Italy to amend market incentives -- Lower price but longer period

Italian electricity regulator Gestore dei Servizi Elettrici (GSE) last month announced the latest in a series of annual price increases for the green certificates that form the backbone of the country's lucrative wind energy incentive system, but cautioned that this price could be subject to a downward adjustment.

GSE set the 2007 reference price for green certificates at EUR 0.13749/kWh, an increase on the already attractive EUR 0.12582/kWh seen in 2006. Wind producers sell these certificates on the open market to supplement the income they receive from the sale of electricity, which is currently fetching about EUR 0.075/kWh. Last year, the length of the period for which producers are issued with certificates was raised to 12 years from eight.

The certificate price could change, however. The reason for the uncertainty is an outstanding court case before the Consiglio di Stato, Italy's highest administrative court, in which one of the values used to calculate the reference price is challenged, GSE reports. Should it be adjusted, market players say the 2007 reference price would drop to slightly below that seen in 2006.

Meantime, Italy is getting set to overhaul its incentive system for renewable energy, with planned changes contained in the 2008 national budget currently being examined by parliament. While the green certificate price paid for wind power looks set to fall, there "is more light than shadow" in the legislation, says Simone Togni of Associazione Nazionale Energia del Vento (ANEV), the Italian wind energy association, noting that it increases future certainty for the market structure.

Rising proportion

Among expected changes is a long awaited hike in the annual rate of increase in the proportion of green power electricity retailers must include in the mix they sell to customers. Green certificates are bought by retailers to demonstrate they have met the mandate. According to the budget document, in the 2007 to 2012 period, the incremental annual increase is to rise to 0.75 percentage points from a previous 0.35 percentage points. In 2006, producers and importers of electricity were required to source 3.05% of their power sales from renewable sources, meaning that the 2007 figure should now rise to 3.80% and reach about 7.5% in 2012. The budget document proposes raising the period for which certificates are granted to 15 years.

Agostino Calcagno of energy group and green certificate trader EGL Italia believes the market may be shaken a bit before finding a new equilibrium with a revamped incentive scheme. "While it's true that the decrease in price is compensated by a lengthening of the lifetime [of green certificates], sometimes the market only perceives one of these aspects. Some people may have also wrapped up deals expecting to recover their investment in a certain number of years, and now could find themselves with a lower price."

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