Lower FIT triggers fears of big slowdown

ITALY: Italy's wind industry began bracing itself for a dramatic slowdown after the government in early July confirmed plans for a major revamp in the market framework and a significant reduction in incentive payments for wind production.

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According to the final version of a government decree approved last month, wind farms larger than 5MW will have to compete for a feed-in tariff (FIT) through an auction process, the first of which is expected to be held later this year. A FIT could be assigned to a maximum 500MW in onshore wind capacity a year between 2013 and 2015.

For onshore wind capacity available in 2013, the new law sets a price cap of EUR124.6/MWh - 2% below a base price of EUR127/MWh. A floor price is set at a 30% discount to the base price, at EUR88.9/MWh. The end result is revenues that are 16-40% lower than the current levels of about EUR148/MWh, although the new FIT will be paid out for 20 years compared with 15 years at present.

A further 650MW in offshore projects could potentially be assigned a 25-year FIT in the 2013-15 period, although there is widespread scepticism that any major offshore projects will happen in the next few years. Annual limits of 150MW and 60MW respectively have been set for incentives for repowering and for wind farms up to 5MW from 2013-15.

"The new law is a lost opportunity," said Arturo Lorenzoni, research director at IEFE, Bocconi University's economics and environmental policy centre. Lorenzoni highlights the additional bureaucracy, costs and financing difficulties that will follow the introduction of the tender system. "With this in place, Italy will not be able to reach its wind energy potential."

Italian wind energy association Anev drew a dramatic picture of the law's likely effects, saying 34,000 jobs in the sector are endangered. It also warned that smaller Italian wind companies may be forced to close down and larger firms will divert investments to other countries.

Long delay

Given the government's lengthy delay in implementing the new law, Anev and other renewable associations are unsatisfied with a measure in the law allowing already authorised projects completed by next April to avoid the tender process.

Giuseppe Mastropieri, head of renewable energy sources for Nomisma Energia, said he expects the new market framework to accelerate restructuring of the sector. "There will be major acquisitions and significant consolidation," he predicted. "Big utilities and just three or four independent power producers will dominate the market." Project financing is no longer expected to be the modus operandi, he noted.

Despite a predicted slowdown in Italy's wind-energy sector, 2012 is likely to shape up as a fairly good year. At the end of April, Italy boasted cumulative wind capacity of 7.18GW, up 432MW from the end of 2011. As market players hurry to complete projects before the new system comes into effect on 1 January, the country's wind industry is likely to maintain the roughly 1GW annual pace of growth seen since 2009.

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