Market growth defies incentive uncertainty

ITALY: The lack of detail about the Italian government's new incentive regime does not seem to be having an immediate short-term impact.

Greentech's 98.9MW Monte Grighine wind farm, Sardinia, Italy
Greentech's 98.9MW Monte Grighine wind farm, Sardinia, Italy

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But without a clear framework, business planning is difficult and investor confidence is hurting, writes Heather O'Brian.

For companies operating in Italy's wind sector, there is much cause for concern. Uncertainty has been a fixture of the Italian market for over a year now, and players are still waiting for the government to unveil details of a new wind-energy incentive plan. While a referendum in June overwhelmingly rejected the government's plans for a revival of nuclear energy, hopes that this would be followed by measures supporting renewables have yet to be fulfilled. For many firms with operational projects curtailments have continued, reducing profits and even sending wind farms into the red (see page 70).

Despite this, new capacity figures do not yet show evident signs of suffering. By the end of July, new installed wind capacity had already increased by 591MW to 6.4GW, according to Italian wind-energy association Anev, with the regions of Calabria, Sardinia, Sicily and Campania responsible for the lion's share of gains. Italy is now halfway towards achieving its National Renewable Energy Action Plan goal of 12.7GW wind capacity by 2020 and short-term prospects are not looking too bad.

"We might not add another gigawatt this year, but it's not out of the question," says Luciano Pirazzi, Anev's scientific director. Another 1GW could be possible in 2012, he adds. "Yet it would be wrong to think everything is going well," warns Pirazzi. "These are old authorisations and the future is very uncertain." He thinks investors are rushing to complete projects before a new incentive regime comes into effect on 1 January 2013.

Lack of detail

Companies with projects up and running before that date are expected to fare better than those that will be subject to the new incentives, says Luciano Santi, portfolio manager at Italian developer Veronagest. While no details are available yet, renewable-energy legislation approved earlier this year proposed that from 2013 larger wind projects would have to compete over tariffs through an auction system in which companies seeking a lower incentive payment would be at an advantage. A cap and floor price would also be set.

"I think there's a real risk that there could be a low tariff in an area with average to low wind resources," says Santi. Many of Italy's best sites for wind farms have already been taken up, he notes. While some offshore sites would offer strong winds, most planned offshore projects have so far been met with staunch opposition.

Companies with wind farms already online or expected to be so by 2012 will continue to receive green certificates for electricity production through 2015, before being shifted to the new, fixed tariff. Whether this will consist of an all-inclusive feed-in tariff or a feed-in premium above the price of electricity is one of the many elements of the future market framework that remain unclear. The tariff level for projects transferred from the green-certificate regime is also undefined, although the legislation does refer to protecting the profitability of investments. "Business planning at the moment is a theoretical exercise because the legislation is totally uncertain," said Carlo Durante, CEO of Maestrale, the Italian arm of French developer Theolia, at the recent Wind Power Italia conference. "I can't evaluate my revenue streams beyond 2012. Lending is hard in these circumstances and financing is more expensive, causing delays in supply contracts and construction."

As the end-of-September deadline looms for the government to approve legislation and lay out details of the new incentive system, lobbying from renewable-energy associations continues. While trade bodies would prefer to drop the idea of auctions, lobbying efforts have focused on raising the threshold at which projects would have to compete on tariffs in auctions from the minimum 5MW mentioned in legislation to at least 50MW. The aim is to guarantee an adequate tariff for projects competing in auctions as well as for all those that fall below the agreed minimum size.

Despite a more difficult backdrop, financing deals continue to be made although they often come with guarantees from the corporation behind the project. As debt-financing costs have risen across the board in Italy in recent months, alternative financing models have gained ground. "For a 20MW project in Calabria, we have been able to bypass the financing problem with a vendor loan," says Santi. Under this model, the project is given as a guarantee to the turbine supplier, which constructs the wind farm before financing is agreed with lenders. "The banks no longer face construction risk," Santi says.

Urgent need for clarity

Given the results of the nuclear referendum, the need for a market framework is greater than ever. "Something is moving (in terms of financing), but the problem of investing over the long term with a reasonably stable market framework remains," says Agostino Re Rebaudengo, president of both renewable-energy association Associazione Produttori Energia da fonti Rinnovabili (Aper) and Italian developer Asja Ambiente.


In the wake of the vote, the government has promised to open a long-awaited debate on Italy's energy strategy. "We hope that no further excuses will be made when it comes to the need to define, once and for all, clear energy policies for the next decade, so as to significantly and progressively increase the percentage of energy from renewable sources," says Re Rabaudengo in Aper's latest annual renewable-energy report.

Italy's government had hoped to source nearly 25% of all electricity from nuclear energy. With this no longer an option, Aper is pressing the government to increase its electricity-production target from renewable-energy sources to 150TWh in 2020, 40% of forecast consumption for that year. That is up significantly from the 98TWh - 26% of forecasted consumption - contained in Italy's National Renewable Energy Action Plan. Wind could theoretically play a greater role than that now forecast by the government. Anev has a target for installed capacity of just over 16GW by 2020.

Yet the first renewable-energy measures to be enacted in the wake of the nuclear-power vote are unlikely to encourage investors. A ranking of larger solar-photovoltaic (PV) projects that could benefit from the latest PV incentive prices, published by state energy-management agency GSE in July, was full of errors, forcing GSE to withdraw the list. This kind of bungling raises fresh doubts about whether future tariff auctions could be handled in a reasonably efficient manner.

On the permitting front, Italy's government released long-awaited national guidelines last year for the siting of wind farms and other renewable-energy projects. Market players are now waiting for the government to lay down binding renewable-energy targets for each of Italy's 20 regions. The hope is that this would make it more difficult for regions to impose blanket vetoes or other obstacles to stop new wind farms.

"We need to understand how much renewable- energy source will come from each region, how to motivate regions to go forward and how to penalise them if they do not," says Re Rebaudengo. Along with a stable market framework, a regional breakdown would help transmission system operator Terna plan its grid investments and bring Italy's wind targets within reach.

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