Analysis - Italian market responds to FIT process

ITALY: There are signs investors in the Italian wind market have become more comfortable with the country's feed in tariff (FIT) auction process after the latest (2nd) onshore tender.

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GSE, the state energy agency managing the auction, said a FIT was assigned to 400MW of authorised onshore projects, with winning bidders offering discounts ranging from 9.5-19% of a base auction price. Roughly another 600MW of projects, whose sponsors offered less competitive discounts of 2.4-9.45%, instead lost out in the auction. Another 100MW in projects were excluded for not meeting all auction criteria.

The situation was quite different from the first Italian tender, for which results were announced early this year. At that time, all bidders were assigned a FIT, and some got by with a discount of just 2.5% on the base price.

For wind projects coming online in 2014, the base price stands at €124.46/MWh, meaning that those awarded a FIT in the second tender and completing projects next year will receive a tariff between €100.19/MWh and €112.64/MWh. Prior to the advent of competitive auctions, the incentive price had stood at about €155/MWh although the FIT is good for 20 years rather than the 15 years of the old system.

A tariff was assigned to a diverse group of investors, with mid-sized Italian renewable players Asja Ambiente and Tozzi Renewable Energy (in which AXA Private Equity is a major investor), the development arm of Spain's Gamesa, EDP Renewables and Italian utility Edison among those receiving a FIT. "The auction results show that there is still room for pure renewable players in the Italian market," notes Anna Spanò, a partner with the law firm Orrick, Herrington & Sutcliffe. "A lot of people thought that only the big utilities would be able to compete in the auction process."

Tomnaso Barbetti, a partner with renewable energy consultancy Elemens, cautions that some of the discounts offered in the auction may have been overly aggressive. "It remains to be seen if some investors will be able to complete their projects because it looks like it will be difficult to make the books balance."

Projects sited in the region of Basilicata accounted for some 244MW of FIT assigned through the auction process. Once seen as hostile to the development of wind energy, local government in this wind-rich region have become more receptive to wind projects in the last few years.

Total wind capacity in that region now stands at about 384MW. Meanwhile, an additional 52.5MW of small-scale wind projects were assigned a FIT outside of the auction process, with the largest of these potential wind farms coming in at 1MW. No bidders applied for the FIT potentially available to 620MW in offshore wind farms, raising hopes that some of that capacity might instead be available for additional onshore wind projects in the future.

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