Only around 50MW of new capacity had come online at mid-year. Italian wind energy association Anev estimates Italy could end 2014 with just 100MW in new projects, well below the 400MW many thought possible at the beginning of the year.
Italian wind investors widely blame the competitive auction system for the situation. This has resulted in a sizeable portion of the 907MW of projects assigned a FIT in the first two auctions held in 2012 and 2013 not being built.
While results for the third auction were announced only this August, the hefty discounts offered to a base auction price have led to concerns that the project may be financially unfeasible. The winning 356MW of projects in the latest auction round offered discounts ranging from 26.38% to 30% of a base auction price, resulting in tariffs as low as EUR 88.9/MWh.
There are also concerns about the financial ability of many successful bidders to actually build these projects. Even though the current mechanism requires the deposit of a bank guarantee, this has not ensured all companies are sufficiently solid on the financial front. Guarantees from banks lying on the European Union's eastern borders have been met with some scepticism in Italy.
Although these guarantees are perfectly legitimate, some people think financial criteria need to be tightened further. "If people actually had to put cash on the table, I believe we would see projects being built," Alberto Malagodi, chief executive of mid-sized Italian wind developer and operator Veronagest, said at the recent KeyWind conference and trade exhibition in Rimini.
Lack of experience
The auction process has served to sharpen developers' focus on the country's best remaining wind sites. Italy's government intended to stamp out speculation through the auction process. However Anev said numerous projects have not been backed by companies with expertise in the sector, either through directly operating wind plants or other wind industry know-how.
The association suggests that there should be more checks on project progression once the FIT is assigned, and the possibility of assigning the tariff to the runners-up in the auction ranking much sooner than the 42 months currently foreseen. Some longer-time investors in Italian wind have been irked to be narrowly outbid in auctions and then subsequently approached to buy the projects assigned the 20-year FIT at prices they say offer clearly insufficient returns.
For its part, the government does seem intent on making some changes. "I think the mechanism will be refined so that those who win the auction, actually build (the wind farm) and do so in a reasonable time," said Luciano Barra, the head of the technical secretariat of the Italian industry ministry's energy department, adding that the government and industry alike made mistakes as they moved up the learning curve with the new auction mechanism.
A clear opportunity for fine-tuning the current auction mechanism will be offered when the government gets around to approving a long-awaited decree laying down the framework for future auctions, including the capacity that will be assigned a FIT each year until 2020. "We know there will still be auctions, but we don't know how and we don't know when," said GE senior sales manager Francesco Bertolini.
Marco Perruzzi, executive director of Edison, the Italian subsidiary of French power group EDF, stressed the need for an auction system with clear and stable rules, also to ensure that financing is available for building wind farms in the country. "I want to see that plants are built, not that tariffs are being assigned in auctions."