New tax is a further blow for Italian wind

ITALY: Italy's wind-energy sector took another hit last month with the decision to tax renewable-energy companies with a turnover exceeding EUR 10 million an extra 10.5% corporate tax over the next three years.

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Part of the government's EUR45.5 billion austerity package, the new tax comes at an already difficult moment for wind-energy firms. A troubled economic backdrop and ongoing uncertainty over future incentives have made financing projects a challenge.

"The only certainty we have now is that we have a new tax to pay," said Paolo Tabarelli de Fatis, vice-president of wind energy association Anev, at the Eolica Expo conference in Rome last month. Anev warned the so-called Robin Hood tax could cut investor returns by 10% and endanger some EUR10 billion in investments over five years.

"We didn't like the Robin Hood tax before and we don't like it now," said Alberto Biancardi of energy regulator AEEG, which has cautioned the tax could mean higher electricity bills. Catia Tomasetti, head of project finance for Italian law firm Bonelli Erede Pappalardo, said investors become wary when retroactive changes are made affecting the investment case for a project.

Renewable-energy firms and grid operators were previously exempt from the tax on energy companies, which had been set at 6.5% and applied only to firms with annual turnover above EUR25 million. Enel Green Power has estimated the tax will cost it EUR25 million a year to 2013. Transmission system operator Terna forecasted the tax would cost it EUR80 million in 2011 alone.

Stefano Tosi, institutional affairs director at Terna, believes the new tax may not even be a good way to raise money, explaining that tax revenues could suffer if Terna and others are now forced to cut back investments. Grid upgrades could also be delayed. To counteract these risks, Terna wants future stimulus measures to include a provision by which energy firms increasing investments over the next three years would see the tax reimbursed.

Meanwhile, the government acknowledged that legislation with details of a new incentive scheme would not be available before some time this month. In this environment, Tomasetti said, only projects with good wind resources that could survive on little or no incentives are being financed.

With interest rate spreads ballooning, debt-financing interest rates now stand at about 6% compared with 3% in 2008, said ICQ Holding CEO Luigi De Simone. Debt-equity ratio is now roughly 60:40 compared with an average 80:20 then, he added. "Even to get that you really have to work on convincing the banks. Non-recourse project financing doesn't exist any more either. Banks want a hundred guarantees," he said.

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