in 2011 than in 2010. The amendment also stated that at least 80% of this reduction would derive from a reduction in the quantity of surplus certificates.

"The amendment should not have the heavy impact that the cancellation of the buy-back would have had, although the price of green certificates should come down somewhat," notes Alessandro Marangoni, chief executive of Althesys Strategic Consultants.

The amendment did not specify how the planned reduction in the surplus of green certificates would be achieved. Economists note that one possibility would be to increase the mandatory percentage of renewable energy that electricity producers are required to meet, either through their own production or the purchase of green certificates. Green certificates are issued for wind, biomass and other forms of electricity from renewable energy sources but do not apply to solar power, which enjoys a feed-in tariff.

To meet the renewable energy requirement in 2010, electricity producers must source the equivalent of 6.05% of their non-renewable electricity production from subsidised renewable energy (as opposed, for example, to old hydroelectric plants). Since 2007, this figure has risen by increments of 0.75 percentage points a year and will reach 7.55% in 2012. Increases beyond 2012 have not yet been set.

Another option for reducing the excess supply of certificates would be to reduce the large number of exemptions to the renewable energy mandate. These exemptions have helped to depress demand for green certificates.

Stefano Saglia, under-secretary for energy at Italy's economic development ministry, says the parliamentary amendment was intended to safeguard investments made in 2009 and this year. Saglia adds that the government intends to revise the incentive scheme later in 2010, but is well aware of the need for solid incentives for Italy to meet its renewable energy obligations as an EU member state.

Italy must source 17% of its total energy consumption - heating and cooling along with biofuels and electricity - from renewable sources by 2020, up from roughly 5% in 2005.

Market participants are hoping any reform will finally provide a strong basis for making long-term investment decisions. While the government amendment is generally seen as an improvement on original plans to scrap the buy-back, investors are increasingly disgruntled about frequent changes politicians have made to the market framework.

The uncertainty has increased the risk of investing in the Italian market and made banks more conservative about the terms of project finance deals. Total remuneration for Italian wind projects remains high by international standards, but has nonetheless fallen dramatically in recent years, from as much as EUR0.20/kWh in 2008 to a current level of about EUR0.15/kWh.

As the ministry gets ready to tackle green certificates more seriously in the autumn, Saglia was able to announce progress in another area of the government's renewable energy strategy. Long-awaited national guidelines for the siting of wind farms and other renewable energy plants were finally approved in July.

It is hoped that the guidelines, first called for in a key 2003 Italian renewable energy law, will help inaugurate a more uniform and transparent process for the authorisation of wind farms across the country. The current process differs significantly from region to region, making life more difficult for developers.

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